2022 Nebraska Farmland Values and Cash Rental Rates

2022 Nebraska Farmland Values and Cash Rental Rates

The market value of agricultural land in Nebraska in­ creased by 16% over the prior year to an average of $3,360 per acre, according to the 2022 Nebraska Farm Real Estate Market Survey (Figure 1 and Table 1). This marks the larg­ est increase in the market value of agricultural land in Ne­ braska since 2014 and is the highest non-inflation-adjusted state-wide land value in the history of the survey.

The University of Nebraska-Lincoln's Department of Agri­ cultural Economics annually surveys land industry profes­ sionals across Nebraska, including appraisers, farm and ranch managers, agricultural bankers, and related industry professionals. Results from the survey are divided by land class and summarized by the eight Agricultural Statistic Districts of Nebraska (Figure 2).

As part of the annual survey, land industry professionals reported the rise in Nebraska agricultural land values were attributed to higher commodity prices, interest rates near historic lows, hedging against inflation, and a renewed use in 1031 exchanges. The financial position of many operations improved over the prior year despite rising machinery costs and input expenses. Current interest rate levels created a strong market as investors turned to land as a tangible investment as a hedge against in­ flation. Proposals to change capital gains taxes also spurred the usage of 1031 exchanges.

Policies put forward to stem the effects of COVID-19 led to federal disaster assistance for the agricultural sector, along with an extended period oflow interest rates. The tapering back of disaster assistance was off­ set by higher crop and livestock income across Ne­ braska in 2021 (Lubben, 2022). The outlook for 2022 also appears favorable as commodity prices continue to rise, but the impact of higher input costs and inten­ sifying drought across the state are causes for concern

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Higher income, coupled with historically low interest rates, led to the robust real estate sales markets. Interest rates for operating, intermediate, and real estate debt in 2021 aver­ aged approximately 100 basis - or 1% - lower than the historic average from 2015 to 2019. The average real estate debt for land loans averaged about 4.5% across states locat­ ed in the Tenth District of the Federal Reserve Bank of Kan­ sas City (Scott & Kreitman, 2022). Real estate purchasers capitalized on these favorable financing terms.

Uncertainty posed by investment taxation and inflation bol­ stered the use of 1031 exchanges when moving capital be­ tween assets. Investors and operators acquired land as a hedge against changes to policy and economic uncertainty. Overseas conflict leading to input shortages and higher ex­ penses remains a challenge for navigating 2022. Favorable financial positions, lending terms, and stability ofland as an investment, created a competitive real estate marketing across Nebraska, according to survey participants.

Cropland represented the highest market value increase for Nebraska for 2022 when compared to the prior year (Table 1). The estimated market value of dryland cropland with irrigation potential rose by 19% across the state. Districts in the Northeast, East, and Southeast increased by about 18% to 24%. The other five districts averaged increases ranging from 7% to 15%. Dryland cropland without irrigation po­ tential followed similar trends as the Northwest, Northeast, Central, and East, reporting increases ranging from 15% to 21%, and the other regions improving from about 8% to 14%.

Center pivot irrigated cropland averaged 17% higher year over year, with the Northwest, Northeast, Southwest, and Southeast leading the state between 18% and 24%. The North and East reported gains of 14% and 15%, while the Central and South rose between 12% to 13%. High­ er commodity prices also translated into gravity irrigat­ ed cropland averaging 16% higher in 2022. The North­ east and South gains were between 19% and 22% for this land class. Dry conditions across the state, along with higher commodity prices, contributed to contin­ ued strong demand for the irrigated land classes.

Gains in the hayland and grazing land markets range from 10% to 13%. Grazing land tillable once again led the three land classes at 13% as operators seek addi­ tional acres to develop with higher commodity prices. The major grazing and hayland districts - Northwest, North, Central, and Southwest - reported increases from about 10% to 15%. Policies guiding the develop­ ment of grazing or hayland into cropland have limited the ability to initially participate in purchasing federally subsided crop insurance or participating in USDA farm programs.

Cropland cash rental rates trended higher in 2022 over the prior year (Table 2). Survey participants indicated crop prices as the major factor leading to the growth in rental rates. Higher planting time crop insurance price guarantees led to larger revenue guarantees. Producers have the ability to insure a greater level of revenue but face higher premiums and input expenses. Overseas conflict has disrupted trade patterns for commodities and critical crop inputs. The use of flexible leases in 2022 may better mitigate this risk and derive cash rent­ al rates better reflecting economic forces.

Dryland and irrigated cropland cash rental rates in 2022 trended up, averaging about 10% to 15% higher than the prior growing season. Irrigated cash rental rates assume that the landlord owns the entire irriga-

Table 1. Average Reported Value of Nebraska Farmland for Different Land Types and Sub-State Regions, February 1, 2022a Preliminary

 

Type of Land

Agricultural Statistics District

Northwest  I

North  I Northeast I Central  I

East      Southwest  I

South     I

Southeast     I State<

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dollars Per Acre - - - - - - - - - - - - - - - - - - - - - - - - - - -

Dryland Cropland (No Irrigation Potential)

 

$/acre

745

1,830

6,965

3,540

7,525

1,560

3,485

5,515

3,900

% change

17

11

21

15

16

8

14

12

15

Dryland Cropland

$/acre

(Irrigation Poten

855

tial)

2,245

 

7,485

 

3,855

 

8,470

 

1,775

 

4,145

 

6,695

 

5,235

% change

12

7

20

9

24

10

15

18

19

Grazing Land (Til

$/acre

lable)

625

 

1,370

 

3,645

 

2,160

 

3,915

 

1,055

 

2,290

 

3,265

 

1,475

% change

16

15

12

10

16

11

15

9

13

Grazing Land (Nontillable)

