Each year in March, the UNL Extension Land Value and Cash Rental Rate publication is printed. Many people use this publication which is helpful in getting rental rate discussions started, but should be used as such – a guideline and place to start. I caution all clients who want a magic number that for some, the number reported for our district might be high and for others might be low. Ultimately it is best for both parties to discuss their own situation.
That being said, in a recent report by Bruce Johnson, UNL ag economist who publishes the survey, he reported the following for a brief summary. Despite an extreme drought and indicators of weaker agricultural earnings on the horizon, Nebraska’s agricultural land markets remain strong, with an overall increase of 25 percent in the last year. Following the advances of 22 and 32 percent in the previous two years, the 2013 all-land value of $3,040 per acre is more than double the value in early 2010. Survey reporters across the state reported percentage gains for all the farmland classes for the period from Feb. 1, 2012 to Feb. 1, 2013, but “the variation across the classes as well as across sub-state regions was extreme,” Johnson said. Drought conditions in 2012 lifted market demand for irrigated cropland, as irrigated land classes had the largest percentage value gains across the state. In the southern parts of Nebraska (Southwest, South, and Southeast districts) the percentage value advances for irrigated land were particularly strong over the past year.
Johnson went on to explain that survey reporters “frequently commented that current land prices being paid seem over-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 reporters 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. Johnson points out that, “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.”
The findings in this report are preliminary. A final report will be released this summer. More information, including tables showing details of average land values for all classes of land. Click on the March 21 Cornhusker Economics.
(Source: Bruce Johnson, Ph.D. & Dan Mosier, Ed Media)