Michigan farm real estate value hits new record high

The value of Michigan farm real estate, including land and buildings, has averaged a new record high of $3,950 per acre. That's up 12.9 percent from 2006 and 25.4 percent from 2005, according to an analysis of data received as of Jan. 1 by the Michigan Field Office of the U.S. Department of Agriculture's National Agricultural Statistics Service (NASS).

Michigan's cropland value rose 15 percent from the previous year to $3,450 per acre. Cropland cash rent, at $73 per acre, is up $8 from the previous year. Michigan's pasture value rose 19.5 percent from last year to $2,570 per acre. (Pasture cash rent data was not collected for Michigan.)

The news brings with it a mixed bag of emotions, says Bob Boehm, manager of the Michigan Farm Bureau (MFB) Commodity and Marketing Department. On the plus side, the rise reflects an increase in the prices farmers are paid for their commodities and a healthy agricultural economy. On the down side, land prices are going up along with nearly every other farm production expenditure, including dramatic increases in costs for energy products such as fuel and petroleum-based fertilizer.

"Crop prices have a fairly rapid impact on cash rental rates, as the per-acre returns increase the level that can be allocated to land costs," said Boehm. "With the general rise in commodity prices of both crops and livestock, an improving profitability picture creates additional demand for farmland, which has pushed prices higher. Also, low interest rates over the period mean the same cash flow can support a higher purchase price with less of the payment allocated toward interest."

Recent Michigan cash bids for corn have averaged around $3.50 bushel, as compared to an average of about $2 a bushel a year ago. The Michigan cash bid for a bushel of soybeans has ranged from about $8 to nearly $9, up from a high of around $6 a bushel at this time last year. Meanwhile, recent Michigan cash bids for winter wheat have fetched more than $8 a bushel, up from about $5 a bushel at this time last year.

In times like these, farmers have more incentive — and more financial wherewithal — to expand their acreage, and this growing demand from agricultural buyers and renters drives up prices as well. This runs counter to the norm because most often farmland brings a higher value for its residential or commercial development potential, not its use for agricultural production. But in today's climate, keeping land in agriculture can be just as profitable as selling to developers.

"The weaker economy in Michigan has taken some of the pressure off conversion for development and recreational use," said Boehm, "but apparently not significantly enough to offset the positive prospects in agriculture."

While the U.S. Department of Agriculture predicts U.S. net farm income will reach a record $87.1 billion this year, total cash farm expenses are pegged at $222 billion, an 8.5 percent increase from 2006, due in large part to rising energy prices which have driven up fuel and oil prices 4.5 percent and fertilizer 17 percent.

Last year alone, the average U.S. farm spent $112,788 on production cost. On average, $14,974 was spent on farm services; $14,638 on feed; $12,094 on livestock and poultry purchases; $11,902 on labor; and $8,783 on rent.

"The commodity price increases we're seeing are offset with escalating production costs for the basic necessities that farmers require to produce their commodities, and that includes buying and renting farmland," said Boehm.

On a bigger scale, NASS looks at Michigan as part of the Lake States region, which also includes Minnesota and Wisconsin. As of Jan. 1, the Lakes States region had also exceeded its previous real estate value high of $2,840 set in 2006 with a value of $3,300 per acre for 2007, up 16.2 percent. The value of farmland in states bordering Michigan was: Wisconsin, $3,800 per acre; Ohio, $3,800 per acre; and Indiana, $4,000 per acre.

For cropland value, the Lake States region saw a 15.7 percent increase to $2,950 per acre. In comparison, the average value of cropland in the United States rose 13 percent to a value of $2,700 per acre.

Cropland cash rents in the Lake States region increased $5 from last year to $85. The cropland cash rents in the states bordering Michigan were: Wisconsin, $72 per acre; Ohio, $91; and Indiana, $120 per acre. Pasture cash rents in the Lake States region increased 7.1 percent to $30 per acre.

  Michigan Farm Bureau

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