The  0i
Texas

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Lands

1920 - I945

Eu/laiin We. 683

TEXAS AGRICULTURAL EXPERIMENT STATION
COLLEGE STATION, TEXA_S

TEXAS AGRICULTURAL EXPERIMENT STATION

R. D. LEWIS, DIRECTOR
College Station. Texas

BULLETIN NO. 688 APRIL, 1947

\

' THE PRICE OF TEXAS
FARM AND RANCH LANDS

JOE R. MOTHERAL
Department of Agricultural Economics and Sociology

and

JOHN H. SOUTHERN and SAMUEL L. CROCKETT
Bureau of Agricultural Economics, USDA

 

AGRICULTURAL AND NIECHANICAI. COLLEGE OF TEXAS
GIBB GILCHRIST, President

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To the farmer, an investment in land is necessarily a
matter of'serious concern, particularly during periods of
rising land prices. During the past five years there has
been an insistent demand for information about trends in
the market for farm and ranch land in Texas. The Texas
Agricultural Experiment Station and the Bureau of Agri-
cultural Economics, USDA, have attempted to meet this de-
mand through a continuing study of land transfers in
selected sample areas.

This report presents the findings based upon a 26-year
record, 1920-1945, of sales in 24 counties. It covers four
significant periods—postwar, depression, recovery, and the
war years. A more detailed analysis is olfered for the war
years, 1941-1945, in three counties for special study—Ellis,
Jones, and Nacogdoches.

For those who are concerned with the future of land
prices in Texas, careful consideration of what has happened
in other years may help materially in finding the answer to
what lies ahead. It is the purpose of this bulletin, as well
as the 12 progress reports that have preceded it, to elim-
inate some of the guesswork from land purchases as they
affect the well-being of rural people.

CONTENTS

Page
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7. .. 5

Land Price Trends, 1920-1945 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7

For the State . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7

By Type-of-Farming Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9

Seasonal Trends in the Land Market . . . . . . . . . . . . . . . . . . . . . . . . . . .. 11

Land use and leasing arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13

Trends in Farm Land Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14

Factors Influencing Texas Land Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15

Farm Income, Commodity Prices, and Land . . . . . . . . . . . . . . . . . . . . .. 16

Area Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18

Share of Income to Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 21

Returns Expected by Investors in Farm Land . . . . . . . . . . . . . . . . . . .. 22

Mineral Rights and Land Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 22

Parity Price Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 24

Technological Advancements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 25

Credit Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26

Non-farmer Buying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 26

Industrial Employment and Incomes . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 27

Cash and Liquid Asset Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 28

Wartime Land Market Activity in Three Counties . . . . . . . . . . . . . . . . . . .. 29

Size of Tracts Transferred . . . . . . . . . . . . . . . . . . . . . . . II‘ . . . . . . . . . . .. 30

Types of Buyers and Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31

Mortgage Indebtedness . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 32 u

Source of Credit. ._. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 33

Buyers’ Equities in Encumbered Sales . . . . . . . . . . . . . . . . . . . . . . . . . .. 34

Cash Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 35

Source of Data and Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 37

Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 37

 

5 BULLETIN N0. ess APRIL, 1947

THE PRICE OF TEXAS FARM AND RANCH LANDS
1920-1945

Joe R. Motheral, Economist in Rural Life,
Department of Agricultural Economics and Sociology

John H. Southern and Samuel L. Crockett, Agricultural Economists,
Bureau of Agricultural Economics, USDA

The purchase of a farm is a milestone in the life of any farmer. It is
‘ the one conventional act in agriculture which may be performed in a
day, and yet affect a farmer's future and the future of his family for
f years. '
l An error in judgment may spoil the best of his earning years; while
f wisdom in the selection of the location, size, soil type, and improvements
i most suitable to the farm family can spell success for the father and
smooth the way for the generation that follows. Of all the factors of selec-
tion in a land purchase, none is more important than the amount and terms
‘of the financial commitment involved. Every prospective buyer of land
is confronted with the problem of reconciling the price to be paid with
~ the long-time productive capacity of a particular farm or ranch.

Land prices become a subject of special interest during and immediately
" after a war, because relationships between costs and income which appear
to be fairly well established are altered greatly during such periods. In-
come and subsequently land prices rise, often very rapidly, and the bases
for investment-evaluation become more complicated and uncertain. The
j current postwar situation is no exception.

_ Since the beginning of recovery in business and agriculture during the
late 1930's, the demand for information about trends in land prices has
increased steadily. Landowners, tenants, non-farmer buyers, returning
7 veterans, and farm loan organizations, have been concerned particularly;
j however, the implications of potential dislocation in agriculture by no
l- means have escaped the attention of the general public. Memories of the
fislump that followed the first World War still are fresh in the minds
iof many people throughout the State.

As a result of this interest, a study of the land market in Texas
* was started in 1942 by the Bureau of Agricultural Economics, U. S. De-
apartment of Agriculture, in cooperation with the Texas Agricultural
Experiment Station} While it was not possible to examine land sales
in all parts of the State, three counties were selected as representative

lBased upon this study the following Progress Reports have been released by the Texas
Aglricultgral Experiment Station: No. 870, 884, 897, 902, 916, 942, 948, 966, 971, 972,
‘ 9 , an 1015. '

6

Figure 1.

BULLETIN N0- 688. TEXAS AGRICULTURAL EXPERIMENT STATION

I=SAMPLE coomuss m
STUDY OF FARM AND
RANCH LAND Pamss

AREA'

1. PANHANDLE WHEAT AREA.

ZCANAIIIAN RIVER GRAZING
AREA

3. HIGH PLAINS COTTON AREA.
AROLLING PLAINS.

5. HIGII PLAINS AND TRANS-PECOS
CATTLE GRAZING AREA.

G. UPPER RIO GRANDE VALLEY
AREA.

7. EDWARDS PLATEAU GRAZING
AREA.

8. RIO GRANDE PLAINS AREA.

Type-of-Farnning Areas
m Texas

‘J. LOWER RIO GRANDE YALLEY
AREA.

I0. CORPUS CHRISTI COTTON AREA.
11. NORTH-CENTRALGRAZING AREA

12. WESTERN CROSS TIAIRERS
FARMING AREA.

13.GRAND PRAIRIE AREA.
IABLACII PRAIRIE AREA.

15. NORTHEAST SANDY LANDS
AREA.

16. PINEY WOODS LUIIIBERING AREA.
IZPOST-OAH AREA.
18.COAST PRAIRIE AREA.

Map showing location of sample counties with respect to type-of-farming areas.

________J

i

THE PRICE OF TEXAS FARM AND RANCH LANDS I 7

of as many major-farming areas. These furnished the basis for a con-
tinuing analysis that was believed to have considerable application to
general characteristics of the land market.

In 1945 the three-county data» were supplemented by the collection of
information on land prices in 13 additional counties? A record of land
sales was obtained in these counties for the period 1920 through 1944,
thus providing a recent history of land prices in the State. The presentation-
of this material was limited primarily to an interpretation of data,
without much emphasis upon causal relation-ships. It was evident that
a larger sample was needed for a more thorough study of the basic
factors operating in the land market. Consequently, early in 1946 in-
formation was obtained for 1945 in the counties previously studied, and 8
more counties were added to bring the total to 24. This report is based
upon that materialfi

This report presents the average annual price paid per acre in 16
different type-of-farming areas during the last 26 years. While the data
are not available for certain of these years in 5 type-of-farming areas,
the only area omitted entirely is the Canadian River grazing area. The
report also offers an index figure over the same period which reflects
price trends on a statewide basis.

Since the land market functions as at part of a broader economic
system, an effort is made to single out those forces which exert a dominant
influence and to demonstrate the extent of their effect upon land prices.
Insofar as possible, price trends in specific areas are shown in their
relationship to the prices of the major commodities produced in those
areas. In the three counties in which the details are available, the
characteristics of land sales which tended to change the pattern of
ownership during the war years are shown in summary form. These in-
clude the types and intentions of buyers and the methods of financing
that were employed. I

For those who are concerned with the future of land prices in Texas,
careful consideration of what has happened in other years may help
materially in finding the answer to what lies ahead. If this report eliminates
some of the guesswork from land purchases as they affect the well-being
of rural people, it will have served its purpose.

LAND PRICE TRENDS, 1920-1945
For the State

During the last 26 years, prices of farm and ranch lands in Texas
have tended to rise and fall with the tide of national prosperity. The cor-
relation has not been perfect, however. Indicative of this sometimes erratic
behavior of land prices in comparison with the general trend in national

” prosperity was the 1926 break in land prices. This break occurred despite
- the continued rise in the general price level until 1929-.

2See Progress Report N0. 971, Texas Agricultural Experiment Station, Nov., 1945.
3For source of data and method see p. 35.

8 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

Land, unlike commodities, moves in comparatively large units with a
low annual rate of turnover. The land market, therefore, is not highly
sensitive to day-to-day shifts in demand nor to short-run fluctuations in
the general price level. Evidence of this inertia may be noted in any com-
parison between trends in land prices and trends in commodity prices, or
the income data which usually reflect commodity price levels.

A second reason for the variations between Texas land prices and general
business activity is to be found in the kinds of crops and livestock produced
on Texas farms and ranches. Trends in the production and prices of
important commodities such as cotton have not always coincided
with those of industrial goods and other income-yielding products
of other states. Moreover, such departures from the general economic
trends of the country have been reflected almost unfailingly in a varying
demand pressure for land. These qualities of the land market should be
kept in mind in interpreting the material that follows.

