Farm Business

Profitability Pressures Kansas Land Values

Emily Unglesbee
By  Emily Unglesbee , DTN Staff Reporter
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Since 2014, USDA says the value of irrigated farmland in Kansas declined 13.1%, non-irrigated land dropped 13% and pastureland values fell 7.9%.

Kansas farmland prices continue to march steadily downward, and there's little in the economic forecast to reverse the trend.

"All of the numbers are pointing down, but it’s not falling off a cliff," Kansas State University farm management specialist Mykel Taylor said about near-term price movements in a press release. The USDA said overall values to declined 3.9% to an average of $1,970 per acre last year, and that trend is likely to continue.

Kansas is a non-disclosure state, so Taylor uses data from the Kansas Property Valuation Division of the state's revenue department to make her estimates, which show sharper declines than data used by USDA's National Agricultural Statistics Service. For example, USDA says that since 2014, irrigated land prices have fallen 13.1%; dryland values, 13%; and pasture values, 7.9%. Taylor's data suggests it's more like 17.4% for irrigated, 19% for dryland and 21.4% for pastureland. She says those trends are likely to continue.

"It will more likely be a slow, steady decline that appears to be in line with negative profitability in the cropping sector," Taylor said.

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Kansas State's crop budgets paint a bleak picture, with forecasted losses ranging from $63 per acre to more than $150 per acre depending on the location and production practice and based on price forecasts in October (https://www.agmanager.info/…). After wheat prices dropped so low last year that farmers dusted off the LDP playbook and average net farm incomes fell into negative territory in some parts of the state, farmers are turning to cotton, sorghum and even oats to add diversity and, hopefully, boost profit potential.

Twenty-five Kansas farmers filed for bankruptcy in 2017, up from 21 the previous years. Taylor says it pales in comparison to the 1980s farm crisis: 265 farmers filed for bankruptcy in 1987 alone. According to a report from CoBank earlier this year, the number of the Chapter 12 bankruptcies, which allow farmers to stop debt collection and restructure their payments, topped 500 nationwide.

"Wheat and dairy producers are among the hardest hit in this down cycle, as evidenced by an increase in Chapter 12 bankruptcy filings in Kansas and Wisconsin," the report stated (http://www.cobank.com/… ). Taylor said farmers who pursued an aggressive growth strategy during the 2008-to-2013 boom and bought a lot of land are the most financially vulnerable, along with younger farmers and ranchers who rent more ground than they own.

The number of bankruptcies could continue to grow. All but 3% of the state is experiencing some form of drought, with the most severe conditions in southwest Kansas, and nearly half of the winter wheat crop is rated in poor to very poor condition.

Cobank's report says Chapter 12 bankruptcies are the highest since 2012 -- the year of the last major drought -- and it expects new filings to accelerate in 2018 unless there's "a major upward correction in farm gate prices." Banks can't force farmers to liquidate their land in Chapter 12 bankruptcies, but only farmers that want to stay in business will go that route. The tough economic conditions could force more farmers, especially those without heirs or heirs that don't want to farm, into retirement. If they choose to sell their land base instead of rent it out, it could put additional pressure on farmland values, especially on a local level.

Katie Dehlinger can be reached at Katie.dehlinger@dtn.com

Follow Katie Dehlinger on Twitter @KatieD_DTN

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Emily Unglesbee