Tag Archive for: farmland values

Current Trends for Nebraska Farmland Values & Rental Rates

 

Nebraska Farmland Values

Amid continuing low commodity prices, farmers across the state are facing challenges heading into the 2016 growing season. As expected, land values and rental rates are following suit. According to preliminary findings from the latest University of Nebraska–Lincoln Farm Real Estate Market Survey, ag producers will contend with tighter margins for servicing rent and making debt payments.

Overall, land values in the Cornhusker state decreased an average of 4 percent over the last 12 months, with the average price per acre at $3,135, down $115 per acre since 2015. This is the second consecutive year that values have decreased in the state. Rental rates for agricultural ground in Nebraska peaked in 2014 and 2015 for cropland and grazing land, respectively.

Survey results, by district, were as follows: northwest, $820 (-5 percent); north, $1,270 (-5 percent); northeast, $6,095 (-1 percent); central, $3,780 (-4 percent); east, $7,025 (-1 percent); southeast, $5,685 (-5 percent); south, $4,140 (-10 percent); and southwest, $2,010 (-3 percent).

For dryland and irrigated cropland, the decline was about 5-10 percent for 2016, with higher rates of decline indicated for western portions of the state. The survey also found that rates of decline were higher in parts of the state with record rent levels in 2015.

Other survey results found that the largest price decline—17 percent—occurred in the hayland category. Following the demand for forage following the 2012 drought, and the corresponding willingness on the part of cattle producers to pay more for hayland, the subsequent moisture recovery that occurred has led to the price of hay dropping. Some of the largest decline in hayland has been in the north and northwest districts of the state.

Gravity-irrigated and center pivot-irrigated land showed the next highest rate of decline of about 6 and 4 percent. The same is true of dryland cropland with irrigation potential.

The only land class that remained unchanged or showed small price increases was in dryland cropland without irrigation or tillable grazing land potential.

Rental rates for dryland and irrigated cropland declined from 2-10 percent, with pasture and cow-calf rental rates also declining about 5-10 percent across the state, after setting records in 2015. The average monthly rental rate for a 5-month grazing season averaged about $55 per month or $275 for the grazing season, with survey participants attributing the dollar difference to varying levels of service agreed to in leases between landlord and tenant.

Landlords reported higher landownership expenses as property taxes continue to increase, and rental negotiations have centered on these challenges.

Looking ahead, survey participants noted that financially sound producers may still have the ability to secure long-term financing at favorable interest rates. However, meeting annual debt payment on newly purchased property at the current commodity prices will remain tough.

With recent weather trends hinting at the possibility of an early spring, along with rumors of a quick change from El Nino to La Nina, which could bring about hot and dry summer conditions, prices may change for the better. Until then, farmers will continue to focus on managing input costs as they prepare for the planting season.

Source consulted: “Nebraska Ag Land Values Down 4%; Rental Rates Down 2-10%.” CropWatch. University of Nebraska-Lincoln. 11 Mar. 2016. Web. 15 Mar. 2016.

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Why Is Farmland a Good Long Term Investment?

Farmland investment

It’s no secret that farmland values have boomed over the last decade. Many farmers and outside investors have bought and continue to buy up land to pad their investment portfolios. Despite the decreasing commodity values of the last year, many economists continue to be optimistic about buying land as a long-term investment.

Commodities investor Jim Rogers, who founded the Rogers International Commodities Index, is part of an increasing number of farmland investors hoping to benefit from the growing world population’s need for food. With a world population that is expected to grow from 7 billion to 9 billion by the year 2050, and the projected arable land to decrease steadily in the same time span, the case for farmland investment worldwide is a good one.

Says Rogers, “More people need to get into farming; otherwise, we won’t have any food. I’m still wildly optimistic about the future of agriculture worldwide.”

There are many other factors contributing to the desirability of quality farmland. One is that the increase in population will occur largely in the developing world, where rising incomes will contribute to higher meat consumption. Increasing livestock consumption creates a demand for grain and water, so farmers worldwide will rise to the demand by putting out more crops and farming more acres. Another driver of the farmland market boom is the demand for biofuels, such as ethanol.

These factors, combined with a worldwide leveling off of yields after the many advances of the last 40 years, put owners of quality farmland into excellent position to benefit financially in the long-term.

While outside investors continue to be bullish about quality farmland, others emphasize the need use caution before jumping headfirst into the farmland market. While land values have risen dramatically over the last decade, they are set to level off as commodity prices do the same.

Purdue University Extension agriculture economist Craig Dobbins says, “The next couple of years for farmland values are going to be a little less certain than the last few years have been. Commodity prices have come down significantly in the last year, so these large returns we’ve kind of become accustomed to for the last few years have now shrunk.The probability of short-term farmland values staying flat or seeing a small decrease is much bigger than the probability that we’re going to see another double-digit increase.”