$/acre

510

745

2,470

1,685

2,720

825

1,575

2,510

950

% change

15

7

16

13

6

9

8

17

10

Hayland

$/acre

 

830

 

1,370

 

3,475

 

2,225

 

3,470

 

1,535

 

2,085

 

3,125

 

1,895

% change

7

14

8

12

13

17

9

11

12

Gravity Irrigated Cropland

$/acre

2,520

4,205

8,960

7,015

9,440

4,155

6,865

7,630

7,055

% change

13

11

22

14

17

10

19

14

16

Center Pivot Irrigated Croplandh

$/acre

3,065

4,890

10,135

8,105

10,920

4,900

7,780

9,985

7,735

% change

19

14

24

12

15

18

13

19

17

All Land Averagec

$/acre

825

1,290

6,950

3,810

8,110

1,805

4,375

6,070

3,360

% change

15

11

21

12

19

13

15

16

16

Source: a  UNL Nebraska Farm Real Estate Market Surveys, 2021 and 2022.

b Value of pivot not included in per acre value. 'Weighted averages.

tion system. These rates would be adjusted down to reflect the tenant providing a component to the irrigation system. Extensive drought and heightened input expenses such as fertilizer and crop chemicals were reported as concerns expressed by survey participants for the upcoming grow­ ing season. Flexible leases accounting for actual crop reve­ nue and expenses may be a feature to consider in negotiat­ ed rental leases.

Grazing land and cow-calf pairs rental rates trended steady to higher across Nebraska in 2022 (Table 2). These rates increased about 6% to 8% over the prior year. Drought poses a threat to grazing land without additional rainfall over the upcoming growing season. Negotiating early re­ moval provisions should be accounted for as part of the cash rental rate subject to drought conditions.

The degree of service provided by the landlord or ten- ant influences the cow-calf pair rental rates paid as part of the lease. Factors to consider in the lease include the responsibility of fencing upkeep, control of brush or noxious weeds, and payment of utility bills associated with livestock wells. High third and low third quality cash rental rates in Table 2 account for some of these negotiated lease provisions.

Land values and rental rates presented in this report are averages of survey participants' responses by dis­ trict. Actual land values and rental rates may vary de­ pending upon the quality of the parcel and local market for an area. Also, preliminary land values and rental rates are subject to change as additional surveys are returned. Final results from the survey will be pub­ lished in June 2022 and available online via the Nebras­ ka Farm Real Estate website: http://cap.unl.edu/ realestate

Table 2. Reported Cash Rental Rates for Various Types of Nebraska Farmland and Pasture: 2022 Aver­ ages, Percent Change from 2021 and Quality Ranges by Agricultural Statistics Districta Preliminary

 

 

Type of Land

Agricultural Statistics District

Northwest  I

North  I

Northeast                    I

Central I

East            I

Southwest  I

South  I Southeast

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dollars Per Acre - - - - - - - - - - - - - - - - - - - - - - - - - - -

Dryland Cropland

 

Average ........................

33

65

245

120

235

49

100

190

%Change .....................

11

15

9

22

7

18

20

12

High Third Quality .......

45

98

290

145

275

67

130

235

Low Third Quality .........

27

50

195

105

185

39

78

160

Gravity Irrigated Cropland

 

 

 

 

 

 

 

 

Average ........................

130

195

300

245

285

180

245

260

%Change .....................

13

8

7

14

10

6

17

9

High Third Quality .......

165

230

355

275

320

205

275

315

Low Third Quality .........

Center Pivot Irrigated Croplandb

105

170

245

190

250

160

210

230

Average ........................

175

230

340

275

330

225

280

315

%Change .....................

16

9

11

17

14

15

19

13

High Third Quality .......

210

280

390

335

365

270

330

345

Low Third Quality .........

140

195

285

225

290

180

245

265

Pasture

 

 

 

 

 

 

 

 

Average ........................

14

30

69

41

55

25

40

53

%Change .....................

7

11

4

9

6

12

5

8

High Third Quality .......

19

43

89

56

71

32

49

64

Low Third Quality .........

11

17

52

33

44

19

30

41

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dollars Per Month - - - - - - - - - - - - - - - - - - - - - - - - - - -

Cow-Calf Pair Monthly Rates<

Average ........................

43.15

67.05

65.80

61.45

58.35

56.70

51.20

57.40

%Change .....................

9

6

8

4

6

10

3

5

High Third Quality .......

48.50

73.65

76.25

71.40

68.25

60.90

63.85

67.35

Low Third Quality .........

35.85

56.10

52.35

47.95

49.30

48.75

40.15

44.95

Source: a Reporters' estimated cash rental rates (both averages and ranges) from the UNL Nebraska Farm Real Estate Market Develop­ ments Survey, 2021 and 2022.

b Cash rents on center pivot land assumes landowners own total irrigation system.

'A cow-calf pair is typically considered to be 1.25 to 1.30 animal units (animal unit being 1,000 lb. animal) for a five month grazing season. However, this can vary depending on weight of cow and age of calf.

Please address questions regarding preliminary estimates from the 2022 Nebraska Farm Real Estate Survey to Jim Jansen at (402) 261-7572 or jjansen4@unl.edu.

 References

Kauffman, N., & Kreitman, T. (2022, February 24). Farm Real Estate Values Continue Rapid Climb, re­ trieved March 3, 2022, from the Kansas City FED

Lubben, B. (2022, March) Nebraska Farm Financial In- come Forecasts, retrieved March 3, 2022 from the UNL Bureau of Business Research

Scott, F., & Kreitman, T. (2022, February 10). Rise in Farm Real Estate Values Accelerates, retrieved March 4, 2022, from the Kansas City FED