Date of this Version
Nebraska’s agricultural land values moved sharply upward across the state during 2003 and into 2004, recording an average gain of 9.2 percent for the 12 months ending February 1, 2004. This average increase was the largest annual percentage gain in 14 years. And it followed on several years of fairly stable land values. Virtually all land classes showed gains, and in all areas of the state–even in areas of serious multi-year drought, where previous-year value declines had occurred. The highest-priced land in the state is now center pivot irrigated cropland in Eastern Nebraska as the market preference for this irrigated land over gravity irrigated land has risen over the past five years. The impact of drought has been present in agricultural land markets; but those impacts have been mixed in nature depending upon unique conditions of the particular region. The value of land with irrigation potential has increased most rapidly in recent years in the eastern regions, while western areas of the state with more limited water availability have not seen values rise as much. In some localities, water policy restrictions or further irrigation development, either existing or pending, has altered demand for this type of land. Other forces impacting the current market center on low interest rates and widespread demand by nonfarmer buyers. While active farmers continue to be the major buyer group, typically buying for farm expansion purposes, their dominance in local markets across the state has fallen over the past decade. Despite agricultural land transfers typically involving considerable dollar values, nearly half of the transfers in 2003 were cash purchases involving no debt financing. Survey reporters frequently commented on the presence of 1031 tax exchanges in agricultural land transfers which may explain part of the relatively high incidence of cash purchases. Given more favorable commodity price levels as well as continued strong demand for rental land in most local land markets, 2004 cash rental rates were up from previous-year levels, frequently 5 percent or more for most cropland classes. Pasture rental rates for 2004 were also higher, both on a per acre and an animal unit per month basis. According to survey reporters, we are seeing a continuation of a slow multi-year decline of expected annual net rates of returns to the various agricultural land classes. Apparently, market participants are generally willing to bid values upward somewhat faster than their expectations for increases in annual net rates of return. In the vernacular of the stock market, this is akin to a rising price/earnings ratio.