Date of this Version
The market value for Nebraska farmland continued to fall during 1986 but generally at a more moderate rate of decline than that of previous years. Results of the 1987 Nebraska farm real estate market survey indicate that afarmland values fell 9.7 percent for the 12 month period ending February 1, 1987. this current rate of decline is considerably less than the 23.5 percent decrease reported last year (1986) and 24.7 percent decline during 1985.
Farmland values have declined the past six consecutive years across the state. By 1987, the average value for Nebraska farmland had dropped 59 percent from its peak value reported in 1981. In nominal terms, the typical per acre farmland value across the state was at a level comparable to the early 1970's.
Expressed in real (inflation adjusted) terms, the continuous declines in Nebraska farmland values have been even more severe. By early 1987, the average value for Nebraska farmland (in terms of constant dollars) was less than one-third of its 1980 value. More than two-thirds of the real wealth associated with the ownership of Nebraska farmland since 1980 had disappeared.
Wide variations in farmland value changes occurred across the state during 1986. For the eastern third of the state, the average declines for farmland values ranged only from 4 to 7 percent. Elsewhere across Nebraska, however, farmland values declined from 13 to 15 percent. Most noteworthy of the geographic patterns of farmland value changes last year was the relative stability of the northeast district where some farmland value increases were actually reported.
As for the various types of agricultural land, dryland cropland exhibited the most stable performance during the past year, declining only 4 percent. hayland (down 19.6%), tillable grazing land (down 19.5%) and nontillable grazing land (down 15.3%) experienced the largest declines among the various land types.
A special mid-year survey conducted for 1987 showed some positive indications that Nebraska farmland values were beginning to "bottom out" and were even increasing somewhat in certain areas. On the basis of weighted regional averages, results showed that farmland values across Nebraska had increased 5 percent from February 1 to May 15. Greater farm income stability provided by government farm program payments, improved livestock profitability, continued lower interest rates, and increased buyer interest in farmland are all factors responsible for this current improvement in the farm real estate market. the question remains, however, whether this shift to a more stabilized farmland market will be relatively short lived or whether a prolonged period for market recovery can now be expected.
Results of the 1987 survey indicated that farm expansion still remains the most frequent reason or motive for purchasing farmland the past year. However, its dominance has subsided from that of earlier years. Reporters cited "profitability" as a primary reason for purchasing with some frequency, a reason seldom mentioned in past years. In combination with the reasons of "investment" and "lower land prices" often mentioned, it would appear that a perceived improvement in economic returns has been a major motive by buyers for purchasing farmland. On the sellers' side of the market, financial stress and was clearly the dominate reason for selling land last year. This is one further reminder that the impact of the farm financial crisis still continues in the farm real estate market.
Available data from recent farmland sale transactions indicate that a third or more of all farm sales last year were strictly cash purchases (no debt incurred by the buyer). This represents a definite change in buying patterns over the past several years. Less that 15 percent of all sales were cash only transactions in 1980. Moreover, in those transactions involving debt, substantial down payments are typically made. This current change in buying strategies has reversed the roles between debt capital and equity capital when compared to the emphasis of debt leveraging in the late 1970's. In turn, persons purchasing farmland today can be characterized quite differently than those of a decade ago.
Cash rental rates fpr Nebraska farmland for 1987 appear to be similar to year earlier levels. Average dryland cropland cash rents are nearly identical to those rates reported for 1986 for all areas of the state. Cash rental reates for irrigated land are down slightly from 1986 levels in most areas of the state, generally clustering in the $80 to $100 per acre range. Considerable ranges of per acre rents continue to show up in any locality. This is a reflection of not only the variation in soil productivity but also the variability of the established grain base and hence farm program participation opportunities. As for rangeland and pasture, little change in cash rental rates was apparent from the past year. A more profitable cattle industry in recent months has undoubtedly stabilized these negotiated cash rents.
While cash rental rates have remained stable this past year, the movement away from cash renting to a crop share basis continues. Survey reporters indicated a substantial transition has occurred during the past several years. Interest in shifting to a crop share rental arrangement appears to be prevalent among both tenants and landlords alike.