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3 signs farmland may be topping

Jeff Caldwell 03/26/2013 @ 3:32pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

Not even an historic drought could trip up farmland values in the Corn Belt in the last year. Double-digit gains continue even outside of what's typically thought the hotbed of skyrocketing farmland values. But, the latest report on land in Nebraska, for example, shows proof that the apex may be near.

Early findings from an annual survey of farmland values and rental rates by the University of Nebraska shows land in that state has climbed 25% in value over the last year. That means the average value for farmland there -- $3,040/acre -- is more than twice what it was just 3 years ago.

Image courtesy University of Nebraska Extension

The values are anything but consistent across Nebraska, which runs a gamut of environmental conditions from west to east. It creates an extreme difference in values across the state: Land in northwestern Nebraska averages $715/acre in value compared to $7,185/acre in the eastern part of the state.

"The variation across the classes as well as across sub-state regions was extreme," says University of Nebraska ag economist Bruce Johnson. "Income flows from irrigated land have been phenomenal in recent years, and 2012 was no exception. The combination of favorable irrigated yields while widespread drought was seen across the nation's Corn Belt fueled high crop commodity prices."

1. Livestock issues

The livestock side doesn't share the optimism that's driven crop yields higher in parts of Nebraska, though. About half of the state's forage crop made it through the drought, Johnson says, including pasture. Though it likely kept a lid on price gains, pasture land still rose in value, just not on par with cropland.

"Forage shortfalls for cattlemen may have actually caused a more spirited bidding for additional land just to maintain their cow herd numbers," Johnson says in a university report. "Unfortunately, even if the drought ends quickly, it may be several years before grazing capacity may be able to return to pre-drought levels."

That's just one of the reasons that a lot of respondents to this most recent Nebraska land values survey now say they're not bullish on land in the long term. Though a wholesale drop in land prices is not seen too soon, the rise may be slowing to a halt, many said.

"[Survey reporters] frequently commented that current land prices being paid seem over-optimistic," Johnson says. "In turn, when asked what they expected land value movements to be for the remainder of 2013 as well as out 3 to 5 years, the vast majority saw a market which had topped out with little if any upward movement in the near future.

"In fact, a sizable number of reporters thought values could weaken somewhat in the next few years."

2. Values vs. rent

Another big part of that outlook is land rent paid. Though rent's up 5% to 8% over a year ago, that climb's not keeping up with the trend in values and sale prices. And, many see that as another sign the land market's reaching its zenith.

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