For the past several years, farm land prices in Nebraska have steadily risen.
However, agricultural land markets in Nebraska remained relatively steady in the last year, according to preliminary findings from the University of Nebraska-Lincoln.
Overall, the average statewide farmland value rose by about 5 percent, as of Feb. 1, to $3,195 per acre, said Jim Jansen, research analyst with UNL’s Department of Agricultural Economics, which conducts the Nebraska Farm Real Estate Market Developments survey annually.
According to the 2014 Nebraska Farm Real Estate Market Survey, “Surveyed 2014 cash rental rates for cropland, on average declined with lower commodity prices, while pasture and cow-calf pair rental rates significantly increased. This was due to higher beef cattle prices, the lingering effects of the drought and the conversion of some marginal land to crop production.”
Farmland values in recent years have increased sharply, finally slowing down this year. The overall increase of 25 percent in 2013 followed increases of 22 and 32 percent in the two previous years, leaving the 2013 all-land value more than double the value in early 2010.
Several recent studies by Farm Credit Services of America show the same data. The first study is a semi-annual update of their Benchmark Land Values study, in which the lender has tracked the values of 65 farms for more than three decades. The second report is a compilation and analysis of more than 3,500 agricultural real estate sales transactions – both auctions and private sales — during 2013.
“After years of a steady rise led by lower than average U.S. yields, strong domestic and international demand for commodities, low interest rates and solid profit margins, we’re seeing the rate of price increases leveling off for farmland in some areas we serve,” said Mark Jensen, senior vice president and chief risk officer for farmer-owned Farm Credit Services of America.
“There’s evidence that farmland prices may be on a slight decline from record highs seen at the end of 2012 and for most of 2013,” he noted. “Based on our benchmark study, Nebraska benchmark farm value increases slowed to the lowest levels in several years, up just 0.7 percent.”
UNL survey reporters across the state reported percentage gains for all the farmland classes for the period from Feb. 1, 2013 to Feb. 1, 2014.
In the last year, the largest increase by land class occurred for non-tillable grazing land, at 7 percent. Non-tillable grazing land includes pasture and rangeland that does not have the current potential to be converted into cropland for small grain or row crop production.
Record high livestock prices translated into strong increases seen throughout the state for pasture and rangeland. The increases in non-tillable grazing land varied greatly among the districts, with a low of 4 percent reported in the Northwest District to a high of 32 percent in the South District, but the Northeast, Central, East and Southeast districts all averaged around 15 percent.
Expectations among survey participants also indicated high future cattle prices to be a strong factor fueling the increase in non-tillable grazing land.
Increases in dryland cropland values also varied across the state depending upon the location and potential for irrigation. Generally, changes of less than 10 percent occurred in the eastern third of Nebraska for dryland cropland with or without irrigation potential. The Eastern District had a decline of 5 percent in the value of dryland cropland with no irrigation potential, but this should be noted as more of a negligible change given the strong increase in this district over the prior several years, Jansen said.
The western two-thirds of the state had the strongest increases in dryland cropland values, with increases averaging around 20 percent. Increases in the value of dryland cropland of the western two-thirds of Nebraska are comparable to those of the eastern third of Nebraska reported by survey participants during the past several years.
Trends observed for the value of tillable grazing land are comparable to those of dryland cropland for the western two-thirds and eastern third of Nebraska, Jansen said. The hayland class proves to be a critical component of forage production in the state for cattle producers. Increases in the value of hayland generally averaged around 10 percent across the districts in 2014, whereas in 2013 the increases ranged from 25 to 30 percent, spurred by the devastating effects of the 2012 drought. Future changes in the value of this land class likely will be tied to the value of forages and cattle production in Nebraska.
Observed changes in the value of gravity irrigated and center pivot irrigated cropland ranged from 2 percent decreases to almost 20 percent increases. Weighting these ranges across the districts equated to an overall increase of about 4 percent for each of the two irrigation land classes.
For the prior two survey years, in 2012 and 2013, the land value averages had an annual increase of about 30 percent. The smaller increases in the value of irrigated cropland in 2014 suggests the market is holding steady given current expectations and commodity prices.
Surveyed 2014 cash rental rates for cropland on average declined with lower commodity prices while pasture and cow-calf pair rental rates significantly increased due to higher beef cattle prices, the lingering effects of the drought, and the conversion of some marginal land to crop production.
Lower anticipated grain prices in 2014 have led to lower average cash rental rates for dryland, gravity irrigated, and center pivot irrigated cropland as profit margins begin to tighten, Jansen said.
In general, rental rates have decreased from previous years. The survey stated, “Across these three cropland rental categories, cases exist where rental rates have increased, but for the majority of the districts the rental rates have declined from five to 15 percent from the highs of 2013. In 2012 and 2013, survey respondents commonly reported annual increases in rental rates of around ten percent for the different cropland classes.”
It continued, “Preliminary results from the land survey also indicate the majority of land rental contracts are fixed cash leases, with shares remaining the second most popular alternative in Nebraska. Cash leases with provisions allowing the base rent to flex around actual crop yields and prices (flexible cash leases), have low utilization rates according to survey participants.”
Even though the prices have steadied, demand remains. Land prices and demand for farmland continue to be strong, Jensen said, but buyer sentiment could be adjusting with decreased commodity prices that will reduce the record profit margins experienced the past few years.
“Even though the number of public land auctions in 2013 was down 25 to 30 percent compared to 2012, auctions were often well-attended with multiple bidders,” Jensen said. “Some sellers may have expected higher prices than the auction high bid. Local farmers continued to make most of the purchases.”
Jensen said FCSAmerica’s data suggest customers are positioned to weather a moderate downturn in land prices.
“Since 2008 FCSAmerica has used a risk management strategy that includes a cap per acre on the amount of money we’ll loan for land purchases. We’ve been using a long-term sustainable value approach to projecting repayment and lending levels based on corn prices closer to $4.50 per bushel versus the prices of $7 or more that some farmers were receiving in 2012,” he noted. “Our customers understand the financial risks and volatility in the agriculture industry. Their balance sheets and working capital levels are generally in a position of strength, and they have put a significant amount of equity into land purchases.” ❖