One of the worst droughts on record may have decreased production on some U.S. farmground, but it certainly didn’t lower the price tag on the land.
The upswing in farmland values seen during the recent years of high commodity prices and low interest rates remains full steam ahead.
Preliminary findings from the 2013 University of Nebraska-Lincoln Nebraska Farm Real Estate Market Developments Survey show the Nebraska’s all-land average value rose 25 percent over the 12-month period ending on Feb. 1.
After each of the previous two years saw upswings of 22 percent and 32 percent, respectively, the 2013 all-land average value of $3,040 per acre is more than double the value of what it was just three years ago.
Seeing the biggest boost in value in Nebraska from 2012 to 2013 was center-pivot irrigated cropland, increasing 30 percent and now standing at $7,590 per acre.
That smallest increase in value was on non-tillable grazing land, going up 19 percent to $695 per acre.
The land-value upswings have been even larger in other areas.
Alan Duensing — an appraiser for American AgCredit, which has offices across Colorado — said the average chunk of farmground under center-pivot irrigation in ag-heavy Weld County, Colo., sold for about $7,000 per acre during 2012 — about a 45 percent increase from what it was in 2011.
In addition to high commodity prices and low interest rates, the demand for Weld County land is high and prices are skyrocketing due to the rapid growth of the local dairy industry (the area needs 50,000-plus dairy cows to meet the demands of a new Leprino Foods cheese-processing plant in Greeley, Colo.) and due to increased oil and gas activity (about 75 percent of Colorado’s oil and gas production is taking place in Weld County).
Land-value records are taking place in many parts of the country.
In October, an 80-acre parcel in Iowa sold for $21,900 per acre.
Concerns linger about a potential ag-land bubble burst, but experts think any approaching drop in land prices is unlikely to be as sharp as in the early 1980s — a time when land purchases were financed largely with debt and not so much with farmers’ own capital, according to economists and bankers.
In the 1980s, interest rates on loans eventually soared and crop prices declined.
Many farmers then didn’t have the income needed to pay the bank, and they had no choice but to unload their real estate, contributing to the sharp decline in land values.
Land purchases during the last few years have been made with farmers often using anywhere 50 percent to 75 percent of their own cash, bankers say.
According to the U.S. Department of Agriculture, the debt-to-asset ratio on farms is expected to be the lowest level on record in 2013.
A drop in land prices now means farmers are only losing the investment of their own cash, and aren’t deeply indebted to the local bank.
Those factors are likely to limit the severity of any drop in farmland prices.
The continually increasing values for land is good for those who own it, but can cause headaches for the those who don’t and are trying to buy it or lease it.
With the average age of the U.S. farmer nearing 60, the ag industry has expressed about getting more young people into the profession, but doing so can be difficult now because how much it costs to buy land.
Additionally, those who are farming on leased ground are seeing an increase in rent prices — adding to their long list of increasing input costs.
Across Nebraska, center-pivot irrigated cropland cash rental rates for 2013 were reportedly 13-15 percent higher than they were a year earlier, according to the 2013 University of Nebraska-Lincoln Nebraska Farm Real Estate Market Developments Survey.
Farmers in Colorado say they’re seeing similar increases.
“We’re certainly seeing rent costs go up,” said Gabe Winter, who’s family owns, leases and share crops farmground near Eaton, Colo. “But it’s not to a point where we can’t make money.
“At least not yet, any way.” ❖