Land-Values

Owning land is serious business and generally represents a producer’s largest portion of net worth. This is why it is important that one pays close attention to the land market, just like a New York investor would monitor the stock market.

We are approaching land auction season, as I call it. With experience as a real estate broker and auctioneer, I have intently followed the land markets over the past few years. I am often asked the same question, “Are land values going down, and how much?” The assumption of most farmers is that they have to go down. With higher inputs and lower grain prices, farmers aren’t making the profit they once made. The landowners that cash rent their land are feeling the effects of higher real estate taxes this year, with increases of 25-50% in their tax bills.

In March 2015, the University of Nebraska-Lincoln compiled their report on land values and rental rates across Nebraska. The report determined there was a 3% decrease in land value over the past 12 months. That may sound disturbing to the conservative landowner, but this decline comes after an increase of 22% in 2011, 32% in 2012, and 25% in 2013. As with every market, there are always corrections to large gains.

UNL-Land-Value-Map

So what can you expect in your area? You probably won’t witness any record-breaking auction prices this year. On quality irrigated farms that haven’t been for sale in over 10 years, you could expect some bidding competition and prices similar to last year. Lesser farms might see a decline of 5-10%. The real test for judging the market will be the land auctions that take place this fall and winter. 

From this year on, look for more investors to be buying land. In the past, the farmer/owner produced the highest rates of returns with $7 grain prices. Now that the grain prices are in the $3.75 range, the investors might be getting the better rate of return compared to the farmer/owner.

How might this affect you and your banker? The main factors will depend on when you bought your land and the equity you have in it. Many banks experienced the rough times in the 1980s and do not want to relive those days. Farms have had great earnings over the past seven years, which has allowed them to make substantial down payments on their land purchase and pay down their current real estate loans.

Typically banks only loaned 60% of the land’s current value. This has helped banks to remain in a strong collateral position and has also helped their customers to remain financially strong and responsible. If the agricultural sector were to see a large decrease in revenue, most landowners will be strong enough to weather the downturn.

If you have any questions or would like to speak more in-depth about your operation, please feel free to contact a Relationship Manager at your local branch, or you can contact me directly at 308-233-9173.

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