During 1945 the index of land prices in Texas rose to 79 points above
the. 1935-1939 average, registering the sharpest gain in any 12-month
period since 1926 (Table 1). It was the highest mark reached in 16
years and has been exceeded only twice since a comprehensive record has

Table l. Average annual sales price per acre and index of farm and ranch land prices in
Texas, 1920-1945

 

Year Average price per acre Land price index4
1920 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $35.40 200

1921 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31.50 178

1922 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30.38 172

1923 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 23.47 133

1924 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31.44 178

5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 26.94 - 152

1926 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3'7 . 1 1 210

1927 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 32.03 181

1928 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 33.16 1

1929 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31.66 179

1930 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30.17 171

1 931 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 . 77 146

1 932 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 . 68 11 1

1933 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 19.29 109

1934 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18.24 103

1935 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.72 100

1 936 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 . 24 103

1937 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18.28 103

1938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.03

1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.11 97

1940 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18.54 105

1941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18.94 107

1942 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 19.50 110

1943 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 23.33 132

1944 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 26.26 148

1945 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 31.69 179

4Average annual sales price for the period 1935-1939 =100.

THE PRICE OF TEXAS FARM AND RANCH LANDS 9

been kept, in 1920 and during the 1926-1928 peak years. Furthermore,
as subsequent discussion will indicate, there are yet no signs of an early
leveling-off of land prices."

The low point was reached in 1938 with an index of 96, after an erratic
decline from the boom generated in 1920 by the first World War. After
1920 a succession of setbacks in commodity prices dragged the land
market downward until, in 1926, rallying commodity prices and record
crop production, led by cotton, combined to push the index up to 210.
This was the highest point reached during the entire 26 years. The down-
ward trend following this peak lasted for more than a decade and recovery
was slow until 1943.

Average land prices are a synthesis of prices paid for many different
grades of land and have little meaning in an absolute sense for any one
year. Such measures are meaningful, however, when viewed from a rela-
tive standpoint over a period of years. They possess another value in that
they are susceptible to checking against other sources for reliability. A
comparison between census data on theaverage value per acre of Texas
farm land and the averages based on actual sales in Table 1 shows a
close parallel, as follows:

1945 1940 1935 1930 1925 1920
Census5 $25.29 $18.81 $18.70 $28.85 $27.77 $32.45
Table 1 $31.69 $18.54 $17.72 $30.17 $26.94 $35.40

In 1945 land sold on the average at almost double the low price of 1938.

This increase from $17.03 to $31.69 per acre occurred mostly after 1942 '

when war-induced commodity price rises began to have an effect upon the

 land market. Previously there had been four different years when the

price per acre of land sold was even higher. They were: 192,0, $35.40;

~ 1926, $37.11; 1927, $32.03; and 1928, $33.16.

By Type-of-Farming Areas

Representative conditions, as shown by the sample counties, indicate

j that wartime advances in the price of farm and ranch lands were by no
J means uniform throughout the State (Table 2).

In the Panhandle wheat area (1) the average price rose from $14.43 per
acre in 1940 to $21.32 in 1945, but it dipped as low as $12.23 in 1944.

\ There were erratic gains during this period in all the other areas for
.__ which data are available, except in the Coast Prairie (18) where there
p was a small decline from $42.07 per acre in 1940 to $40.07 in 1945.6

5U. S. Census of Agriculture, Texas, Vol. 1, Part 26, 1945.
fiLand prices in Wharton County, the sample county for the Coast Prairie area, did

5 not behave in accordance with observed conditions in other parts of the area, nor with
I the logical consequences to be expected from steep rises in the prices of beef cattle, rice,
i and cotton, the three principal commodities produced there. The explanation probably lies
; in a sharp differential in the quality of land offered on the market from one year to the
s next during the war. Wharton County sales activity in 1945 was marked by a large
_. volume of small tracts apparently below average in quality. There were 215 bona fide trans-

fers averaging 102 acres during 1945, as compared with only 24 transfers averaging 137
acres during 1940.' In the light of sampling characteristics such as these, caution should
he exercised in drawing conclusions from the data for the Coast Prairie area for these
years.

 

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10

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THE PRICE OF TEXAS FARM AND RANCH LANDS 11

In six areas selling prices soared to figures in 1945 that were more than

- 100 percent higher than the 1940 levels. These areas were the High Plains

cotton area (3), Rolling Plains (4), Trans-Pecos cattle grazing area (5),
Edwards Plateau (7), Western Cross Timbers (12), and the Northeast
Sandy Lands (15).

In most instances the production of cotton, beef cattle, or grain sorghum
was identified with the areas having pronounced advances in land prices.
However, spectacular increases also occurred where peanuts constituted
a major crop. In the Western Cross Timbers prices climbed from $11.46
per acre in 1940 to $27.34 in 1945, and were up in the Northeast Sandy
Lands from $11.91 to $27.07 per acre.

In the Trans-Pecos cattle grazing area ranch property was selling at a
figure 254 percent higher than before the war. Smaller ranches in the
Edwards Plateau (sub-areas 7b and 7c) were marketed in 1945 at 262
percent of the 1940 prices. It is an open question Whether even a con-
tinuation of wartime earnings would support for very long such top-heavy
capital investments in a grazing economy.

In the five other areas 1945 land prices were the highest on record.
Averaging $52.25 per acre, selling prices in the High Plains cotton area
far surpassed any previous annual average in the 26-year history.~ At
$51.29 per acre, the average in the Rolling Plains exceeded the former peak
of 1927. While the story was incomplete in the Upper Rio Grande Valley
area (6), land under irrigation or subject to irrigation in that area
sold at a top recorded price of $223.98 per acre. The Piney Woods
lumbering area (16), at $24.50 an acre, passed the old 1929 mark, and
the North-Central grazing area (11) set a new high of $29.25 per acre
in 1944, only to climb still higher to an average of $37.32 the following year.

The slowest land market recovery in the State appeared to be- in the
Black Prairie area (14). The 1945 averagelof $52.21 was barely more
than one-third of the top average price of 1920. . ‘ ~

Seasonal Trends in the Land Market

Three measures of the amount of turnover of farm real estate are
the number of acres sold, the total consideration, and the number of
transactions. In Figure 2, all three are utilized to examine the seasonal
influence upon sales volume in the land market throughout theState.

The data for 21 counties" for a 12-year period were summarized by
quarterly intervals to determine to what extent land sales activity
customarily varies during different seasons of the year. Each bar in the
diagram indicates the proportion of all the transfers through the year
that occurred in specified quarters. Nearly 19,000 transaction-s, involving
approximately 5% million acres valued at 86 million dollars, were con-
densed into a composite year’s business in this summary. * '

12Counties represented in the summary: Anderson, Blanco, Brewster, ‘Dawson, Ellis, El
Paso, Erath. Frio, Gillespie, Jeff Davis, J0nes,_ Medina, Nacogdoches, ‘Polk, Rockwall.
Robertson, San Patricio, Shackelford, -Sherman, Smith, and Wharton. 

12 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

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Figure 2. Summary of land sales in 21 selected Texas counties, by quarters 1934-1945.

The market is more active during the last three months of the calendar
year than at any other time. Normally, 32 percent of the annual sales
in terms of acreage and cash, or cash-equivalent, are made between the
end of September and the first of January. Thirty-one percent of the
year's total transactions are closed during this period.

The first quarter is second in importance as a season for buying and
selling farm real estate, according to the amount of money and number
of tracts changing hands (25 percent and 27 percent, respectively). How-
ever, fewer acres, 20 percent of the yearly total, are sold during these
first three months than in any subesquent quarter. This anomaly gives
rise to the question of what kinds of farm and ranch land move through
sales channels at various times of the year. Further attention will be given
to this matter presently.

A mid-year dip may be observed where seasonal trends are measured by
the aggregate amount of the consideration and the volume of transactions.
In both cases, the turnover in the second quarter consists of 20 percent
of the yearly total and for the third quarter rises to 23 percent in the
price category and to 22 percent in the number of transactions.

Sales in terms of acres, on the other hand, mount steadily from the
low point of the first quarter to the end of the year. This suggests that

THE PRICE OF TEXAS FARM AND RANCH LANDS 13

the lower-priced, large units are not sold in conformity with the seasonal
pattern as valued in dollars and deeds. An investigation of land-selling
practices in specific counties will serve to clarify this situation.

Land Use and Leasing Arrangements

To illustrate the seasonal characteristics of the land market under dif-
ferent conditions of tenure and land use, data are shown for three range
counties and for three counties in which field crops are the chief source
of income (Table 3). This comparison accounts for the discrepancy
noted above between the three measures of sales activity in farm and ranch
lands.

In areas devoted primarily to grazing and held in large tracts there
is no tendency for land sales to be concentrated in the first and last
quarters of the year. On the contrary, 59 percent of the sales are made
during the middle half of the year. In one major grazing county, Brewster,
73 percent of all transactions in land from 1934 through 1945 were con-
summated between March and October. Both in Blanco and Jefl’ Davis
Counties the third quarter is the period of maximum sales activity.

In sharp contrast to this practice, most land sales in the field-crop
counties are made during the fourth quarter (37 percent) and during
the first quarter (29 percent). Scarcely one-third of the selling takes
place during the six months in the middle of the year, and in Dawson
County the rate is still lower: 23 percent.

