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land markets

Agricultural Land Values in a Rapidly Changing Market Mykel Taylor Assistant Professor Kansas State University National Farm Business Management Conference Overland Park, KS June 10, 2013. land markets. Land Markets. Why land?

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land markets

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  1. Agricultural Land Values in a Rapidly Changing MarketMykel TaylorAssistant ProfessorKansas State UniversityNational Farm Business Management ConferenceOverland Park, KSJune 10, 2013

  2. land markets

  3. 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

  4. Returns to Non-Irrigated Cropland Source: Kansas Agricultural Statistics (KAS), K-State

  5. Returns to Pasture Source: Kansas Agricultural Statistics (KAS), K-State

  6. Returns to Land • But land appreciates… • Even if annual return is near 0%, you still have an asset that appreciates over time

  7. Kansas Ag land values

  8. Kansas Land Values • Where do we get information on land values? • KS Ag Stats Service • Historical series

  9. Kansas Land Values 14% 20% 15% annual increase Source: Kansas Agricultural Statistics (KAS), Kansas Board of Agriculture, United States Department of Agriculture

  10. 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?

  11. 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

  12. 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)

  13. PVD Sale Data 2010-12

  14. 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

  15. 2012 Non-Irrigated Land Values $4,136 $1,762 $2,492 $1,563 $2,166 $3,075 $1,175 $2,178 $2,328

  16. 2012 Pasture Land Values $2,684 $1,145 $1,618 $1,015 $1,406 $1,995 $762 $1,414 $1,511

  17. 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

  18. 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

  19. 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)

  20. 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

  21. Agricultural Land Values in a Rapidly Changing MarketMykel TaylorAssistant Professorwww.AgManager.info785-532-3033mtaylor@ksu.edu

  22. Resources • 2012 Kansas Land Values and Rental Rates • By Mykel Taylor and Kevin Dhuyvetter • http://www.agmanager.info/farmmgt/land/county/CountyValuesRents_Mar_2013.pdf • Land buying and leasing information and decision-making tools • http://www.agmanager.info/farmmgt/land

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