Survey says: Nebraska farmland values hit plateau

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Agricultural land values in Nebraska reached a plateau in the last year after several years of gains, according to preliminary estimates from the University of Nebraska-Lincoln.

The state's all-land average value was $1,424 per acre as of Feb. 1, according to preliminary findings in the Nebraska Farm Real Estate Market Survey. That's identical to the all-land average value in last year's final report.

The survey also found that estimated 2009 cash rents are stable to slightly down from 2008 levels throughout most of the state.

The findings "show a clear picture of the market mood turning very cautious in response to the U.S. and global economic downturns," said Bruce Johnson, the UNL agricultural economist who conducts the survey.

A closer look at the data shows land values' response to changing economic conditions in the ag sector, Johnson noted. During the first nine months of the year, land values continued to increase "as crop commodity prices escalated to euphoric highs by mid-year," Johnson said.

As commodity prices headed down during the rest of 2008, land values followed suit. From Oct. 1, 2008 through Feb. 1, 2009, declines in many parts of the state were around 5 percent, Johnson wrote in this week's Cornhusker Economics newsletter from UNL's Department of Agricultural Economics.

Johnson cautioned against reading too much into that reversal. He said it's likely "more of a modest value recalibration than the beginning of a downward market freefall."

By class of land, dryland cropland and grazing land values declined slightly for the year ending Feb. 1, while irrigated land classes for the state as a whole recorded slight gains. The impacts of recent irrigation moratoriums are reflected in value declines for the dryland cropland class with irrigation potential in a number of the districts, Johnson said.

The preliminary findings show some distinct differences in land value changes among regions of the state. The East and the Northeast districts had overall decreases of 3 percent and 2.5 percent, respectively. In recent years, these regions had experienced some of the most dramatic percentage gains in values, Johnson said, "so in a longer term context, these cooling effects of recent months are still very slight."

The South and the Southwest districts recorded overall land value gains of 8.2 percent and 6.4 percent, respectively.

"These two districts had experienced much lower run-ups in values over the past several years, largely due to multi-year drought conditions and substantial irrigation water restrictions," Johnson said. "So, with better moisture conditions in 2008 and unusually strong commodity prices (particularly for wheat), these regions have experienced relatively stronger bidding for agricultural land in recent months."

The survey indicates that most recent buyers are active farmers looking to expand their operations. Non-farm investors are still in the market but were not big players last year, Johnson said.

"And any interest in agricultural land for secondary recreational purposes has essentially dried up for the time being," he added.

As for the cash rental market, the 2009 preliminary average rates for the cropland classes were down from 2008 levels in most cases, Johnson said. In categories where 2009 levels were higher, the percentage increases were modest.

Despite a strong income year in 2008 for the crop sector, "these levels would suggest that both land owners and tenants are factoring in much more restricted income expectations for 2009," Johnson said.

Despite difficult economic times for the state's cattle industry, pasture and rangeland rates for 2009 remain fairly similar to the previous year's levels.

Johnson offered this final thought:

"The economic forces of the current recession have begun to hit the agricultural sector on many fronts. Clearly the bullish income conditions of recent years for agricultural crops have waned and are likely to remain so until some U.S. and global economic recovery commences," he wrote. "Nevertheless, the fact that land values and rents have, to this juncture, escaped sharply downward movements must be solace to any agricultural land owner. As the old land economists would often recite, 'productive agricultural land is a positive store of value.'

"In times such as these, when other aspects of wealth portfolios are rapidly shrinking, that statement rings more true than ever," Johnson added.

Reports from a panel of agricultural land experts were compiled for this survey, which is conducted in cooperation with the Institute of Agriculture and Natural Resources' Agricultural Research Division. Final estimates will be available in a report this summer.

The report is available in Cornhusker Economics, at http://www.agecon.unl.edu/Cornhuskereconomics.html