12 18-12 landlord tenant workshop

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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

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  • Prices inflated/deflated to year 2000
  • 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
  • 12 18-12 landlord tenant workshop

    1. 1. Know how. Know now.Know how. Know now.Presented by:Jessica Jo JohnsonPrepared by:T. Lemmons & A. VyhnalekAdapted from:B. Johnson. (2012). Nebraska Farm Real Estate Market Report. UNLExtensionCurrent Land Values& Cash Rental Rates
    2. 2. Know how. Know now.Land ValuesFactorsinfluencingLand ValuesRentalRates
    3. 3. Know how. Know now.Know how. Know now.
    4. 4. Know how. Know now.Know how. Know now.2012 Values and Recent Trends$63522%$242532%$87524%$133535%$294535%$3355 32% $4280 35%$608031%$497537%
    5. 5. Know how. Know now.Know how. Know now.2011-2012 Values and Recent Trends by DistrictAgriculturalStatisticsDistrict2011/2012 All-Land AverageValueDollars/Acre2010-2011% change2011-2012% change5 Year %changeNorthwest 520/635 12.3 22 64North 706/875 18.1 24 71Northeast 3624/4975 25.1 37 132Central 2183/2945 24.9 35 113East 4625/6080 22.9 31 116Southwest 991/1335 13.9 35 107South 2535/3355 24.9 32 144Southeast 3160/4280 21.7 35 120Entire State 1833/2445 22.0 32 120Source: Annual UNL Nebraska Farm Real Estate Market Surveys Red – 2012 values
    6. 6. Know how. Know now.Know how. Know now.2011-2012 Values and Recent Trends by Land ClassType of Land – Average ValueNorthwest North2011/20122011/2012% Change2011/20122011/2012% ChangeDryland Cropland - No IrrigationPotential545/660 21% 800/1050 31%Dryland Cropland - IrrigationPotential550/680 24% 1200/1625 35%Grazing Land - Tillable 340/410 21% 740/880 19%Grazing Land - NonTillable 280/330 18% 390/450 15%Hayland 550/620 13% 785/950 21%Gravity Irrigated Cropland 1980/2440 23% 2050/2625 28%Gravity Irrigated Cropland 1975/2535 28% 2955/3970 34%All Land Average 635/520 22% 706/875 24%Source: Annual UNL Nebraska Farm Real Estate Market Surveys Red – 2012 values
    7. 7. Know how. Know now.Know how. Know now.
    8. 8. Know how. Know now.Land ValuesFactorsinfluencingLand ValuesRentalRates
    9. 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, eventhough declined
    10. 10. Know how. Know now.Know how. Know now.(Source: USDA NASS, November 2012)$1.72$7.76
    11. 11. Know how. Know now.Know how. Know now.$4.30 August 23rd, 2010Corn – Dec 2012 Futures$8.09 – August 6th, 2012
    12. 12. Know how. Know now.Know how. Know now.Farm Commodity Prices(Source: USDA NASS, November 2012)$3.03$9.84
    13. 13. Know how. Know now.Know how. Know now.Wheat – March 2012 Futures$9.62 – May 23rd, 2011$6.57 - May 7th, 2012
    14. 14. Know how. Know now.Know how. Know now.Ag Exports
    15. 15. Know how. Know now.
    16. 16. Know how. Know now.Know how. Know now.Ag Exports
    17. 17. Know how. Know now.Know how. Know now.
    18. 18. Know how. Know now.Know how. Know now.Farm Income and Expenses
    19. 19. Know how. Know now.Know how. Know now.Nebraska Farm Income
    20. 20. Know how. Know now.Know how. Know now.Strength of Ag Sector2012 Balance Sheet for the U.S. Farming SectorTotal Farm Assets: $2.47 trillionTotal Farm Debt: $254.1 billionTotal Farm Equity: $2.22 trillionDebt-to-Equity Ratio: 8.7%Debt-to-Asset Ratio: 9.7%Source: ERS – USDA 2/2012
    21. 21. Know how. Know now.Income ChangesSource: ERS/USDA with 2011 Forecasts UNL Estimates
    22. 22. Know how. Know now.Know how. Know now.
    23. 23. Know how. Know now.Know how. Know now.Annual Percentage of Agricultural LandSold in Nebraska (2011-2012)
    24. 24. Know how. Know now.Annual Percentage of Agricultural LandSold by County (2011-2012)
    25. 25. Know how. Know now.Know how. Know now.
    26. 26. Know how. Know now.Land Summary• State-wide – just over 50% of land purchases, withcash• At Historic Highs• Global demand for food• Rates of return are still moderate• Most believe that values are being driven in part bycurrent producers expanding operations• Still going up? At Peak? or Declining? Depends onyour local market demand• BE CAUTIOUS!
    27. 27. Know how. Know now.Land ValuesFactorsinfluencingLand ValuesRentalRates
    28. 28. Know how. Know now.
    29. 29. Know how. Know now.Value to Rent Multiple forIrrigated Cropland7.1613.675.0611.4202468101214161990 1995 2000 2005 2010ValuetoRentMultipleGravity Irrigated Northwest Center Pivot Irrigated Northwest
    30. 30. Know how. Know now.Know how. Know now.
    31. 31. Know how. Know now.Know how. Know now.
    32. 32. Know how. Know now.Know how. Know now.
    33. 33. Know how. Know now.Know how. Know now.
    34. 34. Know how. Know now.Know how. Know now.Reported Cash Rental Rates:Center Pivot Irrigated Cropland2012 Average % Change from2011High LowNorthwest 200 17 235 155North 229 17 264 180Northeast 325 16 400 264Central 257 16 305 209East 313 15 377 257Southwest 236 22 285 205South 276 18 343 220Southeast 301 17 361 240Source: 2012 UNL Nebraska Farm Real Estate Market Developments SurveyInsufficient number of reports for Northwest Gravity Irrigated Reported Cash Rental Rates
    35. 35. Know how. Know now.Know how. Know now.
    36. 36. Know how. Know now.Know how. Know now.
    37. 37. Know how. Know now.Know how. Know now.Reported Cash Rental Rates: PastureAverage % Change from2011High LowNorthwest 13 18 17 9North 16 14 21 14Northeast 51 9 62 36Central 33 10 40 27East 41 11 50 32Southwest 15 7 21 13South 36 13 42 30Southeast 39 15 49 29Source: 2012 UNL Nebraska Farm Real Estate Market Developments Survey
    38. 38. Know how. Know now.Cash Rent Summary••••••
    39. 39. Know how. Know now.Questions/Comments??Thank You

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