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Agricultural Land Values in a Rapidly Changing Market
Mykel TaylorAssistant Professor
Kansas State University
National Farm Business Management ConferenceOverland Park, KS
June 10, 2013
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LAND MARKETS
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Land Markets• Why land?– Interest rates are LOW and are expected to stay
that way for the near-term– If you are holding cash…• Savings rates
– If you want to borrow…• Lock in a fixed rate at 4-5%
• Land as an investment – 3 - 4% return on non-irrigated cropland– 1 - 2% return on pasture
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Returns to Non-Irrigated Cropland
Source: Kansas Agricultural Statistics (KAS), K-State
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Returns to Pasture
Source: Kansas Agricultural Statistics (KAS), K-State
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Returns to Land• But land appreciates…– Even if annual return is near 0%, you still have an
asset that appreciates over time
Price Change (2011-2012)
Source
Non-Irrigated Cropland Pasture
KC Fed 29.2% 26.0%
KS Ag Stats 25.9% 17.3%
K-State 21.6% 14.9%
Average: 25.6% 19.4%
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KANSAS AG LAND VALUES
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Kansas Land Values• Where do we get
information on land values?
• KS Ag Stats Service– Historical series
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Kansas Land Values
15% annual increase
14%
20%
Source: Kansas Agricultural Statistics (KAS), Kansas Board of Agriculture, United States Department of Agriculture
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Kansas Land Values• Potential problems with these data– Surveys ask for an opinion (read: guess)– NOT a market-based estimate – Don’t know the spread, only the average– Funding for KAS is declining
• Can we add to the available information and improve our estimates of land value trends?
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Kansas Land Values• Need market transaction data– Property Valuation Department, Topeka
• 2010-12 sales data– County location– Size of parcel– Mixture of irrigated, non-irrigated and pasture– Enrollment in government set-asides– Valuation of improvements
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PVD Sales Data• Data were ‘cleaned’ to remove outliers– Removed parcels under 40 acres– Bare land sales only (no houses)– Arm’s length sales only
• Other aspects of data– Wyandotte and Johnson counties not in dataset– Soil type data used to create a productivity
measure (AUM capacity)
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PVD Sale Data 2010-12
AveragePrice per acre $1,638Parcel size 229Non-irrigated 53.5%Pasture 41.5%Irrigated 5.0%CRP acres 1.8%Sales per county (ave) 56Total sales transactions: 5,784
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Results of the Land Model• 2012 estimate for non-irrigated cropland– $2,312/acre – 36.0% higher than 2012 KAS state estimate of
$1,700/acre
• 2012 estimate for pasture– $1,497/acre– 57.5% higher than 2012 KAS estimate of
$950/acre
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2012 Non-Irrigated Land Values
$1,762
$1,563
$1,175
$2,492
$2,166
$2,178
$4,136
$3,075
$2,328
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2012 Pasture Land Values
$1,145
$1,015
$762
$1,618
$1,406
$1,414
$2,684
$1,995
$1,511
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Land Model Results• Use of a regression model to estimate land
values– Alternative to summary statistics (average, range)
• Allows specification of unique characteristics of land parcels
• Location (rain fall, taxes, proximity to development)• Parcel size• Productivity• Mixed use parcels• When the sale occurs• CRP enrollment
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Land Model Results• CRP enrollment decreases values– Approx. a 21% discount if acres are enrolled– We don’t know residual years on contract
• Parcel size affects price per acre– Negative and nonlinear effect – Example of this effect in Geary county• 600 acre parcel
– $1,377/acre
• 200 acre parcel– $1,591/acre
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Land Model Results• Non-irrigated versus pasture value ratio– Estimated at: 61%
• Higher quality ground fetches higher price– Based on AUM productivity index (NRCS)
• Selling season effects– Strongest prices: Oct.-Dec. (6.7% > summer)– Weakest prices: Jan.-Mar. (6.2% < summer)
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Land Model Results• A word of caution when comparing county-
level estimates of value to your land…
• Location and productive capacity are important drivers of price– Measureable and parcel-specific
• Model doesn’t capture other factors in market– Expected returns to agriculture in future– Excess liquidity in the real estate market
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Agricultural Land Values in a Rapidly Changing Market
Mykel TaylorAssistant Professor
www.AgManager.info785-532-3033
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Resources• 2012 Kansas Land Values and Rental Rates– By Mykel Taylor and Kevin Dhuyvetter– http://www.agmanager.info/farmmgt/land/count
y/CountyValuesRents_Mar_2013.pdf
• Land buying and leasing information and decision-making tools– http://www.agmanager.info/farmmgt/land