Naveen Adusumilli and Hua Wang

Annual cropland values in Louisiana in 2018 rose by approximately 3.3% from 2017 values (Figure 1), the highest among the delta states. Arkansas and Mississippi land values increased by 2.2% each during the same time (Table 1.) The rate of change in farmland values over the three-year period (2015-2017) is in the same range, an average 3% increase.In a state consisting of a diverse crop mix of corn, soybeans, rice and sugarcane, the cropland values present a strength driven not just by land suitable to grow a range of crops but also backed by strong conservation motives.

Among many factors that explain farmland values that vary across regions, the motive for implementing conservation practices and addressing natural resource concerns on the farm may be capitalized into the value of farmland. It is often cited that commodity prices compete with conservation interests because when commodity prices are high, there is a downward trend in conservation program enrollment and conservation implementation. Enrollment in the Conservation Reserve Program (CRP) as well as payments (total obligations) declined by 76% in Louisiana during 2005-2017 (Figure 2a). During the same period, payments (total obligations) for the Environmental Quality Incentives Program (EQIP) increased by 64% and the Conservation Stewardship Program (CSP) increased by 156% (Figure 2b). CRP is a land conservation program where in exchange for an annual rental payment farmers agree to remove marginal land from agricultural production for a period of 10-15 years. Similarly, EQIP and CSP are conservation programs administered by the Natural Resources Conservation Service to provide financial and technical assistance to landowners to implement management practices to address natural resource concerns. The trends in land values show that changing landscapes driven by conservation motives have some role to play in addition to commodity prices in land valuation. Hence, it is important to account for the increasing interest in programs that hint at the emerging priorities of farmers.

Although CRP has been the flagship conservation program, demand for food across the globe has taken the forefront of national policies of several countries. In such a political environment, it is important to support conservation efforts in the interest of protecting the future of working lands so that the land stays in production to meet the growing demand for food. As a result, the role of working land conservation programs is critical to the farm sector and should not be overlooked.

As food security and environmental sustainability agendas come face to face, changing land values affect business decisions, such as a change in ownership, consolidation or borrowing. Setting aside who owns and actively manages the land, there is a longstanding interest in investing in agriculture and facilitating conservation implementation. Long-term benefits of conservation practices are believed to enhance the productivity of the land. As a result, positive farm real estate values can entice additional farmland purchases, promote active engagement in agriculture and enhance understanding of potential relationships between conservation and productivity, consequently continuing support for the conservation programs.

Despite the increase in land values during the past few years, the delta states have seen a reduction in cropland appreciation compared to the early 2010s. Cropland values increased by 8% during 2003-2008, 6% during 2009-2014 and by only 3% during 2015-2017. This change in appreciation could reflect falling farm income as well as commodity prices. Net cash income per acre in Louisiana from 2010 to 2017 reached a high of $236 in 2013 and was at $145 in 2017, a decrease of 45% in 2018 dollars. However, regional and temporal differences in land values may be because of varying demands for cropland for nonagricultural purposes. Nevertheless, the market recognizes the condition of land, with better land selling for higher prices. Cropland prices are influenced by not only immediate yield benefits but also the expectation of long-term benefits through productive soil resources and avoidance of costs for land improvements. As a result, it appears that not just immediate yield but a wide spectrum of conditions have been used by buyers in farmland transactions, reflecting encouragement for soil and water conservation practices to continue.

Naveen Adusumilli is an assistant professor and Hua Wang is a research associate in the Department of Agricultural Economics and Agribusiness.

(This article appears in the summer 2019 issue of Louisiana Agriculture.)

Figure 1. Cropland Values by State. Source: USDA Economic Research Service calculations using data from National Agricultural Statistics Service.