Land Price Tug-Of-War
Victoria G. Myers Progressive Farmer Senior Editor
Mon Nov 23, 2015 01:20 PM CST
(Page 1 of 4)

Landowners may be paying a price for pursuing the golden temptress of commodities. Where the allure of $8-a-bushel corn led to tilled-up pastures and torn-down fences, remorse seems to be setting in.

Some landowners who converted pasture ground for row-crop production may be wishing they could turn back the clock. (Photo from Thinkstock/iStock)

"In our part of the country, a lot of properties that were converted from pasture to row crop are beginning to have serious issues with erosion," said Kurt Hollenberg, a broker with United Country Real Estate and Auction Services, based in Columbia, Mo.

He said some of these converted operations would like to go back to fences and grass, but many landowners are not in a position to make the shift.

"Now that row-cropping is not making them as much money, they'd like to go back to cattle; but at $13,000 to $15,000 for a mile of good fencing, it's an expensive change to make," he pointed out.


That balance between land for row crops and land for pasture has been at the center of much of the market's evolution going back to 2006. While the tendency is to talk of land price and land use in regard to what that acreage can yield in terms of cash, there is another way of looking at it, said Sterling Liddell, Rabobank vice president of Food and Agribusiness Research Advisory Group, Missouri.

"It's scarcity of land to produce a given commodity that drives prices higher and higher," he explained. "In 2006, we saw a fundamental change in how we price corn and soybeans. Essentially, there was not enough corn to make the market comfortable and allow it to find equilibrium. Then drought drove commodity prices even higher. Now, we are seeing a point where we can produce a surplus."

The pressure to find more land to produce corn and soybeans when prices were at historic highs shifted acreage for those crops outside of traditional regions. The Northern Plains is where the biggest part of that growth took place. Now that prices are lower, and the beef market is in a growth phase, there is a shortage of land for livestock operations, especially in those areas where conversion to cropland took place.

"Pasture and rangeland are where we see the strongest values, and that goes back to that interaction between regions," said Liddell. "In the Dakotas, where a lot of pasture was converted, you've seen the strongest movement in pasture prices. Those acres have been shorted, and with the expectation of adding 3 million to 4 million head of beef cows, we need that pasture back. We will see this continue until there is a rebalance of crops and pasture."


In the Corn Belt, Liddell said a downturn in cropland prices is good news because it will help the industry stay economically feasible. He said he's seen signs of contraction through no-sales at auctions across Illinois, Iowa, Minnesota and Nebraska. With a break-even margin for farmers of around $4.20 per bushel on corn, Liddell said there are essentially only two places producers can make sizeable adjustments to the cost of doing business.

"It's hard to move seed prices. Maybe you can adjust nitrogen, potash and phosphate down a little, but not a lot. It comes to machinery and land. Those two will battle it out for who gets the rest of the income," he explains. "Historically, when prices drop around breakeven, we see about 15 to 20% of the value of the crop going to machinery, 30 to 40% to land."

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