Farmland values sustain balance sheets
Strong farmland values continue to stabilize farm finances and to meet performance expectations for non-farm investors, according to the American Society of Farm Managers and Rural Appraisers (ASFMRA). The group recently reported that farmland is a major contributor to sustaining the ag economy and is the biggest asset on farm balance sheets.
Low interest rates, consistent rate of return, slow rate of inflation and poor performance in alternative investments are credited for keeping farmland values high, ASFMRA states. Interest rates on farm loans have dropped more than 2.5% on average over the past two years, reports Charles Knudson, rural appraiser with First Farm Credit Service, Normal, IL. “While this is good news for operators who own their land, it's great news for investors wanting to redirect money from poorly performing stocks toward less volatile investments,” he says. As a result, the proportion of land buyers who are investors has increased. In 2001, non-farm investors made 27% of all farmland purchases, compared with 12% in 1989.
USDA's National Agricultural Statistics Service (NASS) reports that farm real estate values are up for the 16th year in a row. Farm real estate values including all land and buildings averaged $1,270/acre in 2003, up 5% from 2002. Farmland value in the Corn Belt rose 4.7%, to $2,450/acre.
Knudson says production farmland typically provides nominal annual returns of 8 to 10% and real returns of 4 to 6%. Returns typically consist of current income from yearly crop sales or lease payments plus land appreciation.
USDA's review of cash rents paid in 2003 shows that Midwest rent averages $110/acre.
Cargill, IMC Global announce merger
Cargill and IMC Global have agreed to merge their fertilizer businesses into a new publically traded company. The combination of Cargill's phosphate, feed phosphates and nitrogen production with IMC's phosphate, feed phosphates and potash businesses will create one of the nation's largest fertilizer companies.
The two companies report combined total assets of $5.4 billion with $2.2 billion in debt. They anticipate annual revenues of about $4.1 billion. Cargill will retain 66.5% ownership of the new company. The new company will apply for listing on the New York Stock Exchange. This will be a first for Cargill, which has never issued public shares.
Within the past several years, Cargill has acquired Continental Grain (1998), Agribrands International (2000), and the European corn miller Cerestar (2001). Last fall, Cargill bid on Farmland Industries' pork processing but was outbid by Smithfield Foods.
Majority of farms still family owned
Preliminary results of the 2002 Census of Agriculture show the majority of U.S. farm operations are still very small. Farms posting less than $10,000 in annual sales amounted to 59% of the country's total farm operations. The census also reported that 90% of all farm operations are run by individuals or families.
Overall, the number of farm operations continued to decline, which is a trend started several decades ago. But the largest operations — defined as 2,000+ acres — increased in number from 74,037 in 1997 to 78,037 in 2003.
The census, conducted every five years by USDA's National Agricultural Statistics Service (NASS), measured the total number of people operating farms and ranches instead of just one operator per farm.
Among all farm operations, the percentage of women involved in day-to-day farming and ranching decisions has increased 12% from 1997, to 27% in 2002. More minorities are principal farm operators today than in 1997. The number of principal operators of Spanish, Hispanic or Latino origin increased nearly 51% from 1997 to 2002. The number of black principal operators increased 8.8%, and the number of American Indian operators increased 19.4% from 1997 to 2002.
The final census report will be released in June with information on national, state and county levels. All reports from the census will be available free through the NASS Web site at www.usda.gov/nass. For additional information, call the NASS hotline at 800/727-9540.