Looking ahead to land value, cash rent and inputs


Cropland values in Ohio have increased again in 2014. Data from the National Ag Statistics Service for Ohio shows an increase of 8.9 percent for bare cropland in Ohio for 2014.

According to NASS data, bare cropland averages $5,650 per acre, up from $5,190 per acre the previous year.

The Western Ohio Cropland Values and Cash Rents Survey conducted in January found that the value of average western Ohio cropland in 2014 would be $7,142 per acre.

Other data from this survey can be found at: http://ohioline.osu.edu/ae-fact/pdf/Western_Ohio_Cropland_Values_AEDE-15-14.pdf.

The Chicago Federal Reserve Bank and Purdue University both conducted land value surveys in 2014. The Chicago Fed survey (Oct. 1) of bankers found Indiana land values of “good” farmland increased by 3 percent year-over-year (the entire 7th Fed District decreased 2 percent) while Purdue (June 30) found that the Indiana statewide annual increase in cropland values ranged from 6.4 to 7.1 percent, depending on the productivity of the farmland.

Crop profit margins were low to negative in 2014 as lower crop prices coupled with sticky input costs to create a low margin environment. This past eight year period (2006 through 2013) has been one of the most profitable periods in the last 50 years of crop production.

These profit streams and healthier balance sheets have led many farmers to seek an investment option for these profits and many have chosen to invest in land. So all of this begs the question, where are land prices headed in 2015?

Downward pressure

Low crop profit margins will put downward pressure on farmland prices. Still, healthy equity positions and stable interest rates will lend positive support for farmland values in 2015.

Financial health in the sector may counter-balance the effects of lower profits to underpin land values. Which of these opposing fundamentals is the strongest will determine which direction land values move in 2015.

At present, these competing fundamentals suggest relatively flat cropland values in 2015. Variable costs for Ohio’s major field crops for 2015 will be similar to 2014.

Variable costs for corn for 2015 are projected to be $376-$460 per acre. Variable costs for 2015 Ohio soybeans are projected to range from $209-$229 per acre.

Wheat variable expenses for 2015 are projected to range from $188-$232 per acre.

Returns to land for Ohio corn (Gross Revenue minus all costs except land cost) are projected to be minus $43 to $124/acre for Ohio Corn in 2015 depending on the land production capabilities. Budget projections for 2015 soybeans show returns to land to be $10 to $168.

Wheat crop

Wheat budget projections for 2014 find returns to land to be between $25 and $159 per acre. This is assuming current prices of inputs and present December, November and September 2015 futures prices (less basis), respectively.

These projections are based on OSU Extension Ohio Crop Enterprise Budgets available online at: http://aede.osu.edu/research/osu-farm-management/enterprise-budgets Similar fundamentals are at play for cash rental rates.

Limited profitability will pressure rental rates to move lower however strong equity positions will continue to support rental rates. As with land values, these competing fundamentals will likely cause rental rates to remain relatively flat compared to last year.

Input costs

Crop input costs offer a mixed bag of change. Energy costs are predicted to be lower. Seed costs will range from modestly lower to modestly higher depending on seed company, genetic package and newness of hybrid or variety.

Crop protection chemicals will likely follow the same pattern as most products will increase in price while some (generic glyphosate in particular) will decrease. Fertilizer continues to be the most volatile of the crop input costs.

Most fertilizer products are at slightly higher prices compared to last year at this time. Production issues, short gas supplies, plant turnarounds and political unrest have lent support to higher prices.

Lower profit margins will compete with logistical concerns and strong equity positions to create the potential for relatively flat fertilizer markets in 2015.



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