Date of this Version
In this, the 30th year of the UNL Farm Real Estate Market Developments Survey and report series, some of the most dramatic changes ever in the market have occurred. During the year ending February 1st 2008, the average value of Nebraska farmland rose 23%, the largest annual increase in the series. Virtually every region of the state experienced strong cropland value increases. Cash rental rates experienced record advances as well, with 2008 levels for the cropland classes being 17% to 24% higher than 2007 levels. Clearly, the agricultural real estate market has responded to crop commodity prices which have shot upward to record levels, and with them economic returns to land that few would have thought possible just a few years ago. Domestic demand from the ethanol industry coupled with a growing world demand has tipped the supply/demand dynamic to a point where market participants are factoring in a whole new paradigm of income expectations into the land market decision framework.
The rapid rise of Nebraska agricultural land values over the past four years (an average increase of 72%) raises concern that this may be a real estate bubble that is not sustainable and hence lead to subsequent devaluation. However, the income fundamentals underlying the recent increases appear sound. Active farmers have returned to dominate the buying side of the market in most regions of the state, accounting for nearly three-fourths (73%) of the Nebraska purchases in 2007. In contrast, active and quitting farmers represented only a third of the selling side of the market.
One indicator of the current financial strength of the market is the fact that half of the reported sales during 2007 were cash purchases with no debt financing incurred. This was even more significant, considering that the average purchase price exceeded $400,000 per parcel in seven of the eight sub-state regions.
Compared with recent years, both the reported and the calculated net percentage rates of return to the various agricultural land classes have risen. This is an indication that buyers are using some caution and factoring greater risk considerations into their maximum bid determinations. In other words, the new levels of economic returns to land are not being fully capitalized into the land values. Given the increased volatility of the entire agricultural economy, this is a positive sign that the land markets are responding responsibly.
As for 2008 expectations, the vast majority of UNL survey reporters (86%) anticipated further increases in agricultural land values during the year. On average, they were expecting increases of 12% for the year. The majority of reporters (63%) expected the level of market activity—number of parcels being offered for sale—to be similar in 2008 to levels of recent years.