Landlord - Tenant Cash Lease Workshop
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Current Land Values and Cash Rental Rates

Current Land Values and Cash Rental Rates
(From Landlord-Tenant Land Lease Workshop, Dec. 18, 2012)

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  • Did drought of 2012 contribute to large value gains?Double the land market value
  • 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.
  • For irrigated land, the estimated net percentage return on current value (what real estate appraisers call the market-derived capitalization rate) fell below 3.5 percent for the first time in the 23-year series. In financial jargon, this would infer that the expected return on investment (ROI) of an irrigation parcel priced at $10,000 per acre would fall below $350 per acre in annual net earnings. . Sharp downturns in annual returns to land and/or upward-climbing interest rates from present historical lows (rising opportunity costs) could trigger a downturn in land values of significant magnitude.
  • Purchase-for-farm-expansion continues to be a profound force underlying the upward movement of agricultural land values. The scaling up of crop farm size to accommodate the new and more sophisticated precision agriculture technology leads to a strong demand by active farmer buyers who already are farming large acreages. In any given local market, there will tend to be a relatively small number of these larger entities who will be in the market for land when it comes up for sale. As noted in the tables to follow, active farmer buyers will often tend to dominate the buyer side of the market — particularly in the major crop producing areas of the state. Only 1/6 sellers were active farmers
  • More than four out of every ten acres of agricultural land in Nebraska is rented, with the vast majority of those acres under cash rental arrangements.
  • NO NEW DATA UNTIL SEPT. of 2012
  • NO NEW DATA UNTIL SEPT. of 2012
  • NO NEW DATA UNTIL SEPT. of 2012

