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2017 Trends in NE Farmland Markets: Declining Ag Land Values and Rental Rates | KRVN Radio

2017 Trends in NE Farmland Markets: Declining Ag Land Values and Rental Rates

2017 Trends in NE Farmland Markets: Declining Ag Land Values and Rental Rates

Preliminary findings from the 2017 Nebraska Farm Real Estate Market Survey conducted by the University of Nebraska–Lincoln, indicate that as of February 1, 2017, the weighted average farmland value declined by about 10 percent over the prior 12-month period to $2,805 per acre (Figure 1 and Table 1). This decline marks the third year of consecutive downward pressure totaling to approximately 15 percent for the weighted average farmland value in Nebraska which peaked in 2014 at $3,315 per acre.

According to survey participants, since February 2016 the largest price declines by land classes in Nebraska occurred in the dryland cropland with irrigation potential at 13 percent followed by tillable grazing land at 12 percent. During periods of higher commodity prices, producers gain the economic incentive to develop these land classes to produce higher yields through irrigation or production of crops. The current sustained period of lower commodity prices and the anticipation of these lower values indicated by survey participants as major forces leading to the declines. Regulatory policies guiding further development of dryland cropland with irrigation potential were also noted as a negative force on this land class.

Dryland cropland without irrigation potential and nontillable grazing land reported the next highest rate of decline at about 10 percent across Nebraska. The sharpest rates of decline for dryland cropland without irrigation potential were noted in the Central, Southwest, and South Districts at about 15 percent. These Districts tend to be some of the major winter wheat producing regions of the state and this small grain experienced exceptionally low commodity prices during 2016. Suppressed prices for wheat might have led to reverberating effects through the local land markets. The high rates of decline, ranging from 13 to 18 percent, reported for the Central, East, and Southwest Districts were for nontillable grazing land or part of the major land base serving the cow-calf industry. Hayland also noted similar rates of decline for the Northwest and Central Districts.

Across Nebraska gravity irrigated and center pivot irrigated cropland reported rates of decline ranging between 6 and 4 percent, respectively. Center pivot irrigated cropland in the Northwest, Southwest, and Southeast dropped 13 to 16 percent, whereas the other Districts recorded declines around 5 to 7 percent. Gravity irrigated cropland in the Northwest and Southeast Districts followed similar double-digit deteriorations. Survey participants expressed the availability of water for irrigation and policies guiding the utilization of this resource as potentially negative forces in the market value of these two land classes into the future. Technological advancements in the application of irrigation water might be able to enhance the utilization of these resources and offset potential challenges.

Rental rates for agricultural land in Nebraska declined for another year as commodity prices for the major commodities raised across the state experienced an additional year of lower prices (Table 2). Agricultural land ownership expenses remain high as property tax levels continued to rise on average across the state. Negotiating an equitable rental rate remains a challenge for landlords and tenants. For the second year in a row, survey participants noted this dynamic in negotiating rental rates centered on these concerns.

Irrigated cropland rental rates on average declined between 5 and 10 percent across Nebraska. The eastern regions of Nebraska including the Northeast, East, and Southeast Districts along with the Southwest District recorded the highest rate of decline ranging from 9 to 12 percent for center pivot irrigated cropland. In prior survey years, the eastern regions of the state recorded the most substantial increases along with the highest rental rates. These rates were hard to maintain with lower grain prices. The average for the low and high third quality of land also reported a substantial drop in the eastern third of the state (Table 2).

Pasture and cow-calf pair rental rates fell 5 to 15 percent across Nebraska depending upon the region of the state. The strongest rate of declines was in the regions of the state noting the highest grazing land or cow-calf rental rates over the past several years. These regions include the Northeast, East, and Southeast Districts where on average rental rates dropped 10 to 15 percent. The other major grazing regions of Nebraska noted falling rental rates closer to 5 percent. Several other considerations, besides the productivity of the grazing land, factor into the rental rates paid across Nebraska according to survey participants. These factors may include things such as who maintains fencing around the property or has the responsibility of weed control. Depending upon the capacity of each individual involved as part of the rental agreement, the level of services either party provides as part of the contract might vary and influence the rental rate negotiated.

Survey results shown and discussed in this report are preliminary findings from the University of Nebraska–Lincoln 2017 Nebraska Farm Real Estate Market Survey. Land values and rental rates presented in this report are averages of survey participants’ responses by district. Actual land values and rental rates may vary depending upon the quality of the parcel and local market for an area. Also, preliminary land values and rental rates are subject to change as additional surveys are returned. Final results from the survey will be published in June 2017 and will be available online via the Nebraska Farm Real Estate website. Land appraisers, farm managers, or agricultural finance professionals from Nebraska interested in participating in future Nebraska Farm Real Estate Market Surveys are invited to contact the Department of Agricultural Economics at the University of Nebraska–Lincoln. Interested parties can contact Linda Tesch by phone: 402-472-3401 or email: ltesch1@unl.edu

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