Date of this Version
After 11 consecutive years of value increases, Nebraska agricultural real estate values experienced modest declines during the year ending February 1, 1999. According to the UNL Nebraska Farm Real Estate Market Developments Survey, values fell an average of 2.8 percent from year-earlier levels. As the year 1998 developed into an income-shortfall year across virtually all of the state's agricultural sector, it was almost inevitable that a more cautious market attitude would exist and land values decline. In fact, for many market observers, the surprise was not that early 1999 values were down, but rather that the value decrease was generally very marginal.
According to survey reporters, a host of market forces are contributing to downward value adjustments, led primarily by historically low crop and livestock prices and associated deterioration of the financial health of existing land owners. And while relative stability still characterized the land market in early 1999, market observers were quick to point out that another year like 1998 (in terms of agricultural income) could lead to more substantial land value declines in 1999. In fact, over half of the survey reporters were expecting land value declines in 1999, averaging more than 7 percent.
Reflecting the stress in the agricultural economy, negotiated cash rental rates for 1999 were down from 1998 levels. For cropland, the declines were typically in the 2 to 5 percent range. Pasture and rangeland rental rates for 1999 were generally stable to slightly lower, as demand for forage remained relatively strong.
As for annual percentage net rates of return on agricultural land, the trend over this decade has been one of gradual decline as values have tended to rise faster than the growth of land earnings. Annual returns as a percent of current value have declined across all land types-irrigated cropland, dry land cropland, and pasture land. However, given the recent downturn in the agricultural economy, this trend has only accelerated as annual average returns have fallen faster than land values. Unless current economic conditions and/or future economic expectations improve for agriculture, annual percentage rates of return may fall to a level that market participants will not accept. If that happens, then this measure may be a leading indicator of further value decline in the near future as market participants readjust their long-term income expectations.
On the basis of over 450 reported actual sales during 1998, the general market characteristics over the past year have tended to remain fairly stable. Active farmer buyers remain the primary buyer group of a market comprised primarily of land parcels that are purchased for add-on purposes. Building improvements are the exception rather than the rule on properties changing ownership. The proportion of purchases for cash (involving no debt financing) continues to grow and was approaching half of the 1998 market transactions. The preponderance of market activity occurs within a locality with most buyers being local. However, in some areas of the state, non-local buyer interest is a significant presence in the market.