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Cash Rents Down Across Nebraska

Nebraska Cash Rent

As farmers begin to wrap up harvest 2016 amidst low grain prices, it’s no surprise that cash rental rates across the state and region have followed suit. The USDA released its annual update on farmland market conditions in August, and highlighted the drop in US land values and rental rates nearly across the board.

Nationally, the average cropland cash rent fell 6 percent—$136 per acre lower—in 2016, after the long upward climb that began in 2008. Since 1998, the only other time the cash rental rate has seen a decline was in 2007, with a 3 percent drop.

Despite the overall decline, overall changes at the state level were much more variable. In the Midwest, Minnesota and Iowa showed the greatest decline in cash rents, similar to most other Midwest and Great Plains states. The only two states to show in increase were Michigan and Wisconsin.

Nebraska’s farmland real estate value—the value of all land and buildings on farms—decreased 3.3 percent from 2015, averaging $2,950 per acre. Similarly, Nebraska’s cropland value fell 4.3 percent from 2015, with an average value of $4,850 per acre.

Nationally, average rental rates for pasture land also saw declines in 2016—7 percent in total from 2015 highs, although Nebraska pastureland increased $40 per acre from 2015, at $910 per acre.

More specifically, for Nebraska, the dryland cropland value averaged $3,800 per acre, down $170 from 2015, while irrigated cropland averaged $6,560 per acre, also down from 2015’s $310 per acre average.

Looking expressly at cash rental rates in the Cornhusker state, renters paid less to landlords in 2016 than in 2015. Irrigated cropland cash rent average $243 an acre, an $11 decrease from 2015. For dryland cropland, rents averaged $150 per acre, down $10 from the previous year. Pastureland cash rental rates average $24 per acre, down $4.50 from 2015.

While cash rental rates are falling, a survey recently conducted by ProFarmer found that more farmers may choose to walk away from ground that can’t be renegotiated—another possible contributing factor to the trend, aside from other more obvious factors, chiefly lower commodity prices.

ProFarmer LandOwner newsletter editor Mike Walsten said, “According to our survey, we found that 44 percent of members and subscribers are willing to walk away from a cash lease if that lease is not lowered going into 2017.”

Based on these numbers—and similar sentiments shared elsewhere—cash rent conversations could be tough. Facing the decision to buy, sell, or walk away from pricey cash rents will be difficult the next year, but trying to keep emotions out of that decision is encouraged by farm managers.

Are you facing concerns about your rented ground, or nervous about looming cash rental negotiations? Please let an experienced UFARM land manager take the pressure off. We have the practical knowledge and necessary skills to help both parties reach a mutually agreeable rental price during this adjustment period.

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. If you have questions about yields and productivity on your rented farmland, give the UFARM managers contact us today!

Sources consulted: “NE Farm Real Estate Values Down 3 Percent from 2015; Cash Rents Also Down.” UNL Cropwatch. University of Nebraska-Lincoln. 05 Aug. 2016. Web. 26 Oct. 2016.Morgan, Tyne. “More Farmers Walking Away from Pricey Cash Rents.” AgWeb.com. Farm Journal. 25 Oct. 2016. Web. 26 Oct. 2016.Widmar, David. “Most States See Cash Rental Rates Fall, Economist Says.” Agriculture.com/Successful Farming. Meredith AgriMedia. 24 Oct. 2016. Web. 26 Oct. 2016.

 

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Should I sell or lease my Nebraska farmland?

Sell Nebraska FarmlandAt some point or another, many landowners will face the decision on whether it’s in their best interest to sell or lease some or all of their Nebraska farmland. The decision to sell farmland is often guided by emotional and/or financial concerns, and understandably so. Many landowners may attempt, in the end, to lease their land instead. A number of issues play a factor in this decision, but considering all available options is necessary before reaching a decision on whether to sell or lease your land.

What are some advantages of selling farmland, versus leasing it? A landowner may make the decision to sell farmland if they, or their children, are not interested in farming it themselves, and may have little emotional ties to the land. Many times, they are not living on the land themselves, or they have received it as part of an inheritance, and don’t have a background in agriculture. In these situations, selling the land may be a better option, so long as all tax considerations are taken into account. Consulting with an experienced lawyer and accountant is important, so that one is able to contend with the capital gains taxes that are incurred as a result of selling valuable land.

On the other hand, leasing farmland is a more attractive option for those who would like to retain ties with the land, but cut back a bit on farming themselves. Many times, leasing farmland is a way to incur income for retirement, and as a way to hold onto land that they wish to pass on to their heirs. After all, once the land is sold, the chances of ever getting it back are slim.

Leasing farmland is a straightforward, simple arrangement that is attractive to many landowners in the second situation. Depending upon the landowner’s desired level of involvement, a straight cash-rental agreement or a flexible lease agreement may be worked out to the mutual benefit of each party.

Whatever decision is made, it is critical to have an estate plan in place, especially if you plan on leaving any land to your children. Proper estate planning can mean the difference between a peaceful, smooth transition of assets and a nightmare of taxes, late night decision making, and family feuding.

2015 has seen substantially lower commodity prices and the resultant leveling out and even lowering of land values in comparison to the last decade of burgeoning land prices. This correction may slow down landowners in selling off their ground to a certain extent. Similarly, cash rental rates are also leveling off and declining. In this way, it is important to consider the other reasons for retaining or letting go of ground, rather than solely financial reasons.

Are you trying to determine the best course for your farming operation? Feel free to contact UFARM—our experienced land managers are glad to listen to your concerns, and help you work through your options with your farming operation’s best interests in mind.

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!

