Farm real estate values increase
Riding the wave of high commodity prices and farm income levels, Nebraska's agricultural land values rose 22 percent in the 12-month period ending Feb. 1. According to preliminary results from the annual University of Nebraska-Lincoln Nebraska Farm Real Estate Market Developments Survey, the state's all-land average value is at a historic high of $1,833 per acre. That level is double the state's all-land average just six years previously in 2005.
While all classes of farmland posted large percentage gains, the cropland categories showed the strongest gains--a clear reflection of high income conditions for the state's crop sector over the past few years, according to Bruce Johnson, UNL Department of Agricultural Economics. For the center pivot cropland class the annual value advances have been particularly strong for some time, with a doubling of average value in just the last five years. For the grazing land classes the advances of the past 12 months follow more moderate historical value advances, as the state's livestock industry, up until recently, has struggled through difficult economic times. In fact, the recent gains in the North District on non-tillable grazing land follows on the heels of a ten percent decline the previous year.
Sub-state regional differences in value advances are noteworthy for the year ending Febr. The Northeast, Central and South Districts all saw overall gains of 25 percent, with some of the cropland classes in those districts even exceeding the 25 percent rate. For the Central and South Districts, advances of previous years were somewhat below the state trends; so this recent gain may be indicative of a more lagged market effect encompassing more than the previous 12 months.
Preliminary values for the Northwest and Southwest Districts indicate more moderate value movements, with all-land value gains of 12.3 and 13.9 percent, respectively. This may be partially explained by the fact that both of these districts have relatively large grazing land components in their land inventory. Consequently, their regional agricultural economies have not been as strong as the more cash-grain based districts to the east.
As for value levels, 2011 marked the first time ever a land class in a district moved into the $6,000 value range - center pivot land in the East District was estimated to average $6,175 per acre, increasing nearly 27 percent from a year ago (value of pivot not included in that per-acre value).
Our UNL annual survey panel members commented that 2011 is a very unique time in agricultural land markets. They see higher income flows contributing greatly in the short-run to dramatic upward advances. They also note that while buyer demand is high, the availability of land for sale (supply side) is very limited. Moreover, market participants, both current buyers and existing owners, are financially strong and not vulnerable at this point in time. Still, a general tone set by our reporters is that risk levels are moving upward, and it is a time to be very cautious.
As expected, cash rental rates for farmland surged upward with the strong agricultural economy.
Preliminary estimates for the 2011 season show dramatic increases over 2010 levels. For cropland, the percentage gains generally fall in the 15 to 25 percent range. Given current commodity price levels and the likelihood of record shattering income levels for the crop sector this year, these significant cash rental rate increases look to be not only economically justified, but even conservative. For the pasture rental rates, both on a per-acre and a dollar per month basis, the rates are generally stable to slightly upward across most of the state for 2011.
For more information on Nebraska farmland values and cash rental rates for Nebraska farmland contact your local University of Nebraska-Lincoln Extension Office or go to www.agecon.unl.edu/Cornhuskereconomics/3-16-11.pdf.