Farm values grow fastest in Minnesota

MINNEAPOLIS – Farm real estate values are growing faster in Minnesota than in any other state, according to the U.S. Department of Agriculture.

The value of farm real estate in Minnesota soared 12.5 percent last year to $1,800 per acre. Nationwide, the value of farm real estate climbed 7.1 percent from a year earlier to $1,360 an acre, the Agriculture Department said.

The record highs in Minnesota are driven by many factors, including urban sprawl, low interest rates, high commodity prices and reinvestments to avoid taxes on capital gains.

Some farmers said the pressure to sell can be tremendous. And in recent years, many have sold all or sections of their land because they could earn more from selling than working the farm. A crop farmer in fast-growing Dakota County, for example, might in a top year net $75 an acre. But in an off year, he or she could lose $50 an acre.

For cropland alone, Minnesota saw an 11.2 percent increase in value to $1,690, according to the summary on land values and cash rents released Aug. 6.

In the past year, there were 15 percent to 20 percent increases in farmland values in prime areas, brokers say.

In southern Minnesota, for example, the price of some of the highest-quality farmland has jumped 15 percent in the past year to $3,700 and $3,800, said Roger Heller, president of North Central Ag Service in Olivia.

Much of the southern Minnesota farmland runs about $2,900 to$3,000 an acre, said Heller, a land broker.

“As the soils or climatic conditions change from area to area, the market reflects those changes, but the values are up uniformly all over,” Heller said. “Even in the eastern Dakotas, rangeland is selling for $600 to $700 an acre.”

About 18 months ago, those prices were about $500 an acre.

One factor in the increase is that many farmers, uncertain over the stock market, held on to their land as an investment, he said.

“We had lots of demand and not enough supply,” Heller said. “When those two things come together, the price goes up.”

Other factors include urban dwellers who want hunting land, farmers who have seen rebounds in their income and want to invest, low interest rates and investors who sell land and want to avoid capital gains taxes by reinvesting.

Some investors are buying up land because of like-property exchanges that offer business owners or investors a way to trade their property for something of similar value. That enables them to defer paying taxes on the gain.

Farmer Jim Call of Madison believes that practice, referred to as a 1031 exchange for its section of the tax code, is helping to jack up land prices. The investors must reinvest their money within a certain period of time before they get hit with higher taxes, Call said.

Call, who raises corn and soybeans near the Minnesota-South Dakota border, has watched farmland prices jump as he tried to help two sons get started farming.

“To bring them in, I have to look for more land to rent or buy,” Call said.

Five years ago, good farmland in Lac Qui Parle County, where Call lives in west-central Minnesota, was running about $1,000 to $1,200 an acre.

“Now it’s probably running $1,500 to $2,000 an acre, depending on how big to how good of a piece it is,” he said.