For the second consecutive year, farm land values in Watonwan County declined, this time from $7,549 in 2014 to $6,681 in 2015.
Farm land values in Watonwan County reached nearly $9,000 in 2014 before falling back, according to the University of Minnesota Extension. This is part of a larger trend in southern Minnesota, as prices declined in 2014, and the trend continued in 2015.
For the last two decades, surveys have been conducted at the conclusion of every year of farm land sales in 14 southwestern Minnesota counties, and land values had been steadily increasing until 2014, according to the Extension office. The survey reports bare farm land sales to non-related parties for the first six months of each year.
Prices rose to record-highs in 2013; data collected in this survey is available at the county extension offices in Chippewa, Cottonwood, Jackson, Lac qui Parle, Lincoln, Lyon, Martin, Murray, Nobles, Pipestone, Redwood, Rock, Watonwan, and Yellow Medicine Counties, according to Extension. This year, the decline across the 14 counties averaged 8.3 percent; average land values had not declined since 1996--the high in 2013 per acre was $8,466, then declined in 2014 and again to $6,929 in 2015.
Farmland prices decreased in ten counties and increased in four counties, including Chippewa, Lac qui Parle, Nobles and Rock, from 2014 to 2015, Extension noted. The average Crop Equivalency Rating (CER) for the 14 counties was 69, with the highest price per CER in Chippewa County, at $115.28, and the lowest in Watonwan County, at $83.73 per CER.
The high prices in counties like Rock are likely due to high prices in northwest Iowa, Watonwan County Assessor Lynn Krachmer said. “That drives up prices.”
These rates were only for the first six months of a given year, however, which slightly skews the data, at least in Watonwan County, Krachmer said. His office uses data from October-October, and, since the majority of land sales occur in the final three months of the year, those numbers could be considered more legitimate.
Using those figures, the average land price in Watonwan County crept up to roughly $7,100, a little above what is on the Extension report, Krachmer said. These rates proved similar across the region, and this county is “right around average.”
Sales from the previous year dictated that “We lower ag land values in the whole county down about 9 percent for the 2016 assessment,” Krachmer said. However, Adrian Township got an additional two-three percent, putting them down 11-12 percent.
That’s because in past years they’d seen higher increases than the rest of the county, due to higher “cross-county” sales prices, Krachmer said. Individuals from other counties were buying land--and paying a premium for it--in Adrian Township.
There were five sales from October 2014-October 2015 in Adrian Township, he said. For perspective, there were only 12 in all of Watonwan County during that same timeframe.
In the counties examined by the Extension survey, the assessed values for the second year in a row were higher than actual sales price, with the assessed value at 101 percent of the sales price. Historically, the assessed value would be 75 to 80 percent of the sales value.
In the eight years before 2014, prices increased at an annual rate of 15.3 percent, according to the Extension office. There are several factors that have an effect on land values, like farm incomes, grain prices, interest rates, return on other investments, and 1031 exchanges.
In addition, farm profits were weaker in 2013, according to Extension. They turned negative in 2014 and 2015 with lower commodity prices.
Interest rates continue at historically low levels, 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, Extension noted. The stock market rebounded significantly since its low in March of 2009 to record levels at the end of 2014, but was fairly level in 2015; “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 like property or other farmland at a more reasonable price elsewhere, which increases rural farmland demand.”
Supply and demand wil determine the direction of farm land values, Extension explained. “The simple return on investment which is determined by rental rates will determine how competitive farm land is compared to other investments, and this will determine a value for farm land.”
Furthermore, corn and soybean prices for 2016 crop are much lower than previous years, which should have an impact on profits, farm rental rates, and eventually farm land values, according to Extension. Finally, “if interest rates rise or farm rental rates fall, the value of land is sure to be affected in a negative way, and that will cause a decrease in land values.”
However, there was little change in certified net tax capacities for District 840, the St. James school district, from 2013-2014, according to records from the Watonwan County Auditor/Treasurer’s Office. As of Jan. 1, 2014, the total tax capacity for District 840 was $9,554,969, the total tax capacity for the county was $20,039,049, and the total school district referendum market value for St. James schools was $244,709,145; as of Jan. 1, 2015, the total tax capacity for District 840 was $9,530,118, the total tax capacity for the county was $20,042,888, and the total school district referendum market value for St. James schools was $241,422,975.
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