Huge gains in Nebraska land values—up 22% in the past year—generate not only plenty of coffee shop talk but also questions about what the numbers mean and how sustainable they are.
Prices that pop out like a covey of quail are the $6,175 per-acre average for center-pivot irrigated land in the East District of Nebraska, the first time a land class moved into the $6,000 range, and the record all-land statewide average of $1,833 per acre, as of the Feb. 1 preliminary UNL farm real estate survey.
"We have reached a plateau that appears to be steady for now, although there could be some air escaping the land value balloon," says Bruce Johnson, UNL ag economist. "But I don't see the balloon bursting, considering commodity prices, ag exports, ethanol, farm income levels and ag's financial strength. If we play our cards right, the growing world is there as a market our ag products. (Nebraska ranks fourth among the states in ag exports.)
Factors that could draw some air from the balloon (reduce land values) are the possible end to the ethanol blenders' credit, higher interest rates and the end of the cheap dollar. But, he adds, there also can be future shocks in the world market, such as the recent droughts in China or Russia, that trigger even higher grain exports.
The new world Johnson describes affects landownership and younger producers.
"We've moved beyond the notion that you have to own land to farm," he says, citing increasing land prices and the fact Nebraska still has what he calls a parcelized land ownership market rather than huge farms under single ownership. Larger farm operations today typically are renting land from several landowners.
For the beginning farmer, land rental is the first step to building a solid reputation as a good farmer. "Then, in due time, purchasing a portion of the farm's land base could be possible," Johnson says.
While the supply of land on the market has diminished, in contrast to the strong demand for it, the perception is that in the coming years many estates will come on the market as producers age and move to retirement. But Johnson says that may not be the case, at least for the short-term, considering ag's strong income and financial situation.
"Older, active farmers are typically becoming transition farmers and not necessarily retiring," he says. "They are actively managing the farm alongside a long-term renter or son or nephew, while not heavily involved in the day-to-day labor. They realize that there likely isn't a better place to reinvest their money if the farm was sold. The same goes for non-farming siblings who may own the land. Wealth in agricultural land looks solid, so they figure to hold onto it for a while."
"It's not a nostalgia think for heirs; it's an economic decision with few other investment alternatives that currently look as attractive."
The 2007 Census of Agriculture data indicate that 44% of the total ag land in Nebraska is rented, according to Johnson, but that figure is more than 50% in the major cash grain areas.