This document summarizes a workshop on landlord-tenant cash leases. It includes the following:
1) An agenda that covers current land prices and rental rates, landlord-tenant relationships, alternative lease arrangements, and pasture leases.
2) Data on average farmland values and rental rates across Nebraska, showing increases from previous years.
3) Details on typical rental rates for dryland, gravity irrigated, and center pivot irrigated cropland as well as pastureland.
4) Discussion of factors that have driven increases in land values and concern that rents may start to stabilize or decline given current crop prices.
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Landlord - Tenant Cash Lease Workshop
1. Know how. Know now.
Landlord/Tenant Cash Lease
Workshop
Sponsored by:
Please Thank our sponsors!
The Nebraska Soybean Board
North Nebraska–Lincoln
University of Central Risk Management Ed Ctr.
2. Know how. Know now.
Landlord/Tenant Cash Rent
Workshops
Agenda
Where we are (Current Prices)
Landlord/Tenant Relationships/lease considerations
Break
Alternative lease arrangements
Pasture Leases
Workshop – two words – work your brains – shop our ideas!
University of Nebraska–Lincoln
3. Know how. Know now.
Current Land Values/Rental Rates
Presented by:
Jessica Johnson
Prepared by:
T. Lemmons & A. Vyhnalek
Adapted from:
B. Johnson. (2013). Nebraska Farm Real
University of Nebraska–Lincoln
Estate Market Report. UNL Extension
Contact:
Jessica Johnson
jjohnson@unl.edu
308-632-1247
4. Know how. Know now.
Average Value of Nebraska Farmland and
Percent Change from Year Earlier
Northwest
$715/ac
13%
State
Average
$3040/ac
25%
North
$1055/ac
20%
Southwest
$1750/ac
31%
Northeast
$6162/ac
24%
Central
$3750/ac
27%
South $4460/ac
33%
East
$7185/ac
18%
Southeast $5400/ac
26%
University of Nebraska–Lincoln Estate Market Surveys
Source: Annual UNL Nebraska Farm Real
7. Know how. Know now.
2012/2013 Values and Recent Trends
Agricultural
Statistics District
2012/2013 All-Land
Average Value
Dollars/Acre
Northwest
642/715
North
855/1055
Northeast
4908/6165
Central
2925/3750
East
6012/7185
Southwest
1327/1750
South
3352/4460
Southeast
4293/5400
University of Nebraska–Lincoln
Entire State
2410/3040
2011-2012
% change
2012-2013
% change
23
21
35
34
31
34
32
22
31
13
20
24
27
18
31
33
26
25
Source: Annual UNL Nebraska Farm Real Estate Market Surveys
8. Know how. Know now.
Selected Land Values by type 2012-13
Land type
Northwest
6%
Dryland – no potential
$700
7%
Dryland – irr. potential
$730
4%
Grazing – tillable
$425
12%
Grazing nontillable
$370
26%
Hayland
$780
Gravity Irrigated land
$2875 18%
Center pivot Irrigation land $3115 23%
University of Nebraska–Lincoln
North
$1155 8%
$1920 18%
$1050 19%
$500 11%
$1150 21%
$3100 18%
$5225 32%
9. Know how. Know now.
Annual Net Rates of Return to Land % Northwest
University of Nebraska–Lincoln
10. Know how. Know now.
Annual Net Rates of Return to Land - %
Statewide
7.8
7.1 Northwest 8.3
6.8
6.0
5.8
Northwest 4.4
4.8
4.9
3.4
3.8
2.8
2.9
1.8
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1.9
University ofDryland Cropland
Nebraska–Lincoln Grazing Land
Irrigated Land
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Average Effective Interest Rates on Non
Real Estate Bank Loans Made to Farmers
University of Nebraska–Lincoln
12. Know how. Know now.
Alternatives for Investing?
Passbook savings
Certificates of Deposit
Stock Market/Bonds
Gold (other commodities)
University of Nebraska–Lincoln
Gold
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Notes about Land Sales
First time in history – state sales topped $3,000 per acre
Statewide
49%
47%
81%
Cash Sales
Mortgage
Purchased by an
Active
Farmer/Rancher
Out of State Buyer
2%
Sold by Estates
38%
University of Nebraska–Lincoln
Northwest
64%
30%
64%
North
27%
55%
59%
21%
15%
8%
17%
14. Know how. Know now.
Perfect storm for land value increase
•Availability of Money – profits from farming
•Low interest rates
•Lack of land for sale
•Limited return from any other investment
•Farmers willing to expand their operations
Future?! – Bubble might deflate (not burst?)
