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Is the land rent bubble starting to boil?

Thu, Dec 22nd, 2011
Posted in Agriculture

Last year, I started out by asking if we were looking at a land rent bubble. A couple of weeks ago I completed the Houston County Land Rent Survey, and now have results from the Fillmore County Land Rent Survey. In those two surveys, not one landlord or renter projected rents to decline from 2011 to 2012. With the new Fillmore County Land Rent Survey results, I may have been premature thinking we had a land rent bubble last year.

In addition to those that responded to the land rent survey, I would like to thank Tammy Martin, FSA Director, for doing the mailing with the FSA newsletter. The response numbers were down slightly with 118 usable parcels which totaled 11,697 tillable acres.

In the survey, I asked for both the 2011 actual rent paid and a 2012 projected price per acre. To jump to the bottom line, the average rent reported paid in 2011 was $189.08 per tillable acre. Rent for 2012 is projected at $210.00 per acre. We also had a huge range, from $50 - $420 per acre.

This is the sixteenth consecutive year for the Fillmore County Land Rent Survey. In eleven of those years the actual rent reported in the following years survey was higher than projected, in five years, it was less than projected. I'm looking forward to next year's survey to see what happens.

The last few years, I have sorted by acreage size and have seen similar discounts. Parcels 20 acres or less received $172.10 per acre. Those from 21-up to 80 acres averaged $163.40 per acre. For 2011, that is about a $17 discount for small parcels. I was surprised and have no explanation why the mid-sized parcels were discounted $26 so a greater discount than the small parcels.

When rental payments are made is also of interest. Remaining the most common by far is the first half payment in the spring and the second half in the fall.

Completed responses included:

½ spring, ½ fall 65 percent

All spring 18 percent

All fall 5 percent

Other 11 percent (monthly, 1/3-2/3, quarterly, etc.)

When I look at the 2011 cash rent reported at $189.08 and compare it to the 1996 cash rent reported in the original survey of $75.00 per acre, it works out to an average increase of $7.13/acre/year. Much of that increase came in the last few years.

Other information gathered with the survey include: 13 percent rent from a family member, and averaged $145.05 /acre; 9 percent have other facilities such as grain bins or pole sheds included. 25 percent report having some sort of flex-lease.

For those townships with three or more responses, I do a township average and range. To discuss these results or receive a copy, contact the Fillmore County Extension Office at 507-765-3896 or tesme001@umn.edu, or check the University of Minnesota Extension website at www.extension.umn.edu scroll down the page, near the bottom it says "Offices, "click and the Minnesota map will appear, click on Fillmore County.

Another source of land rent information is at the Center for Farm Financial Management at www.cffm.umn.edu click on Publications, then Farm Management, and finally "Rental Rates for MN Counties - 2011". These numbers are extracted from FINBIN -- a database of farm record summaries of nearly 2,400 Minnesota farmers. The farmers participate in the Minnesota State Colleges and Universities (MnSCU) Farm Business Management program as well the Southwestern and Southeastern Minnesota Farm Business Management Associations.

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