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Leasing Basics for Landowners

Leasing FarmlandAside from the day-to-day duties of owning and managing land, one of the more difficult aspects of land ownership deals with leasing farm land. Many landowners have difficulties coming to mutually acceptable agreements, getting those agreements on paper, determining fair rental rates, and determining what type of lease agreement best suits their needs. What are the leasing basics of which landowners should have a firm grasp?

The first is to know and understand how rental rates are set. The end goal is to come to an agreement that is mutually beneficial to both the landowner and tenant. As such, setting a fair rate is important. There are several factors landowners can take into account when determining this rate, among them are the rental rates of the local area, percentage return on investment, survey data showing rental rates, percent of gross income, and many others. Most land managers recommend that landowners estimate the rental rate based on three or four of these factors and then make a decision. Determining a local rental rate is fairly straightforward; ag loan officers from the local bank, ag real estate professionals, and professional land managers are able to supply the going rates for current lease agreements.

Additionally, the National Ag Statistics Service (NASS) releases land value surveys annually for consultation. This, along with determining your desired ROI and percent of gross income, are excellent ways to come to a fair rental price agreement with your renter.

With over half of the agriculture land in Nebraska rented, it’s important for landowners and farmers who lease land to recognize the importance of a well-written lease agreement. Where a handshake was enough in many cases in the past, the nature of farming today is a bit more complicated, and the necessity of having a well-designed legal agreement is paramount. Land managers are well-versed in helping you get that lease down on paper, as well as helping you sort through the necessary particulars prior to it.

Land managers are also able to help you determine if a flexible lease agreement may be the right choice for you and your tenant. The factors that have the greatest effect on rental price are land values and crop yields. As these vary year to year, it can be tricky for owners and the farmers who rent the farmland to agree on a fair rental price. To address this complex problem, area farm management experts increasingly promote flexible land lease agreements in order to reduce risk and optimize profit potential for both parties. A flexible land lease agreement is an agreement in which the rent is not paid until the after the crop is harvested. The final rate is then based upon the actual prices and yields attained in a year, rather than a set rate.

After determining the type of rental agreement come the particulars, such as who pays for grain bin storage and power, how irrigation costs are to be handled, and the like. These vary from farming “neighborhood” to neighborhood. The important thing is that both parties come to an agreement so there is no confusion if/when an issue arises.

There is no definitive right or wrong land rental rate, but taking the above factors into account will accomplish the most important leasing goal: A mutually beneficial and satisfactory agreement for both parties.

Source consulted: Vyhnalek, Allan. “Frequently Asked Questions—Farmland Leases.” University of Nebraska-Lincoln Agricultural Economics. University of Nebraska-Lincoln. Web. 17 Mar. 2015.

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Determining a Fair Price for Farmland Rent

Farmland Rental LeaseAs we head into the final stretch of August, farmers are already looking ahead to harvest. While they focus on putting pivots to rest in the near future and begin pulling out the harvest equipment, it’s a good idea for farmers and landowners in rental agreements to remember that September 1st marks the date by which lease agreements must be terminated or terms and conditions changed, if it is so desired by either party.

In Nebraska and most surrounding states, an oral farmland lease begins on March 1st. Farm lease agreements are automatically continued year by year unless one party serves a termination notice or requests a renegotiation of the terms, and Nebraska law requires that this notice be served six months in advance of that date. Many rental agreements are oral agreements, and while it is always recommended that the terms of leasing agreements be on paper, it’s important for those without one to keep in mind that September 1st is fast approaching, should one desire to terminate or change a lease agreement. One of the most common disputes among parties with primarily oral farm rental agreements involve differing recollections of the terms of the lease; as such, farm managers strongly encourage that an agreement be put down in writing, even among family members, to avoid such disputes.

With that in mind, farmers and landowners each have an interest in ensuring that rental agreements are fair and mutually beneficial to both parties. Determining a fair price for farmland can be complicated, as many variables come into play, including farmland location, soil quality, land values, crop yields, personal goals, and the relationship between owner and tenant. Naturally, the factors that have the greatest effect on rental price are land values and crop yields. As these vary—sometimes quite a bit—from year to year, it can be difficult for owners and the farmers who rent the farmland to agree on a fair rental price.

To add to this difficulty, it’s interesting to note that a common way of determining a fair rental price—by comparing them with average county rents—isn’t always the best way. Illinois ag economist Gary Schnitkey found that, while the reported state and county land rent averages are accurate, they also mask a lot of variability among rents. From his findings, Schnitkey reports, “Only 35% of farm cash rents are within $20 of the average rent. This leaves many cash rents that vary significantly from averages.”

How then can farmers and landowners best determine a fair rental price for their farmland? Many are turning to professional land managers. Land managers deal with these types of situations on a daily basis, and are knowledgeable about all the tools available—such a flexible lease agreements—to farmers and landowners. They take into account each party’s unique circumstances and work with them to form a mutually agreeable arrangement, that best allocates risk and return for each. In situations involving family members, they are able to serve as an objective liaison who can effectively work out the rental agreement in a fair-minded way.

Are you wondering if your land leasing agreement is serving your best interests? Contact a UFARM land manager—they are happy to offer you sound advice regarding farmland rental agreements.

United Farm and Ranch Management (UFARM) is a Nebraska-based company devoted to meeting landowners’ needs. 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.

 

Sources consulted:

Caldwell, Jeff. “What’s ‘fair’ cash rent for your land?” Agriculture.com. 15 Nov. 2011. Web. 18 Aug. 2014.

Edwards, William. “Computing a Cropland Cash Rental Rate.” Iowa State University Extension and Outreach. May 2014. Web. 18 Aug. 2014.

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Does your Land Have ” Center Pivot Premium”?

Center PivotLandowners 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.