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| Duane A. Lienemann UNL Extention Educator |
March 22, 2013 Edition
One of the
most requested documents from our office this last couple of years has been the
UNL Land Value and Rental Rate document that comes out annually about this time
of year. We now have the 2013 material in hand and it is also available on the
web @ http://agecon.unl.edu/cornhuskereconomics.
According to UNL Ag Economist and survey guru, Bruce Johnson (whom I will quote
heavily in this week’s edition), despite an extreme drought and indicators of
weaker agricultural earnings on the horizon, the markets for agricultural land
in Nebraska have remained strong into early 2013.
Increased Land Values: In reviewing the
survey, you will find that the preliminary findings from the 2013 University of
Nebraska-Lincoln Nebraska Farm Real Estate Market Developments Survey show the
state’s all-land average value rose 25
percent over the 12-month period ending February 1, 2013. Survey
reporters across the state reported percentage gains for all the farmland
classes for the year ending February 1, 2013. But, the variation across the
classes as well as across sub-state regions was extreme. Following on the
advances for each of the previous two years of 22% and 32%, respectively, the
2013 all-land value is more than double the value of just three years
previously, in early 2010. I noticed that southern Nebraska had the highest
increase in land value for 2013 with a spike of 33%, which really didn’t
surprise me with all of the recent land auctions in our part of the country. Few would disagree that this period has
clearly been a land boom!
Drought
conditions in 2012, no doubt, buoyed up market demand for irrigated cropland;
and as a result the irrigated land classes had the largest percentage value
gains across the state. Income flows from irrigated land have been phenomenal
in recent years, and 2012 was no exception - the combination of favorable
irrigated yields while widespread drought across the nation’s Corn Belt, fueled
high crop commodity prices. In the Southern parts of Nebraska the percentage
value advances for irrigated land were particularly strong over the past year.
For dry-land cropland values, the percentage increases over the past year
varied greatly across the state but was more than 30 percent higher in the
South and Southeast Districts. The land class, dry-land cropland with
irrigation potential, shows considerable variation as well. The presence of
water moratoriums across much of the state precludes irrigation development
even if groundwater sources exist. How about rental rates?
Rental
Rates: Not surprisingly the survey showed that 2013 cash rental rates for
cropland were up from 2012 levels, depending on region and if it was irrigated.
Preliminary estimates for dry-land cropland cash rents in Southern Nebraska
averaged about 5% above a year ago. The increase was much below the annual
rises of the past few years, no doubt reflecting the seriousness of soil
moisture deficits going into the 2013 crop year. There is a high and
low range, but I like using the average rental rates, and for Southern Nebraska
the average for dry-land came out at $122 per acre.
Across the
state, center pivot irrigated cropland cash rental rates for 2013 were
reportedly 13 to 15 percent above a year earlier. Reported rates for the
high-third quality center pivot cropland were over $400 per acre across the
eastern third of the state. I too have heard of those kinds of rates, and even
about bidding wars. All in all, the difference between gravity and center pivot
rental rates seemed to favor pivots by $30-60 per acre. The value of water in
rain-deficit periods, particularly with the efficiency of the center pivot
technology, is clearly being reflected in these rates. For Southern Nebraska
the average rental rate was indicated at $275 per acre on gravity irrigated
ground and $315 on center pivot irrigated land.
Despite the
heavy toll of drought that cut forage capacity as much as 50 percent or more
during the 2012 grazing season, grazing land values still rose. Forage
shortfalls for cattlemen may have actually caused a more spirited bidding for
additional land, just to maintain their cow herd numbers. Unfortunately, even
if the drought ends quickly, it may be several years before grazing capacity
may be able to return to pre-drought levels. Pasture land rates on a per-acre
basis moved upward for 2013 in most regions of the state. Last year’s forage
production shortfalls, with depleted carry-over stocks into this year has
sharpened the market for pasture, even though the potential grazing output will
very likely be below normal for the year. On a cow-calf pair per month basis,
the rates were up from a year earlier in all regions, with most districts
showing gains in the three to six percent range. For Southern Nebraska the
average pasture rental rate is $38 per acre or $40 per cow/calf pair per month.
I do caution however that pasture rent options need to be carefully considered
this year!
Final Thoughts on Land Value: When you
compare the percentage gains in value of agricultural land classes with the
lower percentage gains in cash rental rates, a continuing pattern of lower
rent-to-value ratios associated with all farmland classes is evident. The 2013
survey respondents frequently commented that current land prices being paid
seemed overly-optimistic. When asked what they expected land value movements to
be for the remainder of 2013, as well as out three to five years, the vast
majority of respondents saw a market which had topped out with little, if any,
upward movement in the near future. In fact, a sizable number of reporters
thought values could weaken somewhat in the next few years. There is not only
the worry of drought for 2013 but the potential for a weak price for corn and
soybeans, especially if the continued pattern of wet weather east of the
Missouri River continues. It would not be a surprise to me to see a backlash on
these land prices. At some point, the implied economic returns to land as a
percent of value can fall to a point where market participants say “enough”
and no longer bid values higher. Here in Nebraska, we may be quickly
approaching that point!
The preceding information comes from the research and
personal observations of the writer which may or may not reflect the views of
UNL or UNL Extension. For more further information on these or other topics
contact D. A. Lienemann, UNL Extension Educator for Webster County in Red
Cloud, (402) 746-3417 or email to: dlienemann2@unl.edu or go to the
website at: http://www.webster.unl.edu/home
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