SUMMARY

Farm real estate values may rise 15 percent during the year ending March 1, 1975. While this would be sharply above average gains of recent years, it would trail 1974's record increase because of less optimism over prospects for farm income and agricultural exports.

The index of farm real estate values rose a record 25 percent for the year ended March 1, 1974. The index reached 187 (1967-100), which converts to a 9.35 percent annual rate of increase over the last 7 years.

Major factors behind the most recent increase include unusually high commodity prices and net farm income in 1973, and considerable buyer optimism over the long-term outlook for farm income. Also, a rapid rate of inflation in the general economy contributed to some shifting of investment funds into farm real estate as an inflation hedge. Rising interest rates appeared to have little limiting effect on land markets during the year as the use of borrowed funds to purchase land increased sharply.

The total value of farm real estate reached $324.2 billion and the average value per acre $310, a $63 rise from a year ago. Value per acre ranged from nearly $2,100 in New Jersey to $65 in New Mexico. Most Corn Belt State averages were in the $600-$800 range. As a result of the jump in average value per acre and, to a lesser extent, continued increase in farm size, the value of farm real estate in an average operating unit now exceeds $125,000.

The number of voluntary and estate sales of farm real estate of 10 acres or more remained unchanged from last year at 125,000. However, because the number of farms declined, the transfer rate for voluntary and estate sales combined increased to nearly 1 transfer per 20 farms or ranches, the highest rate since 1948. Average size of these transfers increased 15 percent, which accounts for the 5.5 million-acre increase over last year's 36.3 million acres that were transferred. Total value of transfers was estimated at $14.2 billion, up $3.6 billion over last year.

Although the majority of properties sold were operated as complete units just prior to sale, only about half of these properties were purchased for use as complete units. On the other hand, only 37 percent

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of all tracts sold were part of another farm before sale, but 55 percent of the tracts purchased were to become part of another farm. Part-time farms accounted for only 10 percent of all sales but 12 percent of all purchases.

The percentage of all transfers which utilized debt financing matched last year's 86 percent, but the ratio of debt to purchase price for these purchases dropped to 75 percent from last year's 78 percent.

Sellers continue to be the major suppliers of loan funds for farmland purchases. This year they supplied over 44 percent of all loan funds. Federal land banks provided over 25 percent. Insurance companies, commercial banks, and "other lenders" (primarily FmHA) each furnished about 10 percent of the total loan volume. Primary lenders provided over 90 percent of all loan funds, while secondary lenders (those holding second mortgages or second deeds of trust as security) provided the rest.

The percentage of all farmland acreage purchased by privately held corporations (primarily incorporated family farms) has shown a steady increase in recent years and they now account for 18 percent of acreage purchased. The percentage of acreage sold by privately held corporations has increased over time, but at a slower rate. There has thus been a net increase in acreage held by privately held corporations since 1972. Publicly held corporations, however, have just held their own since 1972. Individuals dominate the market, buying 64

percent and selling 69 percent of the acreage. About 5 of 6 farm properties purchased are expected to remain in farm use at least 5 years. Most of those expected to move to a nonfarm use within 5 years will be used as rural residences and subdivisions.

Survey respondents also furnished information on farmland purchases for immediate nonfarm use. These purchases were much smaller (127 acres) and their per acre price much higher ($788), on the average, than properties purchased for farm use. Forty percent of the acreage purchased directly out of farm use was scheduled for either rural residence of subdivision usage.

Despite rising interest rates, loan volume by major farm mortgage lenders continued to show substantial growth. New money loaned by Federal land banks for the year ended May 31, 1974, totaled $29 billion-more than a fifth above the preceding year's volume. Life insurance companies loaned 30 percent more new money in the first quarter of 1974 than in the first quarter of 1973.

Rents for pasturing cattle on privately owned land increased 16 percent from last year. Nationwide, the rent on March 1, 1974, averaged $4.95 per head per month. In the 11 Western States, a 27 percent increase pushed rent per head to $5.82. Decline in feeder caif prices could result in a downward shift in these rents by next March. Cropland rent increases per acre varied from 50 percent in North Dakota to 13 percent in Michigan.

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Farm real estate values are expected to continue upward for the next year, but at a slower rate than the record 25 percent rise recorded in March 1973-March 1974.

The prospective easing-to perhaps a 15 percent rate-stems from the anticipated $6-8 billion drop in realized net farm income from last year's record $32.2 billion (revised), as well as from uncertainty over

future export demand for farm products. These concerns seem to have dissipated some of the super optimism voiced by land buyers last year. However, 70 percent of those queried expect farmland prices to advance through next spring.

Both the record advance of the past year and the prospective increase far exceed the over 9 percent annual rate of advance since 1967.

The 25 percent average increase in farmland values reported for the year ended March 1, 1974, established a new record for appreciation in land values. Only two other periods since 1912 have shown rates of increase exceeding 20 percent-March 1919 to March 1920 and November 1972 to November 1973.

For the most part, the record increase can be attributed to unusually high farm income and high commodity prices in 1973 coupled with considerable buyer optimism over the long-term outlook for farm income. Also, a rapid rate of inflation in the general economy contributed to some shifting of investment funds into farm real estate as an inflation hedge. Rising interest rates appeared to have little limiting

effect on land markets during the year as the use of borrowed funds to purchase land increased sharply. As a result, State land values increased by 11 to 36 percent (figure 1). Washington posted the slowest rate of gain at 11 percent; North Dakota led all States with a 36 percent increase.

The national index of farm real estate value per acre rose to 187 (1967-100) (table 1.) However, index values by States varied from 131 in California to 299 in Nevada, reflecting strong differences in factors contributing to individual increases among States. It should be noted that the average acre of land in California sells for 5.5 times the price of the average acre in Nevada (table 6). Thus, a 10 percent increase