Farmland Values

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Farmland Values Rental Rates in Northwest Kansas

• Daniel OBrien
• Extension Agricultural Economist
• K-State Research and Extension

2
We will discuss.

• How to Estimate the Current Market Value of
  Farmland
• Farmland Prices Rental Rates
• NW, WC, NC, C Kansas (1976-2007)
• Southwest Nebraska (1978-2007)
• An Example Analysis of Current Land Purchase
  Prices (KSU-Landbuy.xls)

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Q. How to Estimate Farmlands Present Market
Value?

• Current FARMLAND Value
• The Present Value of Expected Future After-Tax
  Net Income from.
• Agricultural Use (Farming or Renting)
• Non-Agricultural Use Revenues/Fees
• Capital Gains from Future Land Sale

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A. Expected Farm Profits

• Net Farming Returns or Rent
• Crop Livestock Production
• Weather, Yields, Pasture Conditions
• Legal Water Rights Water Availability
• Farm Markets Prices
• Bioenergy Demand, Feed Use, Grain Exports
• Cattle Cycles, Red Meat Demand, Beef Exports
• Production Costs
• Inflation in cost to offset farm revenues
• Farm Size Economies Incentives to Expand

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Cropland Value from Agriculture
73
59
47
31
22
51
52
46
48
22
53
60
42
14
50
43
58
31
44
42
49
44
37
26
54
6
U.S. Ag Value of Cropland (States)Kastens
Dhuyvetter (2007)
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A. Expected Farm Profits (more)

• USDA Farm Programs
• Farm Program Base Acreage Proven Crop
  Yields
• Critical in determination of level of farm income
  support from USDA Farm Programs
• Conservation Program Status?
• Q. Are any limitations placed on the cropping
  system on this land by USDA Conservation Plans?
• Q. Enrolled in CRP (Conservation Reserve
  Program)?
• If so, what are terms of CRP Contract? /acre,
  years, etc.

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Cropland Government Payments
53
26
49
36
45
35
23
35
40
31
39
37
26
28
51
25
50
29
13
67
88
50
61
89
47
75
100
65
59
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B. Non-Ag Market Factors

• Urban Development or Sprawl
• Parceling or subdividing of farmland tracts for
  construction of country / rural homes, etc.
• Zoning Ag Land Use Issues
• Recreational Uses / Non-Ag Demand
• Hunting Access-Leases /or Agri-Tourism
• Outside Investors
• Diversifying their portfolio of Financial Assets
• Tax Management issues

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C. Financial Tax Issues

• Purchase Price of Farmland
• Interest Rates Terms of Loans
• Loan Equity Requirements Cash Upfront
• Expected Growth in Farmland Values Net Farm
  Income/Rent over time
• Tax Issues
• Taxes on Farm Income/Rent Capital Gains
• IRS Section 1031 Tax Exchanges

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Historic Land Price Growth s(Kastens
Dhuyvetter 2007)

• Long Term 4.1 Average Annual Growth in Kansas
  Land Prices (1880-2007 127 years)
• 2.4 Inflation Rate / yr
• 1.7 Real Land Value Growth / yr
• Since 1951 5.2 Average Annual Growth in Kansas
  Land Prices (1951-2007 56 years)
• 3.5 Inflation Rate / yr
• 1.7 Real Land Value Growth /yr

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Expected Growth Rates For Kansas Farmland
(Kastens-Dhuyvetter 2007)

• TOTAL Annual Growth in Kansas Farmland Prices 3
  to 5 annually
• AGRICULTURAL Income-Based Growth in Kansas
  Farmland Prices
• Non-irrigated Cropland 2.4 annually
• Pastureland 2.1 annually
• Irrigated Cropland ?? annually

