According to the University of Missouri Extension’s recent land value survey, the state’s good crop and pasture land saw values increase over the last year despite the farm economic challenges.
The Missouri farm land values opinion survey, released in October, showed good non-irrigated crop land increased 4% in value, rising $204 to $5,421 per acre. Good pasture land increased 9%, up $259 in value to $3,174 per acre. Timber, hunting and recreational land increased 12% in value.
There was some variation to land values across the different regions of the state, but MU ag economist Ray Massey says they reflect overall state trends. He says the results were somewhat surprising.
“The surprise was that the crop land values did go up,” he says. “Because last year when we did the survey the respondents expected the values to go down slightly.”
Massey says it goes back to basic economics.
“I’m always on a supply and demand mentality,” he says. “The demand has not gone down, and supply continues to be limited.”
A lot of landowners are opting to hang onto their land rather than sell it when they reach retirement age, Massey says, to avoid having to pay capital gains tax and because farms can produce rent income that equals or outperforms certificate of deposit rates.
“I’d just as soon keep it as a piece of land and earn 3%, which is as good as a CD, and you get to keep the land,” he says.
Massey says for a lot of people, buying land is a good investment, providing better returns than CDs and bonds, but with more stability than the stock market.
“People do look at land as being a little bit more stable than the stock market,” he says. “… Farmers and investors see land as a quasi-stable investment.”
Since 1950, Missouri farm land values have largely followed a 6% annual increase trend line.
“That 6% line, there’s nothing magical about it, but that’s what we see in the data,” Massey says.
There have been times when Missouri land prices deviated from that line, but they have found their way back to it. In the last 15 years, Missouri land values have generally either increased by more than 6% in a year or held even, as opposed to severe swings up and down, part of why people view land as a fairly stable investment.
Massey says Iowa and Illinois, which according to USDA data have good crop land that is on average twice as valuable as Missouri’s good crop land, have seen more volatility in land prices during the last decade.
“Iowa, it did have a much higher high on land price,” he says. “But it also saw more downward movement than Missouri.”
Massey says several factors go into determining land value, with location being important. If a piece of land comes up for sale next to or close to farmers who want it, it can drive the price up.
“There’s going to be competition to get access to that land,” he says.
Another factor can be whether a piece of land is within an hour drive of a city. Also, many MU survey respondents said having high speed Internet access is important for potential buyers.
“If high-speed Internet has made it to your area, land values are going up,” Massey says. “… It gives more credence to the state’s emphasis on expanding rural broadband.”
The MU land values survey also asks respondents what they expect land prices to do over the next year. Most are expecting land values to hold steady.
“It’s been what I call a ‘hold even’ year,” Massey says. “That’ll probably be somewhat location specific.”
Massey adds that the Federal Reserve lowering interest rates, which happened after the survey information was collected, could further support land values.
The survey was conducted in August and based on land values in July. The university conducts the survey annually. Massey says the responses pull 75% from lenders, 12% from farmers, 9% from rural appraisers and 4% from other occupations. The survey included 124 usable responses from people around the state.
Missouri’s good crop land was valued at $5,421 per acre on average, with average crop land being worth $4,379 and poor crop land $3,488. The state’s irrigated crop land was valued at $6,148 per acre, up $634 from last year’s survey.
The changes in good crop land values saw some variety across the state, with a few regions seeing slight decreases in land prices. But most regions saw an increase, and the overall trend for the state was a 4% increase in value for good crop land.
Missouri’s good pasture land was valued at $3,174 per acre, up $259 from the year before. The change in pasture values showed a lot of variety across the regions of the state in the survey, ranging from down 6% to up 22%.