Continued low mortgage interest rates and recovering cattle margins helped stabilize U.S. pasture values in 2010 after contracting nearly 2% last year. The average value of pastureland held steady this year at $1,070/acre. Still, that’s $20/acre under the 2008 nominal market peak, according to USDA data.
The stabilization in the market occurred despite another 1% drop in the U.S. cattle inventory and the continued weak economic outlook.
Industry participants across most major markets describe pasture values and lease rates as flat from a year ago. Local cattle producers are back bidding in land sales after having pulled back two years ago, but remain cautious.
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“We are in uncertain times with high unemployment, the federal deficit and capital gains taxes,” says Brian Landis, staff appraiser for Frontier Farm Credit in Lebo, KS. “That’s causing caution on the part of market participants.”
USDA’s August land value and cash rent summary reports land prices as of Jan. 1 each year and cash rents for the current crop or grazing year. The latest report shows that the pasture sector continues to maintain its capital appreciation edge over cropland so far this decade – rising an average 7.3% annually since 2000, vs. 6.3% for cropland. However, pasture’s edge is due to two spectacular years – 2005 and 2006 – when values spiked 17% and 30%, respectively.
Illinois is hot
This year, the most heated pasture market for land buyers is in Illinois, where values climbed 9.2% to $2,620/acre. This is most likely a case of pasture prices riding the rise in cropland values, observes Gary Schnitkey, University of Illinois Extension farm management specialist.
High-quality Illinois cropland tracts have recently traded at $8,000/acre and higher, says Michael Morris, 1st Farm Credit Services’ chief appraiser in Normal, IL. Another potential factor: The supply of pasture parcels has declined as landowners have converted pasture into row-crop production.
Other states showing strong buyer demand include North Dakota and Utah (pasture prices up 5.7%) and Nebraska and Arizona (up 5.6%), according to USDA.
Regionally, pasture demand appears strongest across the Northern Plains where pasture values increased 3.8% from 2009, and weakest in the Southeast where values fell 5.6%. Pasture prices continue to deflate toward their agricultural-use values across the Southeast as the region’s speculative run-up in all classes of real estate unwinds. Pasture prices slid 10% in Georgia for the 12 months through January, according to USDA.
“It all boils down to falling home property values and the downturn in the economy,” says Patricia Fields, Ag Georgia Farm Credit branch manager in Royston, GA. During the boom leading to 2008, developers and city dwellers bid up pasture tracts for rural home sites. As the development market deteriorated, properties have either gone back to banks, or are being held because there are no buyers, Fields says.
And with fewer cattle competing for grass, pasture-lease rates are also on the decline. Fields says there are signs that Georgia land values have stabilized, but are just as likely to continue to deflate.
Plenty of grass in Nebraska
Turning west to Nebraska, abundant rains last spring and early summer, along with above average rainfall the past three years, have replenished pastures that were drought stressed over much of the past decade. Fully 83% of the state’s pastureland was rated in good to excellent condition through September.
Cattlemen have found themselves in the unusual position of having to hunt for their calves and cows lying in dense growth pastures, reports Ron Vance, field supervisor with the Nebraska Board of Educational Lands and Funds, which manages 902,000 acres of pasture leases. “It’s a growth of grass going nuts,” Vance adds. The combination of lush pastures and a 2% drop in Nebraska’s cattle inventory created an unusual situation in the Northern Sand Hills in which some privately owned pasture went un-rented this year.
“We had good spring feeder cattle prices, and some cattle that normally would have gone on grass went right into the feedlot,” says Court Dewing, a field employee with the state lands board in Valentine, NE. As the Plains region appears to be working back to a wetter climate pattern, cow numbers haven’t kept up with the supply of grass.
In neighboring Kansas, a 4,000-acre ranch in Chase County fetched $1,050/acre in a private sale in August. On the market for two years, the Flint Hills ranch was originally listed at $1,500/acre. Market watchers are anticipating the Oct. 20 auction of the 7,000-acre White Ranch near Peabody, and auctioneer J.C. Barr expects the Flint Hills ranch to fetch around $1,200/acre.
If the recent run-up in grain prices continues, pasture rents could firm as producers move to maximize gains on pasture before transferring cattle into feedlots.
Mike Fritz is editor and publisher of Farmland Investor Letter®, a monthly subscription newsletter providing farmland market intelligence for landowners and investors. Reach him at [email protected] or visit www.farmlandinvestorletter.com.