The average value of U.S. pastureland rose 2.3% this year to $1,330 per acre, according to USDA. Though that gain is off sharply from last year’s 11% advance, demand for pasture continues to outpace the cooling cropland market, where values edged up just 0.7%.
This is the second straight year since the 2009 recession that pasture appreciation rates have outpaced cropland. Optimism over high cattle prices and low interest rates continues to support rising pasture values as producers seek grass to rebuild drought-thinned herds.
In addition to more cattle competing for grass, high grain prices over the past four years and changes in federal farm and crop insurance programs have spurred conversion of pasture into row cropland, and pared the supply of pasture in the Plains and Corn Belt states.
Regionally, pasture value changes continue to vary widely. Buyer demand appears strongest in the Lake states of Minnesota and Wisconsin, where land prices swelled 19% and 16%, respectively, over the last year, according to USDA.
Pasture prices in the Dakotas climbed 13% to 14%, driven by tight supply and landowners reinvesting oil lease and royalty payments. Pasture values in North Dakota, home of the Bakken shale formation, have surged 138% in the last five years — the biggest jump across the U.S.
In South Dakota, native rangeland values gained 20% to $1,187 per acre for the year through the Feb. 1 period, more than double the prior year’s 9% pace, according to South Dakota State University. Tame pasture values increased 14% to $1,820 per acre — three times the prior year’s 4% rate.
In Nebraska, the value of non-tillable grazing land leapt 16% to $1,005 per acre for the year through February, according to a University of Nebraska survey. The value of tillable grazing land rose 9% to $1,515 per acre.
Elsewhere, pasture values rose mostly in the single digits on a year-over-year basis, ranging from 3% in the Corn Belt and 2% in the Delta states and Appalachian and Southern Plains regions, to 1% in the Pacific region. In the Southeast, pasture prices were flat on average, but appear to have slipped nearly 2% in Georgia while moving up 2% in Alabama.
Pasture in the eastern U.S. is a relative bargain compared with Plains rangeland when analyzed on a price-per-animal-unit basis, a better gauge of the investment cost for grazing land, notes Bryon Parman, an assistant Extension professor at Mississippi State University.
For example, pasture sales in Kansas and Nebraska are approaching $1,000 per acre on land that requires a stocking rate of 15 acres per animal unit. This implies a valuation of $12,500 per animal unit. A recent Mississippi State survey pegs the average price of pasture there at $2,455 per acre. Applying a 2-acre-per-animal-unit stocking rate implies a cost of $4,092 per animal unit — a third of the Plains pasture cost.
Up, up and away
Surveys of market conditions through this year’s first half suggest that ranchland values are generally continuing to inflate at a single-digit to low double-digit pace across the Mid-South, Southeast and west-central Plains.
At the close of June, Federal Reserve surveys report that pasture values are up 5% to 11% from a year ago across Kansas, western Missouri, Nebraska and Oklahoma. Buyer demand appears strongest in Nebraska, where values have spiked 11%, according to bankers.
In Kansas, bluestem pasture is fetching $1,800 to $2,200 per acre in the Flint Hills, with good grass bringing $2,000-plus per acre, says Richard Griffin of Griffin Real Estate and Auction Service in Cottonwood Falls, Kan. In March, Griffin auctioned three tracts in the Flint Hills totaling 4,348 acres of high-quality native bluestem for an average of $2,163 per acre.
While high rollers with cash or other investments continue to buy Flint Hills properties, individuals strictly in the ranching business have grown cautious toward adding properties at current prices, says Griffin. “We haven’t seen grass come off yet, but prices have probably topped or at least leveled off,” he adds.
Moving west, ranchland values across Colorado, New Mexico and Wyoming averaged $510 per acre at midyear. That’s up nearly 12% from a year ago, according to Federal Reserve data.
In Texas, ranchland values are rising at a 3.4% pace; buyer demand is strongest in South Texas and the northern High Plains, where values are up 12% and 11%, respectively, year over year, according to the Federal Reserve Bank of Dallas.
In the North-Central region, pasture values are up 4.5% for the 12 months through June, according to the Federal Reserve Bank of Minneapolis. Prices range from an estimated $390 per acre in Montana and $714 in North Dakota to $2,150 in Minnesota, $2,525 in Wisconsin, and $2,560 in South Dakota.