Why is there a mid-year sales peak in the range areas and a mid-year
decline in field-crop areas? One must look to the comparative types of
land use and leasing systems for the explanation.

Beef cattle and wool are two products that dominate the agricultural
economy of West Texas. The year’s business on cattle closes, or at least

Table 3. Comparative volume of transactions in three range counties and three field-crop
counties, combined by quarters. 1934-45

Combined quarterly totals

_ First Second Third Fourth
Counties quarter quarter quarter quarter Total
Per— Per- Per- Per- Per-

No. cent No. cent No. cent No. cent No. cent

Range counties

Blanco . . . . . . . . . . 120 21 142 26 170 30 130 23 562 100
Brewster . . . . . . . . 27 1 1 103 43 73 30 39 16 242 100
Jeff Davis . . . . . . . 20 21 19 20 28 30 28 29 95 100

Total . . . . . . . 167 19 264 29 271 30 197 22 899 100

Field-crop counties

Dawson . . . . . . . . . 406 37 144 13 105 10 444 40 1 ,099 100
Ellis . . . . . . . . . . . . 537 27 376 19 393 20 681 34 1 ,987 100
Rockwall . . . . . . . . 126 23 91 16 120 22 215 39 562 100

Total . . . . . .. 1,026 29 611 17 618 17 1.340 37 3.638 100

14 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

becomes relatively static, when the stock is marketed. Range conditions
and other factors sometimes force an adjustment in marketing dates, but
normally the busiest months are in the spring and fall. It is then that
prospective buyers are most likely to have the funds for the purchase
of land, and prospective sellers are most likely to be receptive to offers.
A corresponding break in wool production comes at the season when lambs
are weaned, ordinarily during August and September.

Another important influence is the length of the lease on rented lands.
Most grazing leases, being adjusted to the time factor in livestock en-
terprises, run for a term of years rather than expiring annually." Often
neither buyer nor seller, therefore, has any occasion to be concerned about
the imminence of a terminating lease and can negotiate a sale whenever
funds such as receipts from the marketing of livestock become available.
Also, many grazing leases terminate in the spring rather than at the
end of the calendar year.

In areas such as the Black Prairie and the High Plains cotton area,
the entire mechanism of production is geared to a strictly annual cash
crop and, in the case of tenant-operated farms, almost" wholly to a system
of one-year leases terminating on the last day of December.

In the High Plains, which is represented here by Dawson County,
more than 70 percent of the farm cash receipts for the year are earned
between October 1 and January 31.14 The harvesting season is earlier
in the Black Prairie, but changes in landiownership, like the movement
of tenant operators, tend to be keyed to the close of the calendar year.

Trends in Farm Land Taxes

As a production cost in agriculture, taxes are always present and
capable of affecting the land market. However, farm taxes on the average
rarely have exceeded 1 percent of the prevailing land values, and the
trend has not been closely related to the movement either of land prices
or of commodity prices (Table 4).

Characteristically inflexible, tax rates on Texas farm and ranch lands
ranged from an average of 16.6 cents to an average of 26.5 cents during
the 1920-1945 period. In a year of abnormally low prices for farm com-
modities, 1932, taxes were relatively high at an average of 20.1 cents
per acre; while in 1945, when commodity prices had risen 84 percent
above the base period, farmers averaged paying only 18.3 cents per acre
in taxes. At no time did it appear that taxes were high enough to dis-

courage land purchases generally.

Between 1920 and 1931, taxes rose while farm commodity prices declined.
In response to the insistent demands of farmers, general reductions oc-

18For example, West Texas lands owned by the University of Texas, amounting to
approximately 2 million acres, are operated uniformly under a 10-year leasing arrangement.
In other instances, leases for 3 years and for 5 years are common.

MThibodeaux, Bonnen, and Magee, “An Economic Study of Farm Organization and
Operation in the High Plains Cotton Area of Texas," Bulletin No. 668, Texas Agricultural
Experiment Station, Jam, 1939.

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THE PRICE OF TEXAS FARM AND RANCH LANDS 15
Table 4. Farm taxes per acre, index of farm taxes, index of farm prices, arid-ration!’
farm taxes to farm prices, 1920-1945 ._
Tax per acre _ Tax _ Price . l
Year (cents)15 index“ index" ’ Ratio"
1920 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16.7 98 217 .45

1921 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.4 102 105 .97

1922 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18.9 111 132 .84

1923 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 19.9 116 167 .69

1924 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20.7 121 166 .73

1925 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 21.9 128 156 .82

1926 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 22.3 130 126 1 .03

1927 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 23.5 137 129 1.06

1928 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 23.8 139 150 .93

1929 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 146 145 _1.01

1930 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.5 _ 149 109 %.37

1931 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 26.5 155 70 , 1.21

1932 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 21.4 125 51 2.45

1933 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 20.1 118 64* 1 .84

1934 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.9 105 90_ 14.17,

1935 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16.9 99 102 '.'97 '

1936 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.0 99 ‘ 101 ' .98.:

1937 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16.9 99 102 _ .97

1938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.1 100 81 A 1.23

1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.5 102 85 1.20

1940 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17. 1 100 92 L509 ..

1941 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.0 99 119 .83

1942 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.7 104 155 I67

1943 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16.6 97 173 .56

1944 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17.3 101 176 .57

1945 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18.3 107 184 .58
15Data collected on Project N0. 246, Texas Agricultural Experiment Station.
"Tax index equals the avera e annual tax for the State expressed in percentages.

_ Average

annual tax for the perio 1935-1939_=10_0. .

"Farm Economics, No. 150, Cornell University, March, 1946. _ _

"Ratio approximates _the real trend or weight of farm taxes, and 1S derived by dividing the
tax index by the index of farm prices.

'-\

curred during the depression years, and these have not yet been restored.
The real weight of taxation on land, as measured by the ratio of the
price index to the tax index, was lower during World War II than at
any time since 1920. But if post-war history repeats itself, taxes again
may increase in relation to farm income and impose an added burdenon
land buyers as commodity prices recede from current high levels. i

FACTORS INFLUENCING TEXAS LAND PRICES

The foregoing farm and ranch land prices are a reflection of many
factors. Indirectly these prices are related to a world economy at war and
to a confusion following the end of active fighting. The flow of relief and
rehabilitation food and fiber’ crops to enemy-invaded lands halfway around
the globe, may influence to some extent what an individual in Texas has
to pay for a blackland farm. The level of industrial employment, the ac-
cumulation of investment funds, and the demand deposits in country
banks, all may contribute in one manner or another to determining
land prices.

However, the degree to which these factors determine land prices -can
be evaluated only in terms of the influence they exert on other conomic
aspects which are more closely related to actualprices of "land. Among

16 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

these latter items are: (1) size of farm income, (2) share of farm
income going to the land, (3) returns expected by investors in farm
land," and (4) values that are attached to land because of potential
mineral production.

Farm Income, Commodity Prices, and Land

The first of the factors listed above, size of income, is dependent on,
or is a total of the prices received for, the various commodities produced
and sold by farm people.

In Texas, the three chief commodities from the standpoint of income
are cotton, wheat, and beef cattle. The prices received for these products,
particularly cotton and beef cattle, affect incomes in nearly all sections
of the State. Other commodities, though locally important from the income
standpoint, are limited to smaller areas. Examples of these are rice,
grown only along the Gulf Coast, and citrus fruits, which are confined
mainly to a small area of the Lower Rio Grande Valley.

High commodity prices alone do not necessarily mean that incomes
will be proportionately high. Among other factors, the volume of produc-

Table 5. Index o!’ gross farm income and index of farm and ranch land prices in Tens,

1920-1945
Gross farm income" Land rices
Year (1935-39 =100) (1935-3 =100)
Index Index
1920 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200

1921 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

1922 . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

923 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

1924 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 178

1925 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 152

1926 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 210

1927 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 181

1928 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 188

1929 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 179

1930 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 171

1931 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 146

1932 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 111

1933 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . » 75 109

1934 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 103

1935 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 100

1936 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 103

1937 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 103

1938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 97

1940 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 105

1941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 107

1942 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 ' 110

1943 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 132

1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 148

1945 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 179

19For more detailed discussion of these three points see United State Department of
Agriculture Circular No. 743, “The Farm Real Estate Situation, 1944-45."

20Bureau of Agricultural Economics, USDA. Index based on total cash receipts from farm
marketings plus government payments.

THE PRICE OF TEXAS FARM AND RANCH LANDS 17

 

Z40 "
ZOO '
I60 "
X
g I20 I
E
60 r-
\¢/
‘FARM INCOME
4° " ‘onm for? /920-25 Ivor AVAILABLE /935-59-/00
l l I I l l
I920 I925 I930 I935 I940 i945
YEAR

Figure 3. Trends in gross farm cash income (including government payments) and in
the price of farm and ranch land, Texas, 1920-1945.

tion, high or low, directly influences total returns. For this reason gross
cash farm income, rather than commodity prices, has been used on a
statewide basis to indicate reasons for price trends in the land market.

