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Land Prices Affect South's Agriculture
MISSISSIPPI STATE -- The increasing value of land makes it financially harder than ever for farmers trying to survive bad crop years or farmers trying to get into the business.
Real estate prices in the South have historically 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.
Dr. Jim Hite is a now-retired professor of agricultural economics at Clemson University in South Carolina. He co-authored a publication on this subject with the Southern Rural Development Center, headquartered at Mississippi State University.
"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," Hite said. "The fact that farmers often own equipment and other assets specific to row-crop production, but which have relatively low local resale value, tends to postpone conversion of farmland to urban uses."
Hite's research compared county-by-county the average price of land in 12 Southern states with typical financial returns from row-crop agriculture.
"If you're getting less than a 4 percent return on your land, you're really working for free and probably losing money," Hite said. "You could sell your land today and put the money in a certificate of deposit and get at least a 4 percent return, maybe better."
The calculations were based on the most recent census of agriculture ñ 1992 ñ and crop enterprise budgets developed by the states' Extension Services.
Dr. Tom Jones, agricultural economist with MSU's Extension Service, said crop budgets are a planning tool useful in crop selection, marketing, financial management and as a control mechanism.
"The budgets attempt to be a typical cost and return scenario on a per acre basis for the particular soil, region and the cultural practice system employed. They also include the cost of inputs used," Jones said. "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 the Carolinas, Georgia and Alabama, rising rural land prices, relatively low yields and relatively low commodity prices have resulted in traditional row crops looking profitable in only a few enclaves," the report found.
"Although the enclaves are larger, the same pattern holds 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 the alluvial areas near the Mississippi River in Western Kentucky, West Tennessee, Arkansas and Mississippi," the report states.
Hite said that even where farm land prices have been driven up by land development, specialized agriculture can still be profitable. For example, a truck farmer selling sweet corn to local markets for $2.50 to $3 a dozen can afford to pay $23,000 per acre and still make a profit, Hite said, although this can't be done on thousands of acres.
The report concluded that land-use conversion away from row-crop farming is a trend expected to increase significantly in the next 20 to 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 rises above its current income producing potential, much of that land will be sold and converted to other uses.
Copies of the July 1999 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.
Contact: Dr. Tom Jones, (662) 325-2671