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II. Farmland Prices Cash Rental RatesBy
RegionNorthwest, West Central KS SW
NebraskaCentral North Central KansasBy Land
UseNon-Irrigated Irrigated CroplandPasturelan
d
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Kansas Crop Reporting Districts
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Non-Irrigated Farmland PricesNW, WC Kansas
(1976-2007), SW Nebraska (1978-2007)
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Non-Irrigated Farmland Cash RentNW, WC Kansas
(1976-2007), SW Nebraska (1981-2007)
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Non-Irrigated Rent-to-ValueNW, WC Kansas
(1976-2007), SW Nebraska (1981-2007)
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Irrigated Farmland PricesNW, WC Kansas
(1976-2007), SW Nebraska (1978-2007)
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Irrigated Farmland Cash RentNW, WC Kansas
(1976-2007), SW Nebraska (1981-2007)
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Irrigated Cropland Rent-to-ValueNW, WC Kansas
(1976-2007), SW Nebraska (1981-2007)
At Issue Investment-Upkeep of Irrigation System
Cropland
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Pastureland PricesNW, WC Kansas (1976-2007), SW
Nebraska (1978-2007)
22
Pastureland Cash RentsNW, WC Kansas (1976-2007),
SW Nebraska (1981-2007)
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Pastureland Rent-to-ValueNW, WC Kansas
(1976-2007), SW Nebraska (1981-2007)
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U.S. Farmland Rent-to-Value TrendsKastens
Dhuyvetter (2007)
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Non-Irrigated Farmland PricesNorth Central
Central Kansas (1976-2007)
26
Non-Irrigated Farmland Cash RentNorth Central
and Central Kansas (1976-2007)
27
Non-Irrigated Rent-to-ValueNorth Central
Central Kansas (1976-2007)
28
Irrigated Farmland PricesNorth Central Central
Kansas (1976-2007)
29
Irrigated Farmland Cash RentNorth Central
Central Kansas (1976-2007)
30
Irrigated Cropland Rent-to-ValueNC C Kansas
(1976-2007), SW Nebraska (1981-2007)
At Issue Investment-Upkeep of Irrigation System
Cropland
31
Pastureland PricesNorth Central Central Kansas
(1976-2007)
32
Pastureland Cash RentsNorth Central Central
Kansas (1976-2007)
33
Pastureland Rent-to-ValueNorth Central Central
Kansas (1976-2007)
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U.S. Farmland Rent-to-Value TrendsKastens
Dhuyvetter (2007)
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County Non-Irrigated Land Value Est. Kastens
Dhuyvetter, 2007
656
735
642
699
800
797
931
628
763
670
599
611
746
620
901
549
595
588
490
827
717
628
585
605
631
698
624
879
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County Non-Irrigated Land Rent Est. Kastens
Dhuyvetter, 2007
30
35
37
39
34
38
49
32
33
37
37
32
38
29
31
30
29
25
28
44
39
23
31
31
36
29
32
39
42
33
37
County Pasture Land Value Estimates Kastens
Dhuyvetter, 2007
334
394
347
535
524
534
338
347
375
450
437
485
628
543
607
458
437
328
376
838
515
277
366
293
408
538
604
709
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County Pasture Land Rent Estimates Kastens
Dhuyvetter, 2007
9
9
9
15
14
14.53
11.62
9
9
12
15
10.62
13.47
12
11
11
10.50
8.50
8.50
18.45
13.47
10.54
13
14
8.50
8.50
8.50
10
11.71
18.74
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III. An Example Analysis of Current Land Purchase
Prices Three (3) Scenarios (each 160 acres)1.
Center Pivot Irrigated Cropland 2.
Non-Irrigated Cropland3. PasturelandSource
KSU-Landbuy.xls (Kastens Dhuyvetter, K-State
Research Extension, 2007)
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Example NW KS Irrigated Cropland

• Cropland Acreage
• 125 acres Irrigated Center Pivot
• 30 acres Dryland Corners
• 5 acres Waste, Roads, Margins, etc.
• Total 160 acres
• Market / Purchase Price
• Irrigated Cropland 1,500 /acre
• Non-Irrigated Cropland 640 /acre
• Price for All Acres 1,312 /acre

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Example Irrigated Cropland (more)

• Cash Rent
• Irrigated Cropland 120 /acre
• Non-Irrigated Cropland 34 /acre
• Cash Rent for All Acres 101 /acre
• Non-Ag Rent Income 0 /acre
• No. Years Land to be Owned 30 years
• Tax Rates
• Income Tax Rate 35
• Capital Gains Tax Rate 15

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Ex Irrigated Cropland (still more)

• Financial / Lending Requirements
• Interest Rate 8
• Purchase price financed 90
• Ag-Related Land Rent Growth 2.4/yr
• Total Land Price Cash Rent Growth Rate (Ag
  Non-Ag Related)
• Scenario 1 3.0
• Scenario 2 4.0
• Scenario 3 5.0

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Results NW KS Irrigated Cropland

• Original Market / Purchase Price
• Irrigated Cropland 1,500 /acre
• Non-Irrigated Cropland 640 /acre
• Price for All Acres 1,312 /acre
• Present Value of Purchase (/- Purchase )
• _at_ 3.0 Growth ? PV 1,893 /ac ( 581 /ac)
• _at_ 4.0 Growth ? PV 2,092 /ac ( 780 /ac)
• _at_ 5.0 Growth ? PV 2,355 /ac (1,043 /ac)

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Ex. 2 Northwest Kansas Dryland

• Cropland Acreage
• 155 acres Non-irrigated Cropland 5 ac Other
• Market / Purchase Price 640 /acre
• Cash Rent 34 /acre
• Non-Ag Rent Income 0 /acre
• No. Years Land to be Owned 30 years
• All Other assumptions the same

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Ex. 2 Results NW Kansas Dryland

• Original Market / Purchase Price
• Non-Irrigated Cropland 640 /acre
• Present Value of Purchase (/- Purchase )
• _at_ 3.0 Growth ? PV 721 /ac ( 81 /ac)
• _at_ 4.0 Growth ? PV 818 /ac (178 /ac)
• _at_ 5.0 Growth ? PV 946 /ac (306 /ac)

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Ex. 3 Northwest Kansas Pasture

• Pastureland Acreage
• 155 acres Pastureland 5 ac Other
• Market / Purchase Price 330 /acre
• Cash Rent 9.60 /acre
• Ag-Related Land Rent Growth 2.1/yr
• Non-Ag Rent Income 0 /acre
• No. Years Land to be Owned 30 years
• All Other assumptions the same

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Ex. 3 Results NW Kansas Pasture

• Original Market / Purchase Price
• Non-Irrigated Cropland 330 /acre
• Present Value of Purchase (/- Purchase )
• _at_ 3.0 Growth ? PV 268 /ac (-62 /ac)
• _at_ 4.0 Growth ? PV 318 /ac (-12 /ac)
• _at_ 5.0 Growth ? PV 384 /ac (54 /ac)
• Results likely to be more positive IF add in
  additional Non-Ag Income (Recreation, etc.)

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Comments or Questions?

• Email dobrien_at_ksu.edu
• KSU Ag Economics Website
• http//www.agmanager.info
• Northwest Research Extension Center Website
• http//www.oznet.ksu.edu/nwao/