ALABAMA A&M and AUBURN UNIVERSITIES

LAND PRICES AFFECTING SOUTH'S AGRICULTURE

AUBURN, JAN. 28, 2000---The increasing value of land is making it financially harder than ever for farmers trying to survive bad crop years or farmers trying to get into the business.

Historically, real estate prices in the South have been tied to returns from row- crop agriculture, but with the South's economic diversification and urbanization, agriculture is just one of many factors influencing land values. With fewer acres available for farming, prices are rising even on less fertile farmland.

Increases in land prices mean the cost of using land for row-crop production goes up since farmers forgo the returns they could get from selling the land and investing the proceeds in other ways. Farmers often own equipment and other assets specific to row-crop production. This equipment has relatively low resale value, so farmers tend to postpone farmland to urban uses.

Research by the Southern Rural Development Center at Mississippi State University and Dr. Jim Hite at Clemson University, compared county-by-county the average price of land in 12 Southern states with typical financial returns from row-crop agriculture. Calculations were based on the most recent census of agriculture --1992 -- and crop enterprise budgets developed by the states' Extension services.

Hite says if farmers are getting less than 4 percent return on their land, they're working for free and probably losing money. If they sold their land today and put the money in a certificate of deposit they could get at least a 4 percent return, maybe better.

Crop budgets are a helpful planning tools for crop selection, marketing, financial management and as a control mechanism. They are a cost and return method on a per acre basis for the particular soil, region and the cultural practice system used. Budgets tell how much it costs to grow a crop and returns expected at different price levels.

These budgets, combined with land costs, are showing row-crop agriculture to be unprofitable in many areas of the South. In Alabama, Georgia and the Carolinas, rising rural land prices, relatively low yields and low commodity prices have resulted in traditional row crops looking profitable in only a few areas.

The report showed this same pattern is true for Arkansas, Oklahoma and Texas. The only large blocks of counties where row-crop agriculture continues to show potential for producing attractive returns to land are some mineral enriched areas near the Mississippi River in Western Kentucky, West Tennessee, Arkansas and Mississippi.

However, even where farmland prices have been driven up by land development, specialized agriculture can still be profitable, Hite says. For example, a truck farmer selling sweet corn to local markets for $2.50-$3 a dozen can afford to pay $23,000 per acre and still make a profit. This can't be done on thousands of acres, Hite added.

The report concluded that land-use conversion away from row-crop farming is expected to increase significantly in the next 20-30 years. Farmers who own their land now may not be making high returns, but as the land value increases, so does their wealth. When that land goes into estates or the value rise above its current income producing potential, much of that land will be sold and converted to other uses.

Copies of the full report "Land Prices and the Changing Geography of Southern Row-Crop Agriculture," can be obtained by calling the Southern Rural Development Center at (662) 325-3207.

SOURCE: Southern Rural Development Center, Mississippi State University, (662) 325-3207