Current Land Values & Cash Rental Rates in Nebraska, 2012
Presented by Jessica Jo Johnson
Prepared by T. Lemmons & A. Vyhnalek
Adapted from B. Johnson. (2012). Nebraska Farm Real Estate Market Report. UNL
Extension
1. Know how. Know now.Know how. Know now.
Presented by:
Jessica Jo Johnson
Prepared by:
T. Lemmons & A. Vyhnalek
Adapted from:
B. Johnson. (2012). Nebraska Farm Real Estate Market Report. UNL
Extension
Current Land Values
& Cash Rental Rates
2. Know how. Know now.
Land Values
Factors
influencing
Land Values
Rental
Rates
8. Know how. Know now.
Land Values
Factors
influencing
Land Values
Rental
Rates
9. Know how. Know now.Know how. Know now.
Perfect storm for land value increase
•Availability of Money – profits from farming
•Low interest rates
•Lack of land for sale
•Returns on land are still favorable, even
though declined
26. Know how. Know now.
Land Summary
• State-wide – just over 50% of land purchases, with
cash
• At Historic Highs
• Global demand for food
• Rates of return are still moderate
• Most believe that values are being driven in part by
current producers expanding operations
• Still going up? At Peak? or Declining? Depends on
your local market demand
• BE CAUTIOUS!
27. Know how. Know now.
Land Values
Factors
influencing
Land Values
Rental
Rates
Three- and five-year trends in values show wide variation across sub-state regions as well as by land classes The five-year all-land average percentage change ranged from 52% in the Northwest District to 103% in the Northeast and South Districts. • By land classes, both the three-year and five-year percentage changes were highest for the cropland classes while the non-tillable grassland and hayland classes experienced much more moderate gains. • For the five-year period 2006 to 2011, the value increases for the Nebraska cropland classes have averaged about 12% per year, while the non-tillable grassland class averaged about a 7% annual increase.• In contrast to the downward real estate value trends across the country for residential and commercial properties during the recent economic recession and anemic recovery, these rates of gain for Nebraska agricultural land values are phenomenal.
Shows the average size of tract of land and sale price for the different districts. Shows the high price per acre is causing land to be sold in smaller tracts/chunks than in the past. Demonstrates that as price continues to increase, the parcels being sold off are moving in increasingly smaller “chunks”; especially eastern parcels relative to land out west.
This slide will need to be updated at every presentation to be most current to the markets
Nov. 5 – 7.41
This slide will need to be updated at every presentation to be most current to the markets
This slide will need to be updated at every presentation to be most current to the markets
Low exports a result of lower global demand. This may be the result of the enveloping global recession and an overall lower supply of money (money being a reflection of purchasing power, not currency in circulation). More interesting is to look at who is importing product rather than who is exporting. Those countries with purchase power (China, India, Middle East, Southeast Asia) are improving import markets, while the developed countries in recession are slowing imports.
Ending stocks this year will be the lowest in history, driving the projected price further upwards. Inverse relationship between ending stocks and price as expected in a supply and demand market system
Low exports a result of lower global demand. This may be the result of the enveloping global recession and an overall lower supply of money (money being a reflection of purchasing power, not currency in circulation). More interesting is to look at who is importing product rather than who is exporting. Those countries with purchase power (China, India, Middle East, Southeast Asia) are improving import markets, while the developed countries in recession are slowing imports.
Ending stocks this year will be the lowest in history, driving the projected price further upwards. Inverse relationship between ending stocks and price as expected in a supply and demand market system
Significant expenses, especially landlords.
Goes with net farm income slide.
Traditionally 3% 60s-80s. At 3% every 33 years, but now 1 in 100 years
Slide shows the decline in net annual rates of return for different production types. Reflects the explosive growth of land values and the reality that returns (both as an owner and as a renter) are not keeping pace with returns of previous years, but are on par with the disappointing returns of most markets in this latest recession “recovery”. Were high in ‘90s, due to decline in land values during early 80s and non-good commodity prices. Value stays same, but revenue increases and reduces %.
The important item to note is that the demand for land will continue for as long as there is a readily available pool of cash or debt financing to support the acquisition price. In the past, with good crop prices and yields, many farm operations were flush with disposable cash or strong collateral balance sheets to facilitate a new purchase. This year, as crop prices were good, but yields were depressed, the pendulum will begin to swing back. This does not mean that prices will suddenly fall like a rock, but if the drought is persistent, the perception that cash reserves will shrink may lessen the free-cash demand for land. The second factor that will affect money supply is the effective interest rate on borrowed capital. Should the interest rates move up (which must happen at some point to bring the markets to equilibrium to avoid run-a-way inflation), the cost of borrowing money to finance land purchases may also lessen demand. Land will stay strong as long as cash is abundant, which will remain until return to adequate corn supply and price returns to $4 level.
Rent * 27 = estimatedland value or Rent-to-Value of 3%This is the reverse of the rent to value ratio; simply the value to rent. So if someone were paying rent, he/she could speculate on the expected cost of owning the ground. It also demonstrates that an increasing value to rent means values are increasing faster than rent. On the rent to value side, the line would be sloped downward indicating that rents are not in keeping up with increasing land values. Simply put, although land rents are high, they are less today than 10 years ago, relative to the value of the ground. This slide is in conjunction with the one that shows that the returns for land (on all types) is decreasing. If the correlation between increasing land value and land rents were a perfect 1.0, then the line on this slide would be perfectly horizontal across time. Multiple is ~26 to determine value of that ground.
NO NEW DATA UNTIL SEPT. of 2012
NO NEW DATA UNTIL SEPT. of 2012Farmer survey in July and August. Are they arbitrary. Probably low due to renting from relatives and friends. Do other things that reduce rent paid.
NO NEW DATA UNTIL SEPT. of 2012
NO NEW DATA UNTIL SEPT. of 2012
NO NEW DATA UNTIL SEPT. of 2012
NO NEW DATA UNTIL SEPT. of 2012
Farmer and Cash Rent survey is filled out by different folks. UNL cash rent survey by farm managers, lenders, professionals.
Coffee shop has topper stories; perfect location to pay higher values; perfect storm
