March 30, 2007

This map shows the five-year average value per acare of all Nebraska farm and ranch land by district. Percentages are increases or decreases as of Feb. 1 compared with a year earlier. The box at the far left reflects statewide averages for the past five years and the percent of change from last year's average. This information is based on the University of Nebraska–Lincoln's annual Farm Real Estate Market Development Survey. (Link to larger map.)

Nebraska farm real estate market values and cash rent rates show sizable increases across the state with the average per-acre value of agricultural land up 14% statewide, according to the preliminary results of the University of Nebraska-Lincoln's annual Farm Real Estate Market Development Survey.

Statewide, Nebraska farmland's average value for the year ending Feb. 1 was $1,155 per acre, compared to $1,013 per acre at this time last year, said Bruce Johnson, the UNL agricultural economist who conducts this annual survey.

"These preliminary findings show this was the largest all-land value increase in the past 19 years," Johnson said. "Moreover, the percentage increase follows on three previous years of solid advances, which puts the state's current all-land average value more than 50% higher than the 2003 level."

Among other factors, sharply higher cash corn and soybean prices fueled by ethanol expansion toward the end of 2006 clearly boosted crop income levels and sparked enthusiasm in local land markets across much of the state, Johnson said.

"The demand from rapidly-growing ethanol production has triggered higher the commodity market advances, and, in turn, worked into the agricultural land market dynamic particularly in the major corn producing areas of the state," the Institute of Agriculture and Natural Resources economist said.The survey, which divides the state into eight regions, found that changes in all land values range from a 20.7% increase in the northeast region to a 7.2% increase in the south region.

"While advances occurred across the state, the regional differences were dramatic," Johnson said.

In addition to the sizable increase in the northeast, the north region saw a 19.1% jump. Average land values in the north and northeast are $506 per acre and $2,142 per acre, respectively. These areas currently have no irrigation moratoriums or water application restrictions, Johnson said.

In contrast, the south region, with the smallest increase, is experiencing serious water restrictions over much of the area. Cropland with irrigation potential actually declined in value from a year earlier, he said.The southwest region also had a recorded value decline for gravity irritated cropland.

"Clearly, both current and future water availability issues are being factored into these recent land value patterns and trends," Johnson said.Other land-value averages include: northwest, $395, up 13.2%; southwest, $639, up 11.9%; central, $1329, up 10.8%; southeast, $2,080, up 14.9%; and east, $2,784, up 11.5%.By land type, the largest annual percentage gains were for dryland cropland with irrigation potential and tillable grazing land in the northeast and north areas, Johnson said.

"In both of these regions, irrigation development continues at a rapid rate and land-owners realized the opportunity for developing this land for irrigation may soon be limited by future water moratoriums," he said.Despite higher crop commodity prices causing higher feed costs for the cattle and other livestock sectors, the state's range lands still went up in value.

"Even in western areas of the state where multi-year drought has been the most pervasive, large percentage increases in non-tillable grazing land and hay land values were recorded," Johnson said. "In addition, demand for the forage-based land classes is high given existing cattle inventories in the state."

As for cropland cash rental rate levels, the reported 2007 per-acre rates are up sharply from 2006 levels.

"Higher crop income expectations for 2007 have raised the landowner/tenant bargaining range," he said.

Preliminary estimates for dry-land cropland are up 12.5% in the northwest, 10.5% in the north, 12.4% in the northeast, 12.7% in the central, 10.8% in the east, 9.7% in the southwest, 7.8% in the south and 12% in the southeast.Likewise, irrigated cropland rates, particularly for center pivot irrigated cropland, have risen substantially in most areas, he said.

"However, there were sizable variations across regions of the state, with some of the more water-limited areas recording smaller percentage increases in cropland rental rates," he said. These ranged from 16.5% in the northeast to 2% in the southwest for gravity irrigated cropland and 16.2% in the northeast to 6.7% in the southwest for center pivot irrigated cropland.

Pasture rental rates are essentially unchanged from 2006, Johnson said."This isn't surprising given drought limitations on pasture carrying capacity across much of the state and lower profit margins for feeder cattle producers in 2006," he said.

Johnson also added the market for all agricultural land is thin, often with ownership turnover of less that 3% per year.

"This means that if someone has really been wanting to acquire a particular piece of property or a piece of property in a certain area, they need to be ready to pay whatever the market is driving that price to be," he said. "Whether this represents a reasonable kind of response or not can be a dilemma. However, you purchase land for the long run, and people are bidding pretty aggressively."

He said rising land values might eventually be more reflective of the longer-term income earning returns, but right now values will remain high because of the short-run higher commodity prices.

"Historically we have land booms and busts," he said. "We had a boom in the '70s and a bust in the early to mid-1980s. We have been creeping out of that bust from the '80s ever since."

Johnson said owners of agricultural land today also are different than 25 years ago.

"Today, it is in strong hands," he said. "It is not likely the bottom will fall out because the people who own it and are buying it are in strong financial positions."

For more details on preliminary 2007 values and cash rents by region and class of land, see the March 21 Cornhusker Economics newsletter .

Sandi Alswager Karstens
IANR News