Across the southern Midwest and northern Mid-South (eastern Missouri, southern Illinois, southern Indiana, western Kentucky, western Tennessee, Arkansas and northern Mississippi), pasture values are trending 3.2% above year-ago levels, according the Federal Reserve Bank of St. Louis. Bankers were evenly split on the direction of pasture values heading into the third quarter.
Pasture rents up sharply
The combination of ideal pasture and range conditions east of the Continental Divide, and record calf prices, continues to drive up pasture rents, which offer a less-risky option for securing grazing land amid the run-up in land values. Pasture rents jumped nearly 17% across the U.S. as cattle producers focus on rebuilding their breeding herds to take advantage of high feeder cattle prices.
In Texas, the biggest cattle production state, ranchers added 270,000 beef cows this year, up 7% from a year ago, as moisture conditions improved and herd rebuilding continued.
Regionally, pasture lease rates rose at double-digit rates in the Northern Plains, the Southern Plains and the Corn Belt. Demand for grass appears strongest in Nebraska, where cash rental rates shot up 39% to an average $28.50 per acre, according to USDA. Rates range from $13.50 per acre in northwest Nebraska to $90 per acre in the Northeast, where rates topped $120 per acre, according to a University of Nebraska survey.
Across the Nebraska Sandhills, rates range from an average $55 per animal unit month (AUM) in the eastern Sandhills to $50 per AUM in the central Sandhills, and $42 per AUM in the west, says Shelly Trojan of the Nebraska Board of Educational Lands & Funds.
With cow-calf producer margins still at historical highs, another year of rent increases is on the way. The board, which oversees 982,000 acres of pasture across Nebraska, plans to hike pasture lease rates another 15% to 25% in 2016, after imposing a similar increase this year.
Interest in variable pasture leases may gain traction as lease rates escalate. A Montana ranch client of Hall and Hall’s property management group struck a three-year lease last year that includes a base lease rate that adjusts up or down annually, based on the annual percentage change in the CME Feeder Cattle Index.
Surveys through this year’s first half indicate that pasture rents are up an average of 4% from a year ago across the west-central Plains, while rates have climbed 13% in Kansas and the Mountain states of Colorado, New Mexico and Wyoming, according to the Federal Reserve Bank of Kansas City.
Ranchland lease rates range from $18 per acre in Oklahoma and $27 per acre in Kansas to $56 per acre in western Missouri and $76 per acre in Nebraska. They average $20 per acre across Colorado, northern New Mexico and Wyoming, according to bankers.
Texas ranchland rents averaged $13.60 per acre at midyear, up 12% from a year ago, according to the Dallas Fed. Rates range from a low of $8.80 per acre in the Trans-Pecos and Edwards Plateau area, to a high of $26.30 per acre in coastal Texas. Bankers say pasture rents average $9.40 per acre in southern New Mexico and $55 per acre in northern Louisiana.
In the North-Central U.S., pasture lease rates are up an average 0.7% from a year ago, according to a June survey by the Federal Reserve Bank of Minneapolis. However, bankers report that rates doubled to $20 per acre in Montana, climbed 18% to $66 per acre in South Dakota, and rose 13% to $22 per acre in North Dakota. Pasture lease rates fell 14% to $71 per acre in Minnesota and ticked down nearly 3% to $63 per acre in northern Wisconsin, according to the June survey.
In the Southeast, Mississippi pasture rents average $34 per acre (range: $15 to $100), using a 2-acres-per-AUM stocking rate, according to a spring survey by Mississippi State. That’s well above the $19 rate reported by USDA.
In Indiana, pasture lease rates rose 4% in 2015 to an average $109 per acre statewide, ranging from a low of $56 per acre in southeast Indiana to $170 per acre in west-central Indiana, according to a June survey by Purdue University. Lease rates for established alfalfa and alfalfa-grass hay ground rose nearly 5% to an average $203 per acre, and range from a low of $81 per acre in the southeast to $229 per acre in west-central Indiana. Grass hay rents average $138 per acre, with a range of $60 to $203 per acre.
Mike Fritz is editor and publisher of Farmland Investor Letter. Reach him at firstname.lastname@example.org or visit farmlandinvestorcenter.com.
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