Minding Ag's Business

Delta Will Sing the Blues, Eventually

Cropland values bounced all over the map in 2016, with regions like the Corn Belt sliding while the Delta, Southeast, Southern Plains and Pacific Northwest racked up gains.

Based on USDA real estate surveys, the Mississippi Delta remains a happy hunting ground for farmland owners and investors. Its average land values run about a third of Illinois, but with some of the same yield potential on irrigated ground. It eked out gains from a low of 2.3% in Mississippi to as high as 4.8% in Louisiana in the past year (6.3% for irrigated land), USDA says.

In contrast, much of the U.S. Corn Belt's values faltered into negative territory the past year: Illinois and Iowa cropland values dropped -2.6% and -2.4% respectively between 2015 and 2016. Meanwhile Kansas sank -7.2%, North Dakota -6.5% and South Dakota -5.6% (see map).

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But the Delta may not be immune to the economic setbacks afflicting the rest of the country. And outsiders often underestimate the risks that make yields more variable than the Midwest.

For one thing, the tallies from USDA's National Agricultural Statistics Service released Aug. 5 rely solely on farmer estimates, so they don't necessarily match opinions of bankers and appraisers. When Mississippi State Economist Bryon Parman surveyed Delta farm managers and lenders in May, he found the Delta's dryland farm values up 0.4% and irrigated cropland up 1.2%, slightly less optimistic than USDA's farmland survey.

Cash rents also took a hit in the Delta in 2016, Parman found, ranging from an average cut of -5.8% for dryland, versus -7.95% for irrigated cropland. So returns to investors took a hit there.

More troubling is what lies ahead, Parman cautions. Both 2014 and 2015 were challenging years for Delta producers suffering from low yields as well as low prices. By May, lenders said 20% of Mississippi farmers were carrying over 2015 operating debt into 2016, and most producers possessed less than one year of operating capital available. They are likely piecing together credit from farm supply companies and co-ops to make ends meet this season. Prospects for another year of carryover losses mean a good portion of farm operators will enter 2017 in a worse financial position than 2016.

At current commodity prices, there's still room for downward movement in Delta land values and rent in 2017, Parman says. For investors willing to pay cash, you won't miss an opportunity to buy at the bottom. "If prices stay where they are, waiting costs you nothing," he says.

And for operators looking to pick up rental ground next year as some operators downsize or exit? Be aware cash rents haven't hit bottom either. Rents on average irrigated Delta land with a yield potential of 200-220 bpa ran $176 per acre in 2016, but that's about 15% to 20% too high to breakeven, Parman estimates.

Follow Marcia Taylor on Twitter @MarciaZTaylor

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