While farmland continues to be a solid way to invest your capital for the long-run, it’s important to evaluate your financial situation carefully before buying land in 2015.

Are you considering buying land, or do you have concerns about the value of your farmland going forward? Contact UFARM—we’re happy to talk with you about your land asset. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

 

Sources consulted: Murphy, Richard McGill. “The best long-term real estate investment: Farmland.” CNBC.com. CNBC. 24 Mar. 2014. Web. 16 Dec. 2014. Stewart, Jennifer. “Farmland value shift signals need for cautious purchasing.” Purdue University News. Purdue University. 13 Feb. 2014. Web. 16 Dec. 2014.

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Demand for Quality Farmland Remains Strong in 2014

Real Estate Auction Sign-croppedDespite a downturn in grain prices and lower net farm income expectations among farmers and investors across the Midwest, demand for high quality farmland remains strong. A limited supply of such quality ground is contributing to a healthy demand for premium farm acres, even though prices for farmland in general seem to be moderating following the five year boom in land values.

While the primary competitors for such ground are farmers themselves, local investors seeking to expand their portfolios continue to show great interest in obtaining these valuable parcels of ground. When such land become available, both parties show healthy interest and appear willing to pay top dollar for it.

Even with this stable demand, landowners and farmers themselves remain cautious when it comes to investing in more ground. While many are better positioned now, with less debt, than during the 80’s land bust, they are seeking to invest smartly. For many, this means putting more effort into finding only the best quality farmland.

Mike Walsten, editor at Landowner, projects that farmland values in general will fall about 10% this year, based on current expectations. He says that demand for quality farmland will remain fairly stable, while demand for less quality farmland will continue to weaken, especially should profit margins further weaken at the same time.

In the longer term, Walsten is confident that farmers and landowners will weather these market corrections if they show restraint in adding more debt. He cautions that adding more debt to maintain spending will create problems—something that many producers learned the hard way during the 80s land boom and bust. Another factor that could greatly influence landowner decisions are rising interest rates, especially in the latter half of 2015. Higher interest rates would further dampen land values.

Still, investing in farmland remains one of the best and safest long term investments—something that landowners and especially outside investors recognize. One of the main drivers of recent interest in investing in farmland is based on the burgeoning world population, which is expected to peak at 9 billion by 2050, up from 7 billion today. Growth, especially in developing nations, will substantially drive up demand for food. In addition, the quest for biofuels remains a contributing factor to the high demand for quality farmland. In the US, for example, corn grown to produce ethanol accounts for 23 percent of total corn use.

It’s no secret that owners of quality farmland are poised to benefit from such trends, and while land values are currently softening, many experts remain bullish on land values going forward, especially for high quality farmland.

Are you seeking to make the most of your farmland, or are you looking to expand your portfolio and think that land ownership would be a good fit for you? Let the experienced professionals at United Farm and Ranch Management help you determine the best plan of action to benefit your unique situation.

Sources:

Birt, Nate. “Farmland Prices: Demand Ticks Up for Good-Quality Ground.” Agweb.com. Farm Journal. 07 Apr. 2014. Web. 24 Apr. 2014.

Murphy, Richard McGill. “The Best Long-Term Real Estate Investment: Farmland.” CNBC.com. CNBC. 24 Mar. 2014. Web. 24 Apr. 2014.

 

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When Will Farmland Values Moderate?

corn chart

Courtesy of USDA

Nebraska landowners and farmers are always on the lookout for trends and forecasts of what they can expect for weather, commodity prices, and farmland values. The prospect of rising interest rates and lower commodity prices have many wondering if the high land value they’ve grown accustomed to over the last ten years is about to change.

Opinions vary, but many analysts agree that, for now, farmland values have reached their zenith. While most don’t expect there to be a bubble burst, it is generally agreed that the going rate for acres won’t continue to rise, and may have reached a plateau for the time being.

According to Iowa State Economics professor Michael Duffy, “It’s going to be more akin to a tire that gets a nail in it, a slow letdown,” he says. “A lot of it will depend if commodity prices stay in this downward trajectory or they flatten out.”

Grain prices tend to cycle from high-profit to low-profit. Corn prices have averaged $4.77 a bushel between 2006-2012, which is likely a new plateau in comparison to what they were prior to 2006. While the recent USDA report held bullish reports for corn, the corn price could still drop lower should the 2014 crop yield higher than average, resulting in the possible lowering of land values. In turn, should grain prices remain lower or recede, farmers will have less net cash income—a major driver of farmland values.

On the other end of the opinion spectrum is Terry Kastens, an agricultural economist at Kansas State University. He contends that “U.S. farmland values are at a ‘tipping point’ and could fall as much as 10 percent in 2014 as commodity prices flatten out.”