Land prices generally have moved up and down in the wake of total
farm income received from the sale of all farm commodities. A com-
parison of the index of land prices since 1920 with the index of gross
farm income reveals that a close relationship exists between these two
movements (Table 5). The graphic relationship (Figure 3) illustrates
that land prices usually lag one or two years behind farm income. A
sharp decline in farm income in 1921 was reflected two years later in a
low price for land. A new peak in Texas land prices was registered in
1926 following a recovery period in farm income. Beginning in 1927 and
continuing through 1938, land prices dropped steadily under the impact
of successively lower farm incomes after 1928. It will be remembered
that farm commodity prices dropped precipitously during this period. Al-
though commodity prices and farm incomes began a slow recovery about
1933, land prices remained rather stable at a low level and did not
begin to rise until 1940, or after a second World War had begun.

Since 1943, land prices have increased consistently following the rapid
wartime increase in Texas farm incomes. Showing a response to four
consecutive years of heavy farm production combined with continuously
increasing commodity prices, land prices made their fastest gains of
the wartime period from 1944 to 1945.

The period immediately following World War I was one of drastic
adjustments in commodity prices and farm income. Pent-up spending
power sent these prices and incomes to an ‘extremely high level in 1920,

18 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

and the dissipation of this spending power just as quickly dropped them
to a 10w point the following year. Land prices, however, were slow to
react. Significant changes in farm income for only one or two years
usually are not reflected immediately in land prices. The latter are
based on longer term expectations of income and, therefore, lag behind
any prolonged upward or downward income trend.

This time lag is demonstrated by the fact that land prices remained
fairly stable even through 1931, although farm income began declining
two years previouslyJActually, the prolonged period of low farm income
from 1931 through 1935 did not culminate in the lowest land prices until
1938-39. And longer term expectations of high incomes resulting from
the rapid recovery in commodity prices in 1941 were not expressed in
higher land prices until 1943.

While the index of total cash farm income in the State is indicative
of the general influence of farm income on all land prices, it is important
to examine some individual commodities and areas in order to illustrate
some of the relationships in more detail. These comparisons are made
in terms of farm commodity price trends which, for the most part,
parallel trends in farm income.

Area Trends

Land price trends in Erath County reflect quite closely the price of the
main cash crop. This county lies in the Western Cross Timbers type-of-
farming area and is representative of a large area of sandy soils devoted
more or less to general and self-sufiicing farming. Here a transition from
cotton to peanuts as the chief cash crop has been accomplished, and land
prices, reflecting peanut prices, have recovered rapidly from the lows
of the 1930’s (Figure 4). Land has, followed fairly closely, with little
lag, the upward surge in the prices paid to farmers for peanuts and is

¥
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O
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PEANUTS 1

   

S

   
 

DOLLARS PER i. LAND
5
T
CENTS PER POUND. PEANUTS

O
I920 I925 I930 I935 I940 I945
YEAR

Figure 4. Price received by farmers for peanuts and average price of land, Erath County,
Texas, 1920-1945. *Data for 1921 not available.

THE PRICE OF TEXAS FARM AND RANCH LANDS ' 19

now approaching the high prices of the middle 1920’s. Only the “boom”
period following World War I registered significantly higher prices for
land than existed at the end of 1945. With higher returns for peanuts
in 1946, still further rises in land prices may be expected in the area.

In Wharton County, a Gulf Coast rice-cotton-beef cattle area, land
prices, due perhaps to great diversification of income sources, did not
fall so low proportionately in the 1930’s as in most of the State (Fig-
ure 5). And the upward trend in the price of commodities promises to
carry land of this important area to levels as high, if not higher

a than have prevailed in the past. Another significant aspect of the area

lies in advancing industrialization. Such expansion may add value to
farm realty through furnishing a greater local outlet for farm products
and more substantial income opportunities for surplus farm population
in industry. ,

In the Black Prairie, represented here by Ellis and Rockwall Counties,
cotton was practically the sole cash crop of the first World War and of
the 1920’s. Land prices fluctuated rather sharply in response to cotton
prices during the period immediately following World War I and the first
decade thereafter (Figure 6). However, since 1933 the area has adopted
a more diversified type of agriculture. Cotton acreage has been reduced
by about one-half, and other sources of income have placed the area in
a more favorable position with respect to its dependence upon a single
crop. Perhaps due to this adjustment, land has not risen as high nor
reacted as sharply in price during the last five years as when under
the dominant influence of one commodity. Relatively, the area has ex-
perienced a smaller increase in land prices than any other in the State.

Land prices in the beef cattle-sheep-goat area of the Edwards Plateau
have more than regained the high registered in 1920. An all-time high
average for land prices was reached in 1945 in this area. In general,

    

- :2
3“ ' a :1
_|_ E  _ g
E =5 \ ' ° .1
< m a \ t
m n: L20 — ‘l . l YL  o
u u ' / BEEF n/ ' m
m 2Q n a \.-.’ o x I m
m m ‘\_-J/ "" \ \ l’ . "-
e 0-0, ~ I ; .’a ‘
§j § so _ )3 \;__ . x-’ . g
a: 3 mo: \_I f,
o o a’
O
Q n o l l l I I _ _o_ .
1920 192s mo was mo |94s
YEAR

Figure 5. Prices received by farmers for rice and beef cattle, and average price of land,
Wharton County, Texas, 1920-1945.

20 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

 

I50
g ' - 30 5
- II
u. I20 F - .24 8
n: .
2 ‘z’
9O I _
5 I I8 g
a n.
6O I l!
W I I2 u
E a.
3 w
o
0 l l l 1 s
I920 I925 I930 I935 I940 i945

YEAR

Figure 6. Price received by farmers for cotton and average price of land, Ellis and
Rockwall Counties, Texas, 1920-1945.

wool, mohair, and beef cattle, the chief sources of income in the area,
have made rapid price recoveries. And, since the greatest proportionate
price increases have been made in livestock and livstock products as
compared to general farm crops, it is to be expected that land prices in
such areas also may show marked increases.

In summarizing the interrelationships of income and Texas land prices,
it is apparent that land has followed the trends in farm income as it
has moved upward from the force of rising commodity prices and high
production levels. While following the movement of income, land prices
have tended to lag behind by a year or more. In areas where one com-
modity, or a group of similar commodities, provides the important source
of income, land prices follow rather closely the trend in prices of the

dominant commodities. At the end of 1945, both income and land prices

throughout the State were rising, with land prices making their highest
gains in the wartime period. In general, land was selling in 1945 at

Table 6. Relation of net farm income to value of farm real estate, Texas, 1941-1945

Annual net Total value of Net income as a
Year farm income“ farm real estate" percentage of
(1,000 dollars) (1,000 dollars) total value
1941 . . . . . . . . . . . . . . . . . . 465,951 2,570,000 18.1

1942 . . . . . . . . . . . . . . . . .. 594,954 2,734,000 21.8

1943 . . . . . . . . . . . . . . . . .. 820,741 2,848,000 28.8

1944.... . . . . . . . . . . . . .. 810,896 3,221,000 25.2

1945... . . . . . . . . . . . . . .. 701,246 3,575,000 19.6

21Bureau of Agricultural Economies, USDA.
22Data based on adjusted U. S. Census of Agriculture figures.

E
5
‘r
9
a
I

..-.,~¢mm-,- ~ ~

THE PRICE OF TEXAS FARM AND RANCH LANDS 21

about the same average level as in 1929 while farm income in 1945
was much higher than in 1929. In some type-of-farming areas, land
prices have reached the highest mark on record, and in others the 1945
price levels were about equal to the high of the 1920’s.

To indicate the strong pressure of increased income on land prices it
is only necessary to compare the estimated total net farm income with
the total value of farm real estate. During each year of the Wartime
period 1941-1945, net farm income represented approximately one-fifth
or more of the total value of all farm real estate (Table 6). This
meant, in general, that the net farm income would have paid for the
total value of farm real estate during the five-year war period, and
this despite the fact that land prices were increasing greatly from
year to year.

Share of Income to Land

The farm income level, as indicated above, is ordinarily the prime
factor in influencing land prices. However, it should be noted that prices
of farm products might be high while, at the same time, land prices
might be relatively low. Such a situation would exist where a propor-
tionately large amount of the income to land was drained ofl’ to pay taxes
or interest on a heavy outstanding real estate indebtedness-

This situation apparently does not exist at present in Texas. General
increases in commodity prices have resulted in greater incomes to the
land owned by non-operators. Rental payments on Texas farm and ranch
lands increased from $87,576,000 in 1941 to $148,660,000 in 1944 (Table 7).
This increase in rental payments during the war period was roughly
proportional to the increase in gross cash income. During the same period
certain expenses common to land held by non-operators, i.e., taxes and
mortgage interest, remained practically the same (Table 8). Actually
the slight increase in taxes has been offset by the decreasing amount
paid out as interest on indebtedness.

The significance to land values of increased income to land lies in
the tendency to capitalize higher returns into higher land prices. This

Table 7. Gross cash income and rental payments to landlords in Texas, 1941-1945"

Rental payments
Gross cash
Year income Amount Percent of
(1,000 dollars) (1 ,000 dollars) gross income
1941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770,239 87,576 11.4

1942 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 992,178 111,805 11.3

1943 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ,246,047 134,936 10.8

1944 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,260,076 148,660 11.8

19:5‘ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,193,009 124.788 10.4

28Data from Bureau of Agricultural Economics, USDA. Gross cash income is all income
from farm marketinzs plus government payments.

