Agricultural Economics Department
Date of this Version
6-1994
Document Type
Article
Abstract
Agricultural land values rose across the state during 1993, averaging 6.6 percent for the year ending February 1, 1994. According to the 1994 Nebraska Farm Real Estate Market survey, largest annual increases were reported in the east, southwest, and north areas with percentage increases of 8.9 percent, 8.4 percent, and 8:0 percent respectively.
While weather adversity was widespread across Nebraska during 1993, buyer interest remained keen, and appeared to intensify in late 1993 and early 1994 as crop commodity prices rose.
In any local market, agricultural land values will exhibit rather pronounced ranges in market values depending upon real and perceived productivity variations. High grade land may exhibit a price premium of 20 percent or more over average grade land; while conversely, low grade land appears to be discounted by an even greater percentage. In short, the land market seems to be functioning with appropriate sensitivity to productivity variations.
Market activity continues to be dominated by active farmer buyers seeking add-on units. The supply largely reflects estate settlements and retirement.
Of actual 1993 transactions reported in the 1994 UNL survey, nearly half ( 48 percent) were outright cash purchases. This level remains high, despite the favorable mortgage financing environment which existed during 1993.
The 1994 cash rental market showed some increase in cash rental rates. For irrigated land, the increase was 7 percent or more over year-earlier levels throughout much of the state. For most types of land 1994 cash rental rates represent historical highs.
But despite current historical highs in annual cash rental rates, the average net percentage rates of return to agricultural real estate investment appear to range from 4 to 6 percent. At these levels, the debt-servicing potential of this type of investment is rather low.
As for expectations for 1994, UNL survey reporters generally expected the level of market activity to be similar to that of 1993. More than half expected further value increases of about 5 percent with only a very small percentage of reporters expecting value declines. However, many commented that both market activity and values could be "shocked" by significant increases in interest rates or shortfalls in farm income during 1994.
Comments
Publication by Nebraska Cooperative Extension EC 94-809, June 1994. Website address is http://agecon.unl.edu/realestate.
The Authors express their appreciation to the survey reporters for their participation and returning the Nebraska farm real estate Market survey questionnaire. Without their efforts and interest, the availability and publication of the data within this report would not be possible.