After a somewhat surprising USDA farm report on January 10th, that reported more bullish than expected corn bushels, it would seem that Duffy’s statement is more accurate, and that a leveling off of commodity prices might sustain current farmland values.

In Nebraska, farmland values rose 13 percent in the third quarter, according to the Kansas City Federal Reserve branch, whose area includes Nebraska. Some agricultural bankers said these figures, while still an increase, illustrate a moderating of prices from other recent values.

With so many variables at play, it is next to impossible to predict with certainty what Nebraska farmland values will do next, but the broader context seems to support a slow-down when it comes to money for farm acres.  In the meantime, the 2014 growing season and subsequent yields for the new crop will further determine if farmland values will continue to moderate in our state.

Let the land management professionals at UFARM help you stay on top of all the latest business and marketing trends for your farmland.  Contact United Farm and Ranch Management today.

Sources: (Martin, Andrew. “Iowa Farmland Values Hit a Record High.” Bloomberg.com. Bloomberg Businessweek. 12 Dec 2013. Web. 31 Jan. 2014.) (Schafer, Sara. “3 Reasons Farmland Values Could Head South.” Agweb.com. Agweb.com, 21 Nov. 2013. Web. 31, Jan. 2014.) (Hubbard, Russell. “Farmland Values Increase for Nebraska, Iowa in Quarter.” Omaha.com. 25 Jan. 2014. Web. 31 Jan. 2014.)

Will Farmland Owners Pay Higher Property Taxes in 2014?

As 2013 winds down, farmers and landowners turn their attention to the Nebraska Legislature, which convenes for another Legislative Session in January. One of the main issues that the legislature will discuss is the need for property tax relief, a Landowner Property Taxtop concern of not only farmers and landowners, but also of Nebraskans as a whole. What is the outlook for property taxes in 2014? Will farmers and landowners finally see some relief?

Nebraska Farm Bureau president Steve Nelson hopes so, and he led a committee that presented a multi-year tax relief plan in October. The plan would reduce the state’s reliance on property taxes to fund government services and strive to better balance the contributions from property, income, and sales taxes. Its overarching goal is property tax relief, and Nelson hopes that property tax relief will be the main focus of any comprehensive tax reforms proposed in the Legislature.

Nebraska property taxes comprise 45% of all the taxes collected statewide, and the reliance on property taxes has steadily been mounting since the 90s. Farmers and landowners are increasingly feeling the pinch each year. According to the Nebraska Farm Bureau, agriculture land owners comprise roughly 3% of the population, but pay about 24% of the total property taxes across the state (“Nebraska Farm Bureau Plan Seeks to Balance Tax Structure, Provide Property Tax Relief.” Online posting. Farm Bureau –. N.p., 17 Oct. 2013. Web. 16

Dec. 2013). One part of the Nebraska Farm Bureau Committee’s plan would be to reduce the value of agricultural land for tax purposes from 75% to 65%, among other ideas for tax relief.

The Nebraska Farm Bureau committee presented its plan to the Nebraska Legislative Tax Modernization Committee, which also just released its own conclusions and recommendations. The Tax Modernization Committee was formed at the end of the last legislative session, its goal to study tax reform options and present their recommendations for the 2014 session.

In a report released Friday, the committee recommended no major changes. “The report says taxes are higher than average in some areas. Property taxes are greater than both the national average and that of most of Nebraska’s bordering states. Lawmakers also concluded that income tax brackets have not kept pace with inflation.” (Young, JoAnne. “Tax Modernization Committee Makes Recommendations, Some Members – KHGI-TV/KWNB-TV/KHGI-CD-Grand Island, Kearney, Hastings.” Tax Modernization Committee Makes Recommendations, Some Members – KHGI-TV/KWNB-TV/KHGI-CD-Grand Island, Kearney, Hastings. Lee Enterprises, 15 Dec. 2013. Web. 16 Dec. 2013.)

Four members of the committee have refused to sign the committee’s report, and two of these four members are seeking Governor Heineman’s seat. Charlie Janssen and Beau Mccoy each say that a greater need for more overall tax relief—including both property and income tax relief—and less spending is necessary, and Janssen plans on releasing his own alternate proposal.

In the meantime, committee chairman Galen Hadley did stress that despite no recommendations for major changes, there would still be a focus on property tax relief. This will come as welcome news to farmers and landowners across Nebraska. However, it is anyone’s guess as to if this relief will actually materialize, and if so, how quickly it may come. For now, all eyes will be on what transpires during the 2014 Legislative session.

The professional land managers at United FArm and Ranch Management can help you make wise business decisions for your land.  Contact UFARM today!