Date of this Version
The year, 1988, was one of considerable real estate market activity and rising agricultural land values. These trends were evident across the state according to 1989 Nebraska Farm Real Estate Market Survey reports. The survey revealed an average rate of increase of 25 percent during the 12-month period ending February 1, 1989. This increase, however, represents a percentage change from a base value that reflects several years of declines. In fact, even with the 1988 advances, 1989 land values remain considerably below peak levels of the early 1980s.
A succession of high income years for production agriculture, in large part due to federal farm program payments, fueled market demand. Some of the activity appears to have been pent-up demand from earlier years of nearly dormant markets.
The vast majority of buyers have been active farmers who were generally buying parcels to add to existing farm units. In most cases, these parcels are within 5 miles of the buyer's residence. On the supply side of the market, some financial stress sales and liquidation sales by institutional lenders were still evident in 1988, but at a much lower level than preceding years.
Of actual transactions during 1988 that were observed by survey reporters, nearly 45 percent were straight cash sales involving no debt. About one in ten sales were seller-financed.
Negotiated cash rental rates for 1989 were also higher. Cropland rental rates were generally 10 to 20 percent higher than a year earlier. Rental rates on grazing land jumped significantly. In some areas of the state, current cash rental rates are approaching historic highs, a reflection of favorable income levels for production agriculture over the past few years.
As for rates of return to farmland investment, survey reporters usually estimated percentage rates to be highest for irrigated land followed by dryland cropland and then grazing land. However, adjusting typical cash rental rates for landowner expenses and estimating net rates of return will not yield very high returns on irrigated land. This may be explained in part by the fact that many landowners who are either farming the irrigated land themselves or renting on a crop-share basis have recently experienced higher levels of returns than those under current cash rental arrangements. For irrigated land particularly, some owners have, no doubt, recently achieved net rates of return of 10 percent or higher.
Nearly 5 percent of Nebraska's cropland base (1.1 million acres) is now enrolled in USDA's Conservation Reserve Program. While some counties have had considerable acreage enrollment, the impact of this program on local land values and cash rental rates appears to be marginal.