22 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

Table 8. Farm real estate mortgage interest and farm taxes in Texas, 1941-1911524

_ Mortgage interest Taxes Total
Year (1 ,O0O dollars) (1 ,O0O dollars) (1,000 dollars)
1941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18,111 20,428 38,539

1942 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17,658 22,164 39,822

1943 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15,774 21,263 37,037

1944 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15,166 21,830 36,996

1945 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,982 24,420 38,402

tendency becomes greater as the period of higher returns lengthens.
Such a tendency in combination with higher commodity prices may ac-
celerate further increases in the prices demanded for land.

A consideration of the share of income to land leads to the question
of rates of return expected by investors in farm and ranch land.

Returns Expected by Investors’ in Farm Land

A third factor which may directly influence land prices is the rate
of return expected by those who invest money in farm and ranch land.
There are no objective data available which bear on this subject as
applied to Texas. However, there always has been a supposition that
investors in agricultural holdings are satisfied with smaller rates of
return because of the tangible character of land.

In other words, a quarter-section of land remains a quarter-section of
land with its inherent productive capacity when other assets of an intangible
nature may become almost worthless during periods of extreme deflation.
Land, as such, becomes a depository for funds seeking safety rather than an
object of risk investment for production expansion. Because of this
safety feature, land purchasers often are less concerned than other
types of investors with high rates of return.

Mineral Rights and Land Prices

A fourth factor of importance in establishing land prices in Texas
is to be found in the extensive development of oil and gas production.
The influence of mineral production, of course, is due to real or pros-
pective income from royalties to land. While operating in a manner
similar to income from farm commodities, mineral returns are often
much larger and more spectacular?‘ '

There is virtually no area in the State which has not experienced,
directly or indirectly, the economic exhilaration of an “oil boom.” Of

24Data. from Bureau of Agricultural Economics, USDA.

25For an elaboration of this subject, see “Mineral Rights and Land Prices, Smith Coun-
ty, Texas,” Progress Report 1052, Texas Agricultural Experiment Station, Jan. 23, 1947.

THE PRICE OF "TEXAS FARM AND RANCH LANDS 23

Table 9. Average price per acre of farm land sold with varying interests in the mineral rights
reserved, Smith County, Texas, 1943, 1944, 1945

Fraction of mineral rights reserved
Year None One-half All
1943: Average price per acre . . . . . .. $26.51 $20.49 $11.41
1944: Average price per acre . . . . . .. 41.62 25.50 21.44
1945: Average price per acre . . . . . .. 44.99 39.06 17.29

the 254 counties of Texas, 155 were producing oil in 1944 and 174
counties were producing oil or gas, or both. There was land under
lease or drilling in every county. Total acreage under lease amounted
to 29 percent of the entire land area of the State.“

It follows that the status of mineral rights in any land tract greatly
affects its market value, even though the purchaser may buy in con-
templation of surface use only. The extent to which the sub-surface
factor affects land prices is hard to determine. While the problem varies
in importance in proportion to the time and intensity of development ac-
tivities in any vicinity, its presence may be observed even where the pos-

sibilities of oil discovery appear to be remote. In order partially to answer a

this question some information about the reservation of mineral rights
in land was studied. in Smith County, which is located in the big East
Texas field.

A study of 309 transactions covering the three years, 1943-1945,
revealed that land prices vary roughly in direct proportion to the share
in minerals transferred with the title (Table 9). For example, in 1945,
farm land in Smith County with all mineral rights transferred with the
title sold for $45 per acre, as compared with $17 per acre for land with
no mineral rights transferred. Corresponding data for 1944 were $42 and
$21, respectively; and for 1943, $27 and $11, respectively. Tracts in which
one-half of the mineral rights were transferred with the title sold at an‘
average price ranging between these two extremes in each of the years.

The three-year average price paid for land including all sub-surface
rights was $36.28 per acre (Figure 7). For those transferred with one-half
these rights, the price was $30.06 per acre. Land transferred with no
sub-surface rights passing with the title averaged $16.62 per acre.
In other words, the average buyer was willing to pay approximately
twice as much for land with one-half or all the mineral rights in the
title than for land with surface rights only.

Implications of this problem to Texas farmers who purchase land
are merely suggested here. More intensive research is required in order
to indicate the ultimate influence of mineral rights on the tenure struc-
ture and the pattern of land utilization in Texas. ‘

26Texas Almanac, 1945-46, p. 237.

24 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION
I
1
I

I $536. 2 8\ Y
$30.06

DEE ACQE

PEQ ACQE
$l6.6
0H2 ACQE

NO IQIGHTS HALF IQIGHTS ALL QIGHTS
QESEIQVED DESEIQVED QESEIZVED

Figure 7. Prices paid for farm land with varying interests in the mineral rights reserved,
Smith County, Texas (three-year average, 1943-1945).

  

In addition to the immediate factors discussed above there are many
more which may influence land prices in one manner or another. Some
of these may influence farm incomes directly and some may have less
direct effects through other phases of the economy.

Parity Price Policy

No list of factors influencing farm incomes directly, and land prices
indirectly, would be complete without mention of the price support program
now being followed by the Federal government. Important commodities
grown in Texas covered by price guarantees include corn, wheat, rice
and peanuts (for nuts) with supports at 90 percent of parity. Cotton
is supported at 92.5 percent of parity. Other commodities, including hogs,
chickens, eggs, milk, butterfat, and potatoes, are supported at not less
than 90 percent of parity. Important Texas products not included under
the price support program are beef cattle, sheep (although wool is
supported at 90 percent of parity), fruits, fresh vegetables, and grain
sorghums.

,-~ww,-,q»r< r\1\"w-wl~_F’-yw\rwu _.., . n".

THE PRICE OF TEXAS FARM AND RANCH LANDS 25

An important aspect of present price supports is the Federal statutory
commitment that the price levels referred to above will be supported at
not less than the specified percentages of parity for two years after
December, 1946. This means that farm incomes may be influenced by
these supports through 1948. More than a year after active fighting had
ceased most commodities were selling above parity prices, so that actual
supports in terms of income may have little real effect. However, in
terms of a longer trend, land prices may“ reflect commodity support
prices, since there is a general expectancy of some price revision downward
under an uncontrolled market situation.

Many farmers have not given enough consideration to the fact that
commodity price supports are to be lowered as the price of objects the
farmer buys is reduced. Because of Texas’ position in a psychology of
agricultural surpluses and low commodity prices for so long a period,
the general impression is that parity operates only to raise prices. For
this reason, and because under parity there is some security against
precipitous and disproportionate drops in commodity prices and there-
fore farm income, the trend effect of parity prices may be to enhance
the value of Texas farm and ranch land.

The relative importance of price support programs in relation to land
prices will vary by areas within the State. For example, grain sorghums,
now an important cash crop in the High and Rolling Plains areas, are
not included in the price support program. Neither are beef cattle and
sheep. These facts may be important in tending to influence land prices
in the areas concerned from a short-time standpoint. The areas that
are most likely to be influenced by price supports are those in which

.wheat, cotton, rice, and peanuts constitute important crops (See Figure 1).

Technological Advancements

Technological developments tend indirectly to influence land prices
toward higher levels over the short term period, if other factors do not
at the same time cancel these gains. In many areas, mechanization and
production per agricultural worker have progressed so fast that they
have more than offset the rapidly rising wage rates paid. to labor (Fig-
ure 8). Widespread use of large-scale combines, two- and four-row equip-
ment, pick-up hay balers, rice combines and dryers, and other equipment
have all tended to increase total value of production per worker and to
reduce unit costs of production. Better types of livestock combined with
improved varieties of field crops and pastures, and conservation practices
also point to a higher, more economical level of production.

This trend in overall technological advancement tends to stimulate
competition in the land market, especially for the smaller tracts which
are needed as supplementary acreage for existing farm units. In some
type-of-farming areas of the State, many farms are too small for the
operators to take full advantage of these advances. To do so requires
larger units which actually take on a greater per acre value under tenure

26 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

ZOO "'

 

I
. ' ,
cs0 - a ‘ ' /
PRODUCTION PER woRKER-S“,
n60 I
5 :40
U}
Q
m
E n20
I00
so LABOR cost PER um
6o I I : n n l l l _
|9|0 191s 1920 192s 1930 p 193s |s4o |945
YEAR

Figure 8. Product/ion per agricultural employee and labor cost per unit of agricultural
production, United States, 1910-44. (1910-14 equals 100.)
Source: Bureau of Agricultural Economics, USDA.

of a more favorable nature. Equipment usually has. been available to
most operators to handle an additional 80 acres or a quarter-section. Pre-
dominant purchase-rs of farm tracts during the wartime period have
been owner-opera.tors enlarging their. size of operations.

Credit Policies

The type of credit extended by private and public lending agencies
might influence land prices at certain stages of the business cycle. Agencies
that extend credit for a very large proportion of the purchase price of
a farm during inflationary periods encourage higher land prices. How-
ever, during the wartime years under study credit policies were a minor
influence, since most of the transactions were for cash, and those pur-
chasers who used credit generally kept its use at a minimum.sThe liberal
credit policies 0-f the Federal government in‘ the farm purchase program
apparently provided little impetus to increasing land prices, since this
program was ‘slowed almost to a standstill by the practice of extending
credit only at conservatively appraised values.

