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Although a variety of factors are at play, some positive and some negative, ranchland values will remain steady to up slightly in 2014.
Growth in lease rates is much lower on average, but also more consistent, Dhuyvetter says. Thus, he projects that 2014 will be “more of the same.” However, what ultimately happens with lease rates remains to be seen. “There are going to be two conflicting forces regarding pasture rents in 2014,” he predicts.
“First, we know that cow-calf enterprises look quite favorable going forward; thus, there is pretty good incentive to increase herds,” he says. This should increase the demand for pasture, which would spur stronger lease rates.
“However, we’ve seen the corn market fall significantly since a year ago, which means there will be less incentive to put weight on feeder cattle outside of feedlots,” he says. “This will lower the demand for grass potentially.”
In addition, he says it’s important to acknowledge the effect that pasture condition has on lease values. “While most regions have seen some improvement, some areas are still in pretty tough shape,” he says. “In those areas, it will be pretty hard to see pasture rents increase on a dollar/acre basis.”
Lease rates may increase on a dollar/head basis, he says, but if it takes more acres to run the cattle, the dollars/acre may be flat or even down. “Bottom line, stocking rate has a huge impact on pasture rent/acre” he says.
Taking all that into account, his tea leaves say that pasture rents will likely be slightly higher than the 10-year average (Figure 2).
Location, location, location
The old real estate adage that the three factors that affect price are location, location and location is true both for a house in town and a ranch at the end of a gravel road. Looking at the differences in national averages and those in the Central Plains points to an important consideration in land values, Dhuyvetter says — what part of the country are you in?
In regions heavily influenced by crop production, ranchland values have seen a stronger uptrend. “However, in regions with less crop production influence, pasture values have been much softer, and in some cases even fallen, in recent years,” he says.
In crop-producing regions, farmland prices affect grass values, either indirectly because producers have more money in their pockets when corn is high, or directly because high corn prices make grass much more valuable for stocker weight gain. While that’s a regional dynamic, the effect is enough to influence national averages (Figures 3 and 4).
“I believe lower corn prices will put downward pressure on both pasture values and rents,” he says. In part, that’s because in the Midwest, where pastures have been plowed under to grow $7/bu. corn, a drop to $4.50/bu. corn will put the brakes on any more sod-busting. And, should the lower corn prices prove to be a multiyear trend and cropland values retreat as a result, that will ease the upward pressure on all ag land values, he says.
“The big question is whether or not this negative effect will be bigger or smaller than the cowherd expansion positive effect.” That answer, he says, is still unknown.