Nebraska Farm Real Estate Market Developments 2008-2009

Following strong value advances over the past several years, Nebraska farmland values throttled down and stabilized across most of the state during the 12-month period ending February 1, 2009. According the 2009 UNL Nebraska Farm Real Estate Survey, the average all-land value rose just over 1% for the year. Some modest decreases in value were reported for some classes of land, but relative to recent trends for residential and commercial property across the U.S., stable values for agricultural land speaks to its relative strength in the current recession. Regional differences in value shifts were rather significant over the time period. Some of the regions, where more modest gains had occurred in recent years, experienced somewhat stronger upward changes over the past year. Likewise, by land class, there were notable variations in value changes, with the irrigated land classes showing the stronger advances. Survey reporters in early 2009 were observing market factors in much different perspective than in previous years. In fact, the majority of factors believed to influence land value trends turned from positive influence to negative influence on area land values. Many of these factors reflect macro aspects of the national and global economy, and clearly indicate the connectedness of the agricultural land market to macroeconomic forces. Market characteristics of sales activity in 2008 were a continuation of the trends of recent years. Four out of every five buyers were active farmers, with more than half of the transactions (51%) being cash purchases without debt financing. The reported cash rent patterns for 2009 generally showed only minor changes from 2008 levels. Even though the crop sector was coming off a very favorable income year in 2008, both tenants and landowners entered the 2009 crop season with considerable caution. As for grazing land rental rates, most areas of the state saw relatively stable rent levels on a monthly basis. Gross rent to value ratios (current rent as a percent of current value levels) show considerable variation across regions and land classes, and, to some extent are lower for 2009 relative to year- earlier levels. In turn, the debt-servicing capacity associated with land acquisitions in the current market are fairly low—in most cases being in the 30 to 40% range if one assumes net returns based on cash rent levels. However, given that (1) the vast majority of buyers are active farmers who will be farming the land themselves with higher income expectations, and (2) half of the land transfers are for cash, the relatively low debt-servicing levels may not be a significant constraint in the current market