Does your Land Have ” Center Pivot Premium”?

Landowners are always endeavoring to get the most from their farmland, and this is especially true when negotiating cash rental rates with potential tenants. While there are many factors in play when it comes to lease rates, one of the most significant is whether or not their parcel of land is under center pivot irrigation. As many savvy landowners readily discover, there is a strong correlation between higher cash rental rates and the presence of center pivot irrigated acres.
Cash rental rates have been steadily rising over the last several years, and demand remains high for quality rental acres. Trends over the last several years, when rainfall has been adequate or exceeded expectations, suggest that would-be tenants have been willing to pay a straight per-acre rate for both irrigated and dryland corners in their rental agreements, since the yield difference between the dryland corners and the irrigated acres have been smaller.
However, after 2012’s severe drought, tenants are becoming more interested in negotiating rental contracts with per-acre rates based on the irrigated circle and the dryland corners, this according to survey results conducted by the Ag Econ Department at the University of Nebraska. The survey looked at the five reporting Agricultural Statistical Districts in Nebraska and found that in all five, the cash rental rates were an average of $9-$33 per acre higher when rates were based only on the center-pivot irrigated acres, and not the whole parcel.
Specifically, in the Northeast Nebraska reporting district, the results of the survey found that the center pivot irrigated only price per acre average was $397, versus $379 for the center pivot whole parcel average, a difference of $18 per acre. The difference may also be attributed to high demand for acres to farm and high competition to win leases in this part of the state.
Indeed, it has been noted that it is cheaper to buy an acre of untillable grazing ground in northwest Nebraska than to rent an irrigated farm acre in the eastern portion of the state for one year. The same UNL survey cited the going rate for the highest quality irrigated rental acre was $439, versus $379 sale price for a grazing acre.
So, what does this mean for landowners? Obviously, it’s a great economic benefit to have center pivot capabilities on your farmground, as tenants are obviously willing to pay more for irrigated acres at this time. Landowners seeking to maximize their land asset should take advantage of the economic benefits that come with irrigation. If your ground is dryland, it’s a good idea to evaluate it and decide if the benefits that come along with adding a center pivot are worth the initial cost. The findings of this survey and trends over the years suggest that the higher cash rent premiums that accompany irrigated land are worth the efforts.
Are you striving to make the most of your farmland? Are you wondering whether you are negotiating appropriate rental rates? Give UFARM a call. We have the experience and expertise to help you make the most of your farming operation.
Source:
“Center Pivot Rental Rates With and Without Adjustments for Dryland Corners.” Cornhusker Economics. Agecon.unl.edu. 31 Jul. 2013. Web. 14 Apr. 2014.