The pace of farmland price appreciation across the Mid-South and Southeast U.S. continued to flatten in the first quarter, according to the latest Farmland Market Survey released by Farmland Investor Letter.
Non-irrigated cropland values rose at an estimated 2.9% year-over-year pace, down from 4.6% in the fourth quarter. Irrigated tracts increased at a 3.9% annual pace, also well under the 6% rate reported in the previous quarter. Pasture values were up 1.9% from a year ago, down from the 2.4%% 12-month rate through last year’s fourth quarter.
The survey, conducted from March 26, 2014 through April 29, 2014 was based on 83 responses from appraisers, property managers, lenders, real estate brokers and landowners located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Missouri and Tennessee. Survey participants expected cropland values to remain stable through the second quarter, despite lower crop commodity prices. The number of sales slowed in the first quarter, but there still appears to be more buyers for property than sale listings. Rental rates are experiencing resistance due to changes in the 2014 Farm Bill, tighter money supplies and decreasing commodity prices. In Florida, citrus greening is prompting some growers to exit the business. Dead groves are now being converted to sugar cane and vegetable production.
Survey participants estimated that non-irrigated cropland across the region was worth an average $3,178 per acre in the first quarter of 2014. Irrigated cropland values averaged $4,342 per acre. Pasture values averaged $2,384 per acre. On an individual state basis, non-irrigated cropland values ranged from a high of $5,500 per acre in Missouri to a low of $2,718 per acre in Georgia. Irrigated cropland values ranged from a high of $5,333 per acre in Florida to $3,528 per acre in Alabama. Pasture values ranged from a high of $2,833 per acre in Tennessee to $1,881 per acre in Arkansas.
Cash rent increases for cropland continue to lag land price inflation across the region. However, high cattle prices and increased demand for pasture have pushed year-over-year rent increases ahead of changes in pasture values. Rents on non-irrigated cropland averaged $118 per acre, ranging from an average $74 per acre in Georgia to $217 per acre in Missouri. Irrigated cash rents averaged $192 per acre across the region, and ranged from an average $129 per acre in Alabama to $272 per acre in Florida. Pasture rents averaged $32 per acre, ranging from $29 per acre in Mississippi to $39 per acre in Georgia. Rent income yields, which are calculated by dividing gross cash rent by land value, offers insights into the relative pricing of land tracts regionally. Across the Mid-South/Southeast, non-irrigated tracts are estimated to be generating a 3.7% rent income yield; irrigated tracts 4.4% and pasture 1.3%.
With prices for most farm crops trending under last year’s levels, land buyers appear more cautious. Demand for high- quality tracts remains strong. Many professionals look for farmland values and rents to soften within the next 12 months—especially if lower grain prices extend through the fall harvest. Survey panelists forecast that prices will generally remain stable through the second quarter. Respondents are most optimistic for pasture tracts, where 28% expect prices to increase, while 70% look for no change. In contrast, 23% of panelists expect irrigated cropland prices to increase, and just 17% look for non-irrigated land prices to rise.