Date of this Version
Nebraska agricultural land values rose sharply during the year ending February 1st, 2007 according to the UNL Nebraska Farm Real Estate Survey. The all-land value increase was 14.0 %, the largest annual percentage increase in 19 years. Sharply higher crop commodity prices towards the end of 2006, the result of a rapidly-expanding ethanol industry in the state, appeared to contribute greatly to the run-up in land values. In addition, potential for further irrigation development in some areas of the state led to spirited bidding for such land; while regions experiencing water restrictions had more muted value changes for the year.
In such a dynamic market, it is reasonable to expect greater risk and uncertainty. Indeed, reporters, when asked to compare the next few years with current levels, did foresee greater risk and uncertainty ahead. This was true of future land value volatility, cash rent shifts, and income returns to land.
In addition to current crop prices, purchase for farm expansion was cited as a strong contributor to land market value advances in the current market. Non-farmer investor interest and the associated opportunities for “1031” tax exchanges also continue to create upward pressures on land values according to survey reporters, but not to the extend of influence of recent years. Related to this reporter perspective was the greater incidence of purchases by active farmer/rancher buyers in 2006. For the actual reported sales for 2006, 71 % were purchased by active farmer/ranchers as compared with 61% in the previous year.
For cropland, cash rental rates for 2007 rose sharply across the state with increases generally in the 10 to 12% range. These higher income earnings associated with cropland tended to parallel the value advances, thus leading to estimated net rates of return being essentially unchanged from year earlier levels. For several years, these net rates of return had gradually declined.
The 2007 rents for pasture were essentially similar to year-earlier levels as the cattle sector experienced some reduced profit potential in 2006. Since grazing land values climbed during the year, the net rate of return on pasture land continued to decline.
A majority of reporters in the early-year 2007 survey saw the level of real estate sales activity in 2007 being similar to 2006 levels; although of reporters expecting some change in the number of sales, the number expecting some increase outnumbered those anticipating a decrease by nearly three to one.
As for anticipated value changes during 2007, a very strong majority of reporters looked for continuing advances in every region of the state. Overall, nearly nine out of every ten reporters expected further appreciation in agricultural land values in 2007, averaging about 9 percent. In a special mid-year 2007 electronic survey of a smaller sample of respondents, nearly all reported that values for dryland cropland and irrigated cropland had climbed further since the first of the year. The average reported increase was more than 10%. A slight majority saw increases in grazing land values (also more than 10%) while nearly half saw steady values.