University of Nebraska–Lincoln
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Renting Farmland
University of Nebraska–Lincoln
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Reported Cash Rental Rates: Dryland Cropland
Average
% Change
from 2012
High
Low
Northwest
North
Northeast
b
b
234
b
b
10
b
b
315
b
b
175
Central
East
Southwest
South
Southeast
118
219
59
125
174
7
7
5
8
7
155
281
73
155
230
85
165
46
100
127
Source: 2013 UNL Nebraska Farm Real Estate Market Developments Survey
b: Insufficient of Nebraska–Lincoln
University number of reports
17. Know how. Know now.
2013 Nebraska Dryland Cropland Rates Paid Per Acre
University of Nebraska–Lincoln
19. Know how. Know now.
Reported Cash Rental Rates:
Gravity Irrigated Cropland
2013
Average
% Change
from 2012
High
Low
Northwest
North
Northeast
b
b
319
b
b
12
b
b
394
b
b
280
Central
East
Southwest
260
320
210
13
8
14
352
384
267
212
249
183
South
Southeast
275
299
11
12
323
359
216
242
Source: 2013 of Nebraska–Lincoln
UniversityUNL Nebraska Farm Real Estate Market Developments Survey
b: Insufficient number of reports
20. Know how. Know now.
Reported Cash Rental Rates:
Center Pivot Irrigated Cropland
2013
Average
% Change
from 2012
High
Low
Northwest
North
Northeast
225
265
379
13
13
15
265
285
477
170
208
302
Central
East
Southwest
287
355
269
12
13
14
358
441
325
240
281
210
South
Southeast
313
345
12
13
363
427
259
268
Source: 2013 of Nebraska–Lincoln
UniversityUNL Nebraska Farm Real Estate Market Developments Survey
b: Insufficient number of reports
21. Know how. Know now.
Cash Rental Rates for the Northwest District
$250.00
$200.00
$150.00
$100.00
$50.00
University of Nebraska–Lincoln
Dryland
Gravity Irrigated
Center Pivot Irrigated
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
$0.00
23. Know how. Know now.
Reported Cash Rental Rates 2013: Pasture
Average
% Change
from 2012
High
Low
Northwest
North
Northeast
13
16
53
0
0
4
17
20
67
9
12
38
Central
East
Southwest
35
49
17
6
16
6
45
64
24
26
38
14
South
Southeast
37
42
3
8
43
54
54
28
Source: 2013 of Nebraska–Lincoln
UniversityUNL Nebraska Farm Real Estate Market Developments Survey
24. Know how. Know now.
Pasture Rents – by cow/calf pair per
month
Average
High
Low
North
39.00
50.00
30.00
University of Nebraska–Lincoln
Northwest
30.50
36.85
24.65
25. Know how. Know now.
Cash Rent Summary
•
•
•
•
•
•
University of Nebraska–Lincoln
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Gathering Storm Cloud
University of Nebraska–Lincoln
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Cash Rent Summary
Looking at corn prices, rents should stabilize, or start down
Probably not the resource to support $500/acre rent
Rents are still determined by supply and demand
Tenants need to sharpen the pencil
Landlords need to be understanding
University of Nebraska–Lincoln
28. Know how. Know now.
Visit my website now!
Jessica Jo Johnson
Asst. Extension Educator
Phone: 308-632-1247
Email: jjohnson@unl.edu
PanhandleAgEcon & WNEcrop
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Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska-Lincoln cooperating with the
Counties and the U.S. Department of Agriculture.
University of Nebraska–Lincoln
University of Nebraska-Lincoln Extension educational programs abide with the non-discrimination policies of the University of NebraskaLincoln and the United States Department of Agriculture.
Notes de l'éditeur
Did drought of 2012 contribute to large value gains?Double the land market value
Three- and five-year trends in values show wide variation across sub-state regions as well as by land classes The five-year all-land average percentage change ranged from 52% in the Northwest District to 103% in the Northeast and South Districts. • By land classes, both the three-year and five-year percentage changes were highest for the cropland classes while the non-tillable grassland and hayland classes experienced much more moderate gains. • For the five-year period 2006 to 2011, the value increases for the Nebraska cropland classes have averaged about 12% per year, while the non-tillable grassland class averaged about a 7% annual increase.• In contrast to the downward real estate value trends across the country for residential and commercial properties during the recent economic recession and anemic recovery, these rates of gain for Nebraska agricultural land values are phenomenal.
For irrigated land, the estimated net percentage return on current value (what real estate appraisers call the market-derived capitalization rate) fell below 3.5 percent for the first time in the 23-year series. In financial jargon, this would infer that the expected return on investment (ROI) of an irrigation parcel priced at $10,000 per acre would fall below $350 per acre in annual net earnings. . Sharp downturns in annual returns to land and/or upward-climbing interest rates from present historical lows (rising opportunity costs) could trigger a downturn in land values of significant magnitude.
Purchase-for-farm-expansion continues to be a profound force underlying the upward movement of agricultural land values. The scaling up of crop farm size to accommodate the new and more sophisticated precision agriculture technology leads to a strong demand by active farmer buyers who already are farming large acreages. In any given local market, there will tend to be a relatively small number of these larger entities who will be in the market for land when it comes up for sale. As noted in the tables to follow, active farmer buyers will often tend to dominate the buyer side of the market — particularly in the major crop producing areas of the state. Only 1/6 sellers were active farmers
More than four out of every ten acres of agricultural land in Nebraska is rented, with the vast majority of those acres under cash rental arrangements.