by Jared Augustine

Minnesota farmland values have increased 2% in the past year while cash rents in the state have decreased 0.7%.

Those were just some of the key takeaways from a recent agricultural economic outlook presentation by Joe Mahon of the Federal Reserve Bank of Minneapolis, in which he looks at survey results from agricultural lenders in the first quarter of 2024. The presentation covered the Fed’s Ninth District, which encompasses Montana, North Dakota, South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan.

Ag lenders who were surveyed responded that farm income is down from one year ago, and they anticipate this trend to continue in the second quarter of 2024. So far, high-quality farms have maintained relatively stable values. If we experience an average or better 2024 crop and some type of rally in the corn market this year, land values should continue to hold.

Spring planting has been in full force over the past four to six weeks, and many farmers I have spoken with during this fourth week of May have either finished planting or are close enough to feel optimistic about their progress. We had a prime two-week window in mid-April, but rains in late April kept farmers in my area out of the fields for over two weeks, leaving them jittery and anxious to get their crop in the ground.

Drainage value

One major difference-maker that helps farmers return to the field more quickly after a rain is drainage tile. This also happens to be the single greatest investment a landowner can make to raise their land’s value. Drain tile increases yields and land value, improves soil and plant health, and reduces erosion.

While I recognize that many regions of the country with lighter soil have little need for tile, in many areas in southern Minnesota, drainage tile is king.

Installing system tile on a farm can cost roughly $1,000 per acre, but the return on investment is usually worth two or threefold. This concept is similar to flipping a house. Putting in the work to obtain the proper approval and lining up a contractor takes effort, but a finished product is worth far more to buyers than having to take on a project with a lot of unknowns.

Another important factor that buyers consider when looking at a farm is the outlet. If you are thinking of tiling a farm, you must have somewhere for the water to drain to. Rivers, creeks, county tile and ditches, lakes and sloughs are all good drainage outlets. Farms with a poor or too-small outlet tend to be less valuable than farms that have direct outlets. There is usually a way to drain a farm, but sometimes the outlet may have to drain through another property.

Adjacent landowners are not obligated to let a tile main go through their farm unless there is already a drainage easement in place. Other times they may allow an easement for a cost, but if this is unknown when selling a farm, it may hold back its potential value.

If you are a farmland owner looking for good ways to invest in your farm, drainage tile should be high on the list. Having an extensive amount of drain tile and retaining records of the work goes a long way toward a premium price when the time comes to sell.

Sales were quiet this past month. It will be difficult to gauge the current market until we see a few more sales slated for June and July. Here are a couple of recent ones.

Meeker County

Southwest of Litchfield, about 228 acres sold in two parcels. Parcel 1 contained 188 acres and sold for $6,380 per acre. The farm consisted of 186.91 tillable acres with a Crop Productivity Index of 64.3.

The farm also had a center pivot that irrigated about 100 acres. Parcel 2 contained 40 acres and sold for $12,100 per acre. The farm consisted of 38.99 tillable acres with a CPI of 88.9.

Renville County

West of Hutchinson, about 135.37 acres sold for $9,270 per acre. The farm consisted of 125.68 tillable acres with a CPI of 88.3. The farm also contained an open ditch that split the property.

Augustine is a Minnesota licensed real estate salesman for Hertz Farm Management Inc. He lives near Minnesota Lake with his wife and four children and works out of Hertz’s Mankato office. Hertz Farm Management compiled the list but did not handle all sales. Call Hertz in Mankato at 507-345-5263, or 800-730-5263, or visit hertz.ag.