Non-farmer Buying

In, some areas land prices-have been influenced upward due to the in-
creased buying by “city farmers.” In the latter part of 1946 it was re-
ported that 70 percent of the farm land in Dallas County was in‘ the
hands of this type of owner?" Under such a situation land prices are

27Editorial in Dallas Morning News, Wednesday, November 13, 1946, based on report
of the County - Agent. ’

THE PRICE OF TEXAS FARM AND RANCH LANDS 27

often pushed so high that a bona fide farmer cannot compete in the
land market with the buyer who has other sources of income and invest-
ment capital. The extent of this practice in the wartime land market over
the rest of the State cannot be ascertained from present data. But it is
obviously a significant factor in establishing farm realty prices in a large
proportion of the land around urban centers. Moreover, it is reasonable to
assume that many of these buyers are purchasing land at prices above
those justified by long time expectations of farm income.

Industrial Employment and Incomes

An indirect factor in the farm real estate situation appears in another
segment of the national economy; namely, industrial employment and
incomes of industrial workers. The purchasing power of the chief con-
sumers of agricultural products greatly influences the demand for certain
farm products, which in turn, is reflected in commodity prices and sub-
sequently in farm income. When effective demand among purchasing
consumers of farm products declines, lower incomes to farmers and lower
levels of land values must be the result. If the rate of employment, wages,
and purchasing power on a national level remain high, an effective outlet
for most Texas products will be available, and substantial farm incomes
will continue to be reflected in high land prices.

BILLIONS OF DOLLARS

28 BULLETIN NO. 688, ‘IEXAS AGRICULTURAL EXPERIMENT STATION

Cash and Liquid Asset Holdings ‘

  

ueo ‘ I
i-  .-
:40
- L p _
'20 GT4
|oo   / ’
_ I _
so
so a  _
4P ,-"‘ -
4o A f‘
erg" -
2o Y,¢~\,\u.s.eov'T
"l". 0-’ sreounnn s_

o
r940. I942 r944 I946
YEAR

Figure 9. Status of personal liquid as-
set holdings.
Source: Federal Reserve Bulletin,
November, 1946.

Although the term personal does
not necessarily represent exclusive-
ly individual asset holdings, it
does include the holdings of in-
dividuals. The amount of money on
hand is not of itself a major price
determining factor. Rather it is
the liquidity or ability of the vol-
ume of money on hand to move
readily into trade channels.

4O

3° Lu ‘ /h
MEMBER BANKS

2O

A’

4P

BILLIONS OF DOLLARS

L04’ | RED
NON-M R exams

o , _
i940 I942 I944 I946
YEAR

Figure 10. Deposits in country banks.
Source: Federal Reserve Bulletin,
November, 1946. ,
Deposits in country banks are
presented rather than total demand
deposits for the reason that coun-
try bank deposits represent more
nearly the liquid assets of agri-
cultural entrepreneurs. Farmers de

siring investment outlets for sur- '

plus capital traditionally seek to
invest in land. The wartime study
reveals that this situation has not
changed materially in recent years.

THE PRICE OF TEXAS FARM AND RANCH LANDS 29

WARTIME LAND MARKET ACTIVITY IN THREE COUNTIES

In addition to the basic data on land prices already presented, more
detailed information on the land market is available from a special study
in three counties (Ellis, Jones, and Nacogdoches). This phase of the
report is concerned only with the war years, 1941-1945. For purposes of
analysis, the new material is integrated with some of the factors to
which reference has already been made.

Activity in the farm real estate market continued at a high level in
the three counties for special study throughout the wartime period.
The most important characteristics of activity in the last war year, or
1945, may be summarized briefly.

The actual number of bona rfide transactions in the sample area was
2 percent greater than in 1944. The high level of farm sales in 1945,
however, was 21 percent below the peak attained in 1943. Prices paid
per acre were approximately 9 percent above the 1944 prices and 46 per-
cent above the 1941 level. Total acreage involved in sales was down 11
percent from the 1944 figure. This is an indication of a tightening sellers’
market, with offerings of smaller tracts of land for sale. The average
price per acre continued to move upward, while the overall rate of
increase in price per acre was approximately 20 percent above the 1944
price. For individual counties the rate of increase in price per acre was
as follows: Ellis, 11 percent; Jones, 35 percent; and Nacogdoches, 13
percent.

In general, farm units being offered were smaller, price per acre and
per unit greater. From questionnaires and field contacts made in the
counties it was evident that there is still a strong demand for farm units
of every type at the prevailing high prices.

Predominant purchasers of farm units to date have been owner-operators
who find it advantageous to enlarge their present operations. Toward the
end of the wartime period, however, serious competition appeared to be
developing between farm operators and non-farmers in the purchase of

Table l0. Acres of farm land sold as a percentage of total farm acreage, three sample counties,
Texas, 1941-1945

Total acres of land Acres of farm land sold Percent sold of total
m farms" (1,000 acres) land in farms
Year ( 1,000 acres)
_ Nacog- Nacog- Nacog-
ElllS Jones doches Ellis Jones doches Ellis Jones doches
1941 555 701 352 30 25 29 5.4 3. 6 8.2
1942 555 701 352 18 17 19 3.2 2.4 5.4
1943 s55 701 s52 33 2s as 5.9 4.0 9.9
1944 530 576 340 30 18 22 5.7 3.1 6.5
1945 530 576 340 18 18 26 3.4 3.1 7.6

"U. S. Census of Agriculture (1940 data for years 1941-43; for other years, 1945 data).

30 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

available lands. There are many factors contributing to this condition;
lack of conventionally attractive investment opportunities for increased
capital accumulation, and adjustments of accounts for income tax pur-
poses apparently are two of the more important.

Total acreage of land transferred in the three counties for the entire
period of "study, 1941-1945, inclusive, represented only 23 percent of the
total land area in farms (Table 10). However, thelacreage transferred
varied by counties with about one-third the total farm land in N acogdoches
County changing hands. Of this total, a considerable number of units
changed hands several times over this five-year period. Resales of prop-
erties held for“ two years or less, on the average, accounted for 6 to 8
percent of all transactions recorded. Atno time during any one of the
war years did more than 10 percent of the total farm land in any of the
three counties change hands through open market or bona fide sales
transaction. It would appear, therefore, that no major dislocation in the
future agriculture of these areas is likely to result from the transfer of
farm lands during the wartime period. However, one result of significance
is the enlargement of farm units and the reduction in the total number
of farms. Also, there appeared to be a significant number of smaller
subsistence tracts purchased by war workers, particularly in Nacogdoches
County. a
Size of Tracts Transferred

The trend in the size of holdings transferred presents an interesting
factor in the land market situation (Figure 11). In 1941, the average
acreage per transfer in the three sample counties was 143 acres. In
1945, this average had dwindled to 99 acres per transfer, or a decrease
of 31 percent; whereas, the average consideration per unit transferred

   

|eo- 4
PRICE PER ACRE
:20-
8 8Q 7 _ n _ __
ll!
3f snzs 0F uoromes TRANSFERRED
/94/=/oo
I I I I I

:94: |942 |94a 1944 |94s I946
YEAR A

Figure ll. Trends in the average price of land and the average size of holdings trans-
ferred, three sample counties, Texas, 1941-1945.

THE PRICE OF TEXAS FARM AND RANCH LANDS 31

actually increased slightly. In other words, in 1941 it required less funds
to purchase 143 acres of land than was required to purchase 99 acres of
land in 1945.

It appears that the situation with regard to the transfer of farm lands
during the war period was not vastly different from that of many other
scarce producer goods and many basic commodities. The land market
developed into a sellers’ market primarily, with many prospective buyers
and relatively few sellers. Increasing pressure from both farm and non-
farm groups to acquire additional land became one of the many factors
which forced the price to continue upward. Sellers who had land to
release usually were those with small holdings which were comparatively
less eflicient than the large operating units. Prices were such as to en-
courage the release of the small unit.

There is no information available to indicate that prices reached levels
suflicient to induce the breaking up of large operating units in order to
take advantage of a situation where there were many buyers willing to
accept small-acreage units at relatively high prices. It is true that credit
agencies sold many large units early in the war period, but the objective
of these agencies was to recoup a satisfactory return, or perhaps to obtain
relief from what had been in many cases an unprofitable venture.

The wartime level of farm commodity prices was sufficient inducement
to discourage active farmers from selling their property. On the other
hand, a more compelling influence than “inflated price” was responsible
for many farm units being placed on the market. In a period in which
experienced farm labor was difficult to obtain, many farmers approaching
retirement age were confronted with the alternative of selling or of operat-
ing their units at a loss. In numerous cases the farmer forced to make a
decision on this alternative chose to sell the farm for what he considered
a desirable price.

