2013 NEBRASKA AGLANDMARKET HIGHLIGHTSbyBruce JohnsonUNL Department ofAgricultural Economicsbjohnson2@unl.edu
The Market in a Nutshell“A $7 Corn Land MarketWith $5 Corn on the Horizon”
Recent History:Land Boom ConditionsNebraska at the “Epicenter”of the U.S. Land Boom
USDA Farmland Value Percentage Changes6/1/2011 – 6/1/201210.913.613.71717.519.220.922.823.926.5833.548 States10th Ohio9th Missouri8th Indiana7th Illinois6th Kansas5th Minnesota4th Iowa3rd South Dakota2nd North Dakota1st Nebraska0 5 10 15 20 25 30 35 40Rank / StateSource: Economic Research Service, U.S. Department of AgricultureAgricultural Land Markets up Acrossthe Country, but Nebraska And NeighboringStates Leading the Nation
Land Class2013 AverageValue1-YearChange3-yearChangeDollars/Acre % Change in ValueDryland Cropland:No Irrigation Potential 3010 25 97Irrigation Potential 5,270 21 102Grassland:Tillable 1230 22 84Non-tillable 695 19 64Irrigated Cropland:Gravity 6835 27 109Center Pivotb 7590 30 115All Land: 3040 25 102a Source: Annual February 1st UNL Nebraska Farm Real Estate Market Surveys.b Value of pivot not included in per acre value.Nebraska Land Values Climb 25% in Past 12 Months2013 Values and Recent Trends by Land Class in NebraskaaThe Current Market
Nebraska NominalAgricultural Land Values05001,0001,5002,0002,5003,0003,500Price($/acre)YearLonger-RunHistory: Upward but notsteady climb forseveral decades “Boom to Bust”event just 30years ago Major climb innominal valuesin recent years
2013 Nebraska Values Adjusted ForInflation At New Heights!05001,0001,5002,0002,500Price($/acre)YearUSDA Real Average Land Values for NE: 1950-2013
Key Land Boom Drivers#1 Record-Shattering Farm Income Levels012345678NetFarmIncome(Billion$)YearAnnual Net Farm Income In Nebraska:2001- 2012Series1Source:ERS
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012P$billion$perbushelNebraska Corn Price & Net Farm IncomeNebraska Net Farm IncomeNebraska Average Corn Price
Key Land Boom DriversHistorically Low Interest RatesFarm Income LevelsCapitalization Rates#2
3.8%3.2%1.9%4.7%4.1%2.9%5.7%5.4%3.4%Estimated Net Rate of Return onInvestment: Selected YearsPercent0 1 2 3 4 5 6Irrigated LandDryland CroplandGrazing LandIrrigated LandDryland CroplandGrazing LandIrrigated LandDryland CroplandGrazing Land2013:2007:2002:Source: UNL Nebraska Farm Real Estate Market Developments Survey Series
Value-to-Cash Rent Multiple For Eastern NebraskaCenter Pivot Cropland, 1981-2012PValue–to–Cash Rent RatioClimbing into New Territory!
What’s On The Horizon?Prevailing DroughtCutting Production?Increasing Input Costs?$5/Bu. Corn?
Question:Are Tenants Taking onToo-High of Rents?Answer:MAYBE!
Depends on 2013 CommodityPrices and YieldsIf Paid $350/AC For Irrigatedand $220/AC Dryland CroplandIf Paid $350/AC for Irrigated and $220/AC Dryland Cropland
Summing Up:The Boom Years May Be OverReal Estate Meltdown Unlikely--But Some Readjustmenton the Horizon
THE OWNERSHIP AND SUCCESSION OFAGRICULTURAL LAND :Four Key Implications#1 Since agricultural production assets areextremely valuable: Approach ownership and succession from a professional(not personal) perspective Seek outside professional input• Appraisers• Attorneys• Accountants• Professional Farm Managers• Financial Planners• Etc.
KEY IMPLICATIONS CONT: Establish Goals/Objectives and an Associated Plan(with all Stakeholders involved)Are we managing and passing on:An Ongoing Farming Operation?orA Group of Assets?And if a Group of Assets,To Hold Together?orTo Be Parceled?
KEY IMPLICATIONS CONT:#2 Given the Highly-Dynamic Nature ofAgricultural Asset Values: Consider Business Transition/Succession as ongoing process Periodic Review and Updating Keep Current on Key Indicators: Income Generated Asset Values Leasing Arrangements Cash Rental Rates Government Programs Production LevelsNo Longer is Silence an Indicator of Trust;Nor is Honest Inquiry a sign of Mistrust
KEY IMPLICATIONS CONT.:#3 Since Farm Family Heirs Increasingly are choosing toretainownership of Agricultural Assets: Issues of Fairness and Equity are Paramount Appropriate Financial compensation for management roles playedby one or more members Where one family member is renting the family land, crop-shareleasing makes sense. Flexibility provisions for reconfiguring ownership among memberscritical.
KEY IMPLICATIONS CONT.:#4 Given High Levels of Acquired Wealth: Greater Opportunity (and tax incentives) for philanthropic objectives Providing an ongoing legacy beyond immediate familyTO:The Local CommunityThe Agricultural CommunityNebraska and Its Growing Agricultural Role in the 21stCentury“Nebraska is at the epicenter of global foodproduction”--- IANR Vice Chancellor Ronnie Green, 2011
THE FARM TRANSITION:NOT dividing up the spoils of ahard-working generation.BUT rather, passing on theheart and soul to the nextgeneration.“. . . and let us run with endurancethe race that is set before us.”Hebrews 12:1