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Southwest Minnesota farmland values decline in 2020

The 3.1% decrease is based on land sales between non-related parties during the first six months of the year.

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This graph shows the average per-acre farmland sale price recorded by county and year. (Special to The Globe)

WORTHINGTON — An annual survey of farm land sales in 14 southwest Minnesota counties is complete, showing farmland values decreased 3.1% in 2020.

The survey collects information on bare farmland sales to non-related parties for the first six months of each year.

After reaching record high prices in 2013, the upward trend was broken as prices declined in 2014 and continued down through 2017. The next year, 2018, saw an increase, while 2019 remained constant before the 2020 decline.

The survey’s summary report is available at University of Minnesota Extension offices in Cottonwood, Jackson, Murray, Nobles, Pipestone and Rock counties.

Southwest Minnesota land prices peaked at $8,466 per acre, then declined through 2017 to $6,340, increased in 2018 to $6,589, declined slightly to $6,576 in 2019 and then declined to $6,371 in 2020.

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The largest year-to-year increase was in 2013 with an increase of 35.6%. Farmland prices decreased in nine counties, but increased in five counties including Jackson, Martin, Murray, Pipestone and Redwood from 2019 to 2020.

There was a lot of variability in the numbers from 2019 to 2020. The largest increase was in Martin County, at 28.6%, while Lincoln experienced the largest decrease at 33.6% for the sales that met the bare farmland to non-related party transaction requirements.

Martin County had the highest average sale price of $8,894 per acre, and Lincoln County the lowest at $3,853 per acre. The average Crop Equivalency Rating (CER) for the 14 counties was 68, with the highest price per CER in Pipestone County at $99.61 and the lowest price in Lincoln County at $70.21 per CER.

The assessed values were lower than the actual sales price, with the assessed value at 98.93% of the sales price. Historically, the assessed value would be 75% to 80% of the sales value. Eight counties experienced average sales prices that were lower than the assessed values in 2020. While six counties experienced average sales prices that were more than the average assessed values, the lowest percentage was 91.61% in Martin County.

Each year, sales vary within a county. Land location could have an effect on these average values from year to year. The quality of the land sold within a county may also be a factor in the wide swings in the prices from year to year in individual counties.

The number of sales in each county varies greatly from year to year. The 3.1% decrease is below historical increases of 1% to 2%. For the last 10 years, there were large percentage changes. In the eight years before 2014, prices increased at an annual rate of 15.3%. But from 2014 to present, the average has been a 4.6% decline.

There are several factors that affect land values. Farm incomes, grain prices, interest rates, return on other investments and 1031 exchanges are often mentioned as reasons for an increase. Farm profits were weaker in 2013 and have been negative since 2014 with lower commodity prices. There were good to record profits in the Southwest Minnesota Adult Farm Management program from 2005 through 2012. During 2013, half the farms in the program lost money on corn production. Average incomes improved in 2019 and were higher in 2020.

If the average farmer had losses from 2014 through 2018, this would soften local demand for land. Interest rates have stayed relatively flat and land rental income is comparable or higher than what an investor can earn from treasury bills, bonds or certificates of deposit at financial institutions. The stock market increased in 2020. The 1031 exchange is for farmers or property owners who have land in an area of increased value due to location to city or development and rather than pay taxes on large gains from the sale of land, they purchase property or other farmland at a more reasonable price elsewhere. This increases rural farmland demand.

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The reason for increases or decreases in farm land sales prices is a combination of all of these factors.

For a copy of the two-page document on trends in farm land sale prices, contact your local county Extension office.

The future direction of farmland values depends on several factors. Supply and demand will determine this. The simple return on investment, which is determined by rental rates, will determine how competitive farmland is compared to other investments and this will determine a value for farmland.

Corn and soybean prices did not take off until after these sales were collected for 2020. This should have an impact on profits, farm rental rates and eventually farmland values. The government program payments increased dramatically in 2020.

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David Bau

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