Types of Buyers and Sellers

The dominance of farm operators in the land market was an outstanding
feature throughout the war period (Table 11). Except for the early
period, 1941-1943, when insurance companies and other credit agencies un-
loaded their holdings—-which for the most part had been acquired through
foreclosures—both buyers and sellers of farm land predominantly have been
farm operators. However, the purchase of farm land by non-farmers
steadily increased throughout this period. This tendency was most pro-
nounced in Ellis and Nacogdoches Counties. As prices of land increased
and desirable tracts came into greater demand as additions to going farm
units, and as investments or experiments for surplus funds, tenant farmers
became less able to compete for land being offered for sale. l A

Non-farmer buyers increased in importance throughout the war years,
although the owner-operator farmer remained the heaviest buyer of land.
The tendency of farmers to invest their surplus capital in land is, and,
apparently always has been, a common practice in the United States. How-

32 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

Table ll. Farm real estate sales classified by type of buyer, three sample counties, Texas.
9

l 4 1 - 1 945
1941 1942 1943 1944 1945
Count and
type o buyer Per- ' Per- Per- Per- Per-
No. cent No. cent No. cent No. cent No. cent
Ellis

Owner-operator. . 138 ‘69 106 73 176 68 147 70 78 51
Non-farmer . . . . . . 63 31 28 19 72 27 54 26 73 48
Tenant . . . . . . . . . . . . . . . . . . . . . . 1 1 8 14 5 8 4 1 1

Total . . . . . . . 201 100 145 100 262 100 g 209 100 152 100

Jones

Owner-operator. . 70 67 85 79 79 ' 59 59 63 86 72
N on-farmer . . . . . . 17 16 6 5 29 22 26 28 25 21
Tenant . . . . . . . . .. 18 17 17 16 25 19 8 9 9 7

Total . . . . . . . 105 100 108 100 133 100 93 100 120 100

Nacogdoches

Owner-operator. . 132 63 71 44 137 46 134 55 176 58
Non-farmer . . . . . . 67 32 69 43 143 47 96 39 83 27
Tenant . . . . . . . . . . 12 5 22 13 22 7 14 6 47 15

Total . . . . . . . 209 100 162 100 302 100 244 100 306 100

ever, the rapid progress made in mechanizing farm operations probably
has been the most significant single factor in encouraging farm operators
to expand their present holdings through acquiring additional tracts.
The impelling motives of non-farmer buyers are not so easy to ascertain.

Mortgage Indebtedness

Although a considerable acreage of land was sold during the war with
first and second mortgage liens attached, the general level of farm mort-
gage indebtedness declined steadily (Table 12). Data on the amount of
indebtedness incurred in farm land sales are available for the sample
county area during the war period, but there are no comparable data
available for other periods from which comparisons may be drawn. The

Table 12. Relationship of mortgage debt to total value of farm real estate and interest ratefl,
Texas, 1941-194529 ‘

Total out- Total value Mortgage debt Farm mortgage
Year standing farm of farm as a percentage interest
mortgage debt real estate of total value rates
(1,000 dollars) (1,000 dollars)
1941 . . . . . . . . . . . .. 421,448 2,570,000 16.4 4.5

1942 . . . . . . . . . . . .. 417,817 2,734,000 15.2 4.6

1943 . . . . . . . . . . . .. 386,271 2,848,000 13.5 4.6

1944 . . . . . . . . . . . .. 345,642 3,221,000 10.7 4.7

1945 . . . . . . . . . . . .. 316,357 3,575,000 8.8 3“

, “Source: Bureau of Agricultural Economics, USDA.
“Rate not reported.

THE PRICE OF TEXAS FARM AND RANCH LANDS 33

   
 
 
   
     
  

current level of farm mortgage indebtedness "for the State of Texas has
followed closely the national trend and shows a marked downward trend
during the war years.

Source of Credit

Without exception, individuals were the leading source of credit for
the purchase of farm lands throughout the war period, no single credit
agency in any year having equaled the number of mortgage loans from
individual sources (Table 13). From 1942 through 1945, over 50 percent
of all credit used by buyers was furnished by this class of lenders. These
loans were made directly on a personal basis, or else funds were made
available through loans underwritten by individuals. In Nacogdoches
County credit extended by individuals was an especially important factor
in facilitating the transfer of farm land, accounting for as high as 75
percent of all the mortgage loans made in a single year. Jones County
buyers also relied heavily upon this source of credit.

Insurance companies continued to favor the Black Prairie in their
lending activities; although 1941, when these firms furnished one-third

TABLE l3. Sources of credit used for purchase 01' farm lands, three sample counties, Texas,
1941- 945

 

Amount and percentage of credit

" County and credit source 1941 1942 1943 1944 1945

Dollars Percent Dollars Percent Dollars Percent Dollars Percent Dollars Percent

 

 
  
 

.viduals . . . . . . . . . . . .. 145,671 28 127,465 33 238,628 31 321,514 50 143,720 49
f Federal Land Bank and

Commissioner" . . . . . . . . 75,777 14 91,549 24 203,957 26 60,893 10 21,945 8
Imirance companies... . . 175,074 33 93,290 25 210,358 27 152,729 24 47,028 16
Commercial banks . . . . . . . 1, 3’ , 3 55,360 7 54,305 8 51,493 18

. . . . . . . . . . . . . . . . . 133,248 25 58,025 15 69,129 9 47,995 8 27,644 9
i Total . . . . . . . . . . . . 531,270 100 381,409 100 777,432 100 637,432 100 291, 830 100
3"". .
“ Individuals . . . . . . . . . . . . . 154,129 35 165,180 62 187,999 49 160,225 60 269,689 83
. Federal Laud Bank and

Commissioner" . . . . . . . . 47 .046 11 49 .970 19 153 ,625 40 78 ,557 30 24 ,049 7

Imirance companies...“ 55,434 13 14,630 5 34,219 9 11,369 . . . . . . . . . . . . . . ..

Commercial banks . . . . . .. 55,295 12 3,500 1 5,600 2 . . . . . . . . . . . . . . . . 10,313 3

. . . . . . . . . . . . . . . .. 127,912 29 34,613 13   15,423 6 22,604 7

Total . . . . . . . . . . . . . 439 , 816 100 267 , 893 100 381, 443 100 265,574 100 326 , 655 100

  

 oches
f‘ viduals . . . . . . . . . . . . . 59,701 68 58,049 67 130,874 67 130,298 75 121,340 65
f, Federal Laud Bank and

. Commissioner"._ . . . . . .. 20,551 23 22,343 26 25,422 13 4,664 3 6,534 4

~ Iimirance companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 Commercial banks . . . . . .. 5,330 6 6,280 7 40,183 20 23,726 14 55,625 30

5 other“ . . . . . . . . . . . . . . . . . 3, 3 200 a’ 122 n 13,250 8 1,879 1

Total . . . . . . . . . . . . . . . 88,582 100 86,872 100 196,601 100 171,938 100 185,378 100

§_ 31Inc1udes Joint Stock Land Banks.’
82Less than 1 percent.
B-‘llncludes FSA and loan and mortgage companies.

r

 

34 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

of the mortgage credit in Ellis County, was their biggest year in the
sample area. No loans were made by insurance companies in Nacogdoches
County during the entire five years.

The volume of loans made by the Federal Land Bank declined steadily
as the war progressed and land prices soared, until by 1945, the bank
was providing less than one-tenth of the mortgage credit for financing
transfers in each of the sample counties. Much of this reduction was
absorbed by commercial banks which became the second most important
source of credit for land purchases in Ellis and Nacogdoches Counties.
Commercial banks were fairly active in Jones County.

Buyers’ Equities in Encumbered Sales

A prime consideration in the purchase of land on a credit basis for
farming purposes is the amount of the purchase price liquidated at the
time of sale in a cash payment. A buyer who obtains a considerable equity
in farm land at the time of purchase, of course, is inma relatively better
position to withstand adversities in retiring the encumbrance. In these
three counties, an analysis of credit-financed transfers reveals that a
considerable portion of the selling price was paid in cash (Table 14).
For the entire period, 1941-1945,, the average down payment at the time
of purchase was consistently above 25 percent of the sales price in each
of the three counties.

In 1945, notwithstanding the high level of prices at which farm land
was being sold, equities secured by buyers in encumbered transactions in
the special study area averaged over 40 percent of the sales price. In
Jones County, the average equity purchased by buyers in 1945 amounted
to 50 percent of the total sales price.

Because of the.generally high rate of farm production maintained through
the war years and a continued high level of prices received for farm
commodities, buyers who purchased lands on credit terms in the early
part of the war period have had an excellent opportunity to increase
substantially their equities in these properties. As pointed out earlier, net
farm income during the war period would have retired an approximate 100
percent indebtedness on the total value of all real estate. The continued

Table 14. Buyer’s equity in encumbered sales of three sample counties, Texas, 1941-1945

1941 ' 1942 1943 1944 1945

County Number Number Number Number Number
of encum- Buyer's of encum- Buyer’s of encum- Buyer's of encum- Buyer's of encum- Buyer's
bered equity bered equity bered equity bered equity bered equity
sales (percent) sales (percent) sales (percent) sales (percent) sales (percent)

Ellis . . . . . . . . . . . 157 28 99 25 198 31 142 35‘ 78 45

Jones. a‘. . . . . . . . . 101 25 80 38 105 43 63 45 77 50
3H1

Nacogdoches. . . . 119 27 109 34 178 34 128 35 149 38

rrv . ~r>7Y7"*Pr‘|v{r<rfi"'v-vw4'>n-

 

THE PRICE OF TEXAS FARM AND RANCH LANDS 35

downward trend in the level of farm mortgage indebtedness through
1945 indicates that land buyers have, in fact, taken advantage of this
opportunity.

Cash Sales

Low interest rates and comparatively easy credit terms during the war '

years apparently had little influence on buyer tendencies to make outright
cash purchases of farm land. This marked trend toward more cash trans-
actions was one of the outstanding characteristics of the gland market
during the war period.‘ Cash sales reached an unprecedented level 'in
1945 (Table 15). Of all sales recorded in the three counties, 52 percent
were made on a straight cash basis.