Landlord - Tenant Cash Lease Workshop Presentation Transcript

  • 1. Know how. Know now. Landlord/Tenant Cash Lease Workshop Sponsored by: Please Thank our sponsors! The Nebraska Soybean Board North Nebraska–Lincoln University of Central Risk Management Ed Ctr.
  • 2. Know how. Know now.  Landlord/Tenant Cash Rent Workshops Agenda  Where we are (Current Prices)  Landlord/Tenant Relationships/lease considerations  Break  Alternative lease arrangements  Pasture Leases Workshop – two words – work your brains – shop our ideas! University of Nebraska–Lincoln
  • 3. Know how. Know now. Current Land Values/Rental Rates Presented by: Jessica Johnson Prepared by: T. Lemmons & A. Vyhnalek Adapted from: B. Johnson. (2013). Nebraska Farm Real University of Nebraska–Lincoln Estate Market Report. UNL Extension Contact: Jessica Johnson jjohnson@unl.edu 308-632-1247
  • 4. Know how. Know now. Average Value of Nebraska Farmland and Percent Change from Year Earlier Northwest $715/ac 13% State Average $3040/ac 25% North $1055/ac 20% Southwest $1750/ac 31% Northeast $6162/ac 24% Central $3750/ac 27% South $4460/ac 33% East $7185/ac 18% Southeast $5400/ac 26% University of Nebraska–Lincoln Estate Market Surveys Source: Annual UNL Nebraska Farm Real
  • 5. Know how. Know now. University of Nebraska–Lincoln
  • 6. Know how. Know now. University of Nebraska–Lincoln
  • 7. Know how. Know now. 2012/2013 Values and Recent Trends Agricultural Statistics District 2012/2013 All-Land Average Value Dollars/Acre Northwest 642/715 North 855/1055 Northeast 4908/6165 Central 2925/3750 East 6012/7185 Southwest 1327/1750 South 3352/4460 Southeast 4293/5400 University of Nebraska–Lincoln Entire State 2410/3040 2011-2012 % change 2012-2013 % change 23 21 35 34 31 34 32 22 31 13 20 24 27 18 31 33 26 25 Source: Annual UNL Nebraska Farm Real Estate Market Surveys
  • 8. Know how. Know now. Selected Land Values by type 2012-13 Land type Northwest 6% Dryland – no potential $700 7% Dryland – irr. potential $730 4% Grazing – tillable $425 12% Grazing nontillable $370 26% Hayland $780 Gravity Irrigated land $2875 18% Center pivot Irrigation land $3115 23% University of Nebraska–Lincoln North $1155 8% $1920 18% $1050 19% $500 11% $1150 21% $3100 18% $5225 32%
  • 9. Know how. Know now. Annual Net Rates of Return to Land % Northwest University of Nebraska–Lincoln
  • 10. Know how. Know now. Annual Net Rates of Return to Land - % Statewide 7.8 7.1 Northwest 8.3 6.8 6.0 5.8 Northwest 4.4 4.8 4.9 3.4 3.8 2.8 2.9 1.8 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.9 University ofDryland Cropland Nebraska–Lincoln Grazing Land Irrigated Land
  • 11. Know how. Know now. Average Effective Interest Rates on Non Real Estate Bank Loans Made to Farmers University of Nebraska–Lincoln
  • 12. Know how. Know now. Alternatives for Investing?     Passbook savings Certificates of Deposit Stock Market/Bonds Gold (other commodities) University of Nebraska–Lincoln Gold
  • 13. Know how. Know now. Notes about Land Sales  First time in history – state sales topped $3,000 per acre Statewide 49% 47% 81% Cash Sales Mortgage Purchased by an Active Farmer/Rancher Out of State Buyer 2% Sold by Estates 38% University of Nebraska–Lincoln Northwest 64% 30% 64% North 27% 55% 59% 21% 15% 8% 17%
  • 14. Know how. Know now. Perfect storm for land value increase •Availability of Money – profits from farming •Low interest rates •Lack of land for sale •Limited return from any other investment •Farmers willing to expand their operations Future?! – Bubble might deflate (not burst?) University of Nebraska–Lincoln
  • 15. Know how. Know now. Renting Farmland University of Nebraska–Lincoln
  • 16. Know how. Know now. Reported Cash Rental Rates: Dryland Cropland Average % Change from 2012 High Low Northwest North Northeast b b 234 b b 10 b b 315 b b 175 Central East Southwest South Southeast 118 219 59 125 174 7 7 5 8 7 155 281 73 155 230 85 165 46 100 127 Source: 2013 UNL Nebraska Farm Real Estate Market Developments Survey b: Insufficient of Nebraska–Lincoln University number of reports
  • 17. Know how. Know now. 2013 Nebraska Dryland Cropland Rates Paid Per Acre University of Nebraska–Lincoln
  • 18. Know how. Know now. University of Nebraska–Lincoln
  • 19. Know how. Know now. Reported Cash Rental Rates: Gravity Irrigated Cropland 2013 Average % Change from 2012 High Low Northwest North Northeast b b 319 b b 12 b b 394 b b 280 Central East Southwest 260 320 210 13 8 14 352 384 267 212 249 183 South Southeast 275 299 11 12 323 359 216 242 Source: 2013 of Nebraska–Lincoln UniversityUNL Nebraska Farm Real Estate Market Developments Survey b: Insufficient number of reports
  • 20. Know how. Know now. Reported Cash Rental Rates: Center Pivot Irrigated Cropland 2013 Average % Change from 2012 High Low Northwest North Northeast 225 265 379 13 13 15 265 285 477 170 208 302 Central East Southwest 287 355 269 12 13 14 358 441 325 240 281 210 South Southeast 313 345 12 13 363 427 259 268 Source: 2013 of Nebraska–Lincoln UniversityUNL Nebraska Farm Real Estate Market Developments Survey b: Insufficient number of reports
  • 21. Know how. Know now. Cash Rental Rates for the Northwest District $250.00 $200.00 $150.00 $100.00 $50.00 University of Nebraska–Lincoln Dryland Gravity Irrigated Center Pivot Irrigated 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 $0.00
  • 22. Know how. Know now. University of Nebraska–Lincoln
  • 23. Know how. Know now. Reported Cash Rental Rates 2013: Pasture Average % Change from 2012 High Low Northwest North Northeast 13 16 53 0 0 4 17 20 67 9 12 38 Central East Southwest 35 49 17 6 16 6 45 64 24 26 38 14 South Southeast 37 42 3 8 43 54 54 28 Source: 2013 of Nebraska–Lincoln UniversityUNL Nebraska Farm Real Estate Market Developments Survey
  • 24. Know how. Know now. Pasture Rents – by cow/calf pair per month Average High Low North 39.00 50.00 30.00 University of Nebraska–Lincoln Northwest 30.50 36.85 24.65
  • 25. Know how. Know now. Cash Rent Summary • • • • • • University of Nebraska–Lincoln
  • 26. Know how. Know now. Gathering Storm Cloud University of Nebraska–Lincoln
  • 27. Know how. Know now. Cash Rent Summary   Looking at corn prices, rents should stabilize, or start down  Probably not the resource to support $500/acre rent Rents are still determined by supply and demand   Tenants need to sharpen the pencil Landlords need to be understanding University of Nebraska–Lincoln
  • 28. Know how. Know now. Visit my website now! Jessica Jo Johnson Asst. Extension Educator Phone: 308-632-1247 Email: jjohnson@unl.edu PanhandleAgEcon & WNEcrop go.unl.edu/pagecon Don’t have Twitter? Get current Panhandle price & basis information TEXT “Follow WNEcrop” to 40404 AT&T, Verizon, C Spire, US Cellular, MetroPCS Standard message & data rates apply. Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska-Lincoln cooperating with the Counties and the U.S. Department of Agriculture. University of Nebraska–Lincoln University of Nebraska-Lincoln Extension educational programs abide with the non-discrimination policies of the University of NebraskaLincoln and the United States Department of Agriculture.