Minnesota agriculture has been going strong, but a big corn crop has cut into prices.
Minnesota cropland values surged again the past year as farmers reeled in big paychecks. This year’s crops are looking decent, overcoming a sodden spring and late planting. The weather has been good.
In fact, everything is so good it may be too good, or so goes the logic of farming economics. With big grain crops expected through much of the nation, the price of corn has dropped to levels not seen since 2010.
That means farmers who’ve sunk more money into land and equipment during boom times — thus increasing their costs — are looking at thinning margins this year if corn prices stay where they are.
“There’s going to be a lot more pressure if the price of corn per bushel is $4 for cash delivery this fall” — a possibility if price trends don’t change appreciably.
“Good” farmers with lower costs will be OK, Swanson said. “But I’m losing my shirt if I’m bad,” he said, referring to high-cost operators.
Agriculture has been a big bright spot for the Minnesota and Midwest economy in the past few years, as farmers have enjoyed high grain prices. Strong increases in farmers’ income have mitigated worries that the jump in land values might be an asset bubble.
Cropland values surged 20 percent in Minnesota between 2012 and 2013, up from an average of $4,050 per acre to $4,850 according to an annual survey released Friday by the U.S. Department of Agriculture. Minnesota outpaced U.S. farmers: Nationally, cropland value was $4,000 per acre, up $460, or 13 percent.
While Minnesota’s 2012 to 2013 cropland appreciation rate fell from 24 percent a year earlier, it topped the 15 percent rate from 2010 to 2011 and 8 percent from 2009 to 2010.
This year’s 20 percent jump “is not surprising at all,” said Dale Nordquist, an economist with the University of Minnesota’s Center for Farm Financial Management.
That’s because Minnesota’s crop farmers posted their best year in decades in 2012, with median incomes surging 50 percent over 2011, according to a report earlier this year from University of Minnesota Extension and Minnesota State Colleges and Universities (MnSCU).
Higher farm incomes are the key ingredient for higher farmland values. Low interest rates have also helped drive land values higher.
“A very big factor is the cheap cost of borrowing money,” Swanson said. Plus, “farmers have had outstanding income and they are going to do something with it.”
They have been investing in more land and buying more equipment. “There’s always the question of whether they are overextending,” Nordquist said.
Minnesota farm balance sheets are generally strong and debt levels have slowly gone down — good signs. Still, Nordquist is concerned about a jump in production costs.
A Minnesota farmer’s cost of producing a bushel of corn rose on average from $3.36 in 2010 to $4.52 in 2012, he said. “Every [input cost] has been going up, and rent is the biggest factor.”
Farmland rental prices have also shot up with land values. “I’m very worried about this over the next few years,” Nordquist said, “if [corn and soybean] prices go down.”