Table 15. Proportion of farm land transfers made on cash basis, three sample counties, Texas.
1941-1945
Ellis County Jones County Nacogdoches County

Year Total Number Percent Total Number Percent Total Number Percent

transfers of cash of transfers of cash transfers of cash - of
recorded transfers transfers recorded transfers transfers recorded transfers transfers

1941 . . . . . . . . . . . 238 81 34 142 41 29 209 90 43

1942 . . . . . . . . . . . 148 49 33 111 31 28 182 73 40

1943 . . . . . . . . . . . 270 72 27 148 43 29 336 158 47

1944 . . . . . . . . . . . 224 82 ' 37 105 37 35 281 153 54

1945 . . . . . . . . . . . 156 78 50 122 V45 37 345 196 57
Total ..... . . 1,036 362 35 628 197 V 31 i 1,353 670 50

The importance of direct cash outlay to purchase farm lands in a period
of high land prices warrants special attention. From past experience
it is known that prices for lands purchased through the utilization of
credit are sometimes far in excess of the price that a farm by its income
can liquidate over a given period, or more properly, over an amortized
loan liquidation period. If, however, these same farms had been purchased
for cash rather than through the use of credit, the story of many an un-
successful venture in the business of farming in all probability would
have to be rewritten. If the trend of cash sales continues there can be
no large scale postwar foreclosure problem in Texas. A

SOURCE OF DATA AND METHOD

The primary source of data used here was the deed records from the
oflices of county clerks in the various sample counties. The aim in the
method of collecting the material was to obtain an accurate indication
of the market values of agricultural land.

Therefore, only warranty deeds covering transfers of land outside
the corporate limits of cities and towns were included in the tabulations.

36 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

Excluded were deeds of trust, forced sales and foreclosures, gifts, quit-
claim deeds, and other transfers not regarded as bona fide sales. Trans-
fers in which the buyer and seller obviously were related were eliminated
in order to avoid the inclusion of prices that might have been below the
true market level. -

An arbitrary minimum of 10 acres was applied in all cases (5 acres
in irrigated sections) so as not to combine semi-urban lands and highly
improved homesites with genuine agricultural production units.

A check was maintained on extraordinarily high or low prices by ob-
serving the amount of the internal revenue tax paid on the sale. Also,
due to the practice of many individuals of recording the consideration
as “$10 and other good and valuable considerations” and similar phrase-
ology to obscure the actual selling price, the correct consideration was
estimated from ‘the taxes on a number of sales.

On real estate sales the internal revenue tax is 55 cents for each $500
of the consideration, or fraction thereof. In estimating the consideration,
it was assumed in each case that the last revenue stamp bought covered
one-half of the $500 limit, or $250. Thus, the maximum error was held to
$250, an error which was insignificant on big sales and largely compensa-
tory on a sizeable volume of transactions. Assumed debt, if any—not
being subject to taxation-was added to this estimated figure to arrive
at the approximate total consideration.

Final editing resulted in the elimination of a variety of sales that were
not believed to represent market values. Between 1935 and 1942, for
example, the “United States of America” was listed either as a buyer or
seller of a number of tracts along the Rio Grande, River in El Paso
County. Inquiry revealed that these transactions were made in connection
with the problem of correcting the international boundary to conform
to the meanderings of the river. Most of these transfers involved in-
dividual landowners and buyers and, presumably, the prices were in
line with prevailing rates. However, transfers of this type are not rep-
resentative of willing buyer and seller transactions. Therefore, this series
of sales was deleted from the summaries for El Paso County. In each
of the other counties, all sales were eliminated where there was any
reason to doubt that they were altogether voluntary.

After editing was completed, the data for each county were combined
by quarters and by years. The average price per acre for the county was
calculated by dividing the total consideration on all sales by the total
acreage transferred. For those areas in which there was more than one
sample county (Areas 5, 6, 7, 8, 14, and 15), the area average was derived
by weighting the individual county figure according to the proportion of
the land represented by that county in the total area sample.

Weighting often makes a significant difference in the results. For in-
stance, in 1945 in the Trans-Pecos cattle grazing area, prices averaged
$10.60 per acre on sales in Jefi’ Davis County and $5.11 per acre in
Brewster County. The unweighted average would have been $7.86.

THE PRICE OF TEXAS FARM AND RANCH LANDS 37

However, Brewster County is much the larger of the two—3,973-,000 acres
as compared with 1,445,000 acres in Jeif Davis County-containing 73.33
percent of the combined land area. Therefore, an acreage factor of .2667
was applied to the $10.60 average for Jeff Davis County and a factor of
.7333 was applied to the $5.11 average for Brewster County. The result was
a weighted average for the area of $6.57 per acre, or 16 percent below
that of the unweighted figure. This avoids overrepresentation by small
counties which usually have a correspondingly small sales volume.

,1 The State average was obtained by the same weighting process, the
f weight in each case being the total land area Within the type-of-farming
 area sampled. Using the relatively normal years, 1935-1939, as 100, an
i index of land prices was devised from the State averages.

ACKNOWLEDGMENTS

Guidance in planning and completing this study was provided by L. P.
Gabbard, head, Department of Agricultural Economics and Sociology.
. The authors gratefully acknowledge their appreciation.

All data on commodity prices were provided by V. C. Childs, State
agricultural statistician, Bureau of Agricultural Economics, USDA. In
lieu of a reference at each ofthe numerous places in this report where
such data were used, credit is hereby given for this invaluable assistance.

This report is a phase of a broader study of land tenure problems at
the Texas Agricultural Experiment Station, which has been developed in
close collaboration with the Southwestern Regional Land Tenure Project.
The regional project is under the supervision of the Southwestern Land
Tenure Research Committee composed of representatives of the depart-
l ments of Agricultural Economics and Rural Sociology in the Land-Grant
I Colleges of Arkansas, Louisiana, Mississippi, Oklahoma, and Texas, and
one representative each from the Bureau of Agricultural Economics, USDA,
‘ and the Farm Foundation. The Regional Land Tenure Research Project
 has been financed jointly by the institutions represented and the General
. Education Board.

v."

SUMMARY AND CONCLUSIONS

w-twwv-

This study has attempted to examine the Texas farm and ranch land
market with special attention to the war period, and to point out some
of its characteristics. A summary of the existing facts and some implica-
tions follows.

At the end of 1945 the average price of Texas farm and ranch land
was 79 percent higher than during the base period 1935-39. The most rapid
increase in land prices occurred during 1945 when the index rose from
148 to 179.

On the average, the price per acre increased from $18.54 in 1940 to
$31.69 in 1945.

E

I

38 BULLETIN NO. 688, TEXAS AGRICULTURAL EXPERIMENT STATION

Land prices generally follow the trend in farm commodity prices. The
general level of the latter is a year or more in advance of the land price
trend.

In certain type-of-farming areas, mainly livestock grazing and peanut-
producing areas, the price of land in 1946 was near an all-time high.

Land transferred with all mineral rights intact demands a significantly I .

greater price than does land transferred with only a fractional interest
in the sub-surface rights.

In general, farm owner-operators have been the largest class of buyers
during the entire war period. To a great extent these buyers are enlarging
operating units already owned. l

Tenant buyers have not been an important group in the land market
since the first year or two of the war. Apparently, tenants cannot compete
succesfully in the land market in periods of rapidly rising prices of land.

Non-farmer buyers are becoming a more significant group in the land
market as prices continue to rise.

A large proportion of transactions are for cash. Those buyers using
credit with mortgage encumbrances usually obtain a large portion of the
equity at the time of purchase. Individuals have extended most of the
credit used during the period but commercial banks became more im-
portant during 1945.

Available facts indicate that land prices have reached what might be n‘

termed “boom” proportions in many areas of the State. This is particularly
true in view of the commonly held opinion that farm commodity prices
cannot maintain the high levels of the war period. The income-yielding
capacity of land does not justify existing high land prices unless com-
modities are held at a high wartime price level. This situation prevails
especially in grazing areas.

Some of the usual characteristics of a land boom do not exist in the
Texas land market. Relatively slow turnover, as it appears in many areas,
is not characteristic of a land boom. A large volume of credit transactions
and subsequent mortgages, another mark of a general land boom, is not
a part of the present land market. On the contrary, a large proportion
of transactions have been for cash and most buyers using credit hold
a sizeable equity in the purchased tract.

If the usual lag behind commodity prices occurs, a further increase
in land prices may be expected. Except for the increasing cost of produc-
tion coupled with the psychology of impending lower commodity prices,
all factors as summarized in the above text tend to point toward higher
land prices.

Higher prices than existed in 1945 for land may lead to several results.
One of these is that non-farm buyers may become the chief group buying
land. Farmers who earn their living from the soil cannot compete in an
excessively high market with the non-farmer who has other sources of

 

   
  
  
 

THE PRICE OF TEXAS FARM AND RANCH LANDS .39

income. Returning veterans and tenant farmers will find it increasingly
a diflicult to enter agriculture as owner-operators except through inheritance
or gifts. Farm ownership loans to veterans and tenants have almost stopped
due to insufiicient land at conservatively appraised prices.

. Because of unfavorable prices many farmers may be buying units too
§ small for efficient operation. There is evidence that some may be buying
e smaller acreages to oifset the larger expenditure of funds required by
f advancing prices. On the other hand, farm owner-operators who can en-
f“ large their present operations may find it advantageous to buy small ad-
a joining or nearby tracts at relatively high prices. Increased returns
due to more eflicient use of labor and equipment in many instances may
offset high investment costs on additional acreage.