k-state research and extension farmland values & rental rates in northwest kansas daniel obrien...

K-State Research and Extension

Farmland Values & Rental Rates in Northwest Kansas

Daniel O’Brien

Extension Agricultural Economist



We will discuss….I. How to Estimate the Current Market

Value of Farmland

II. Farmland Prices & Rental Rates NW, WC, NC, C Kansas (1976-2007) Southwest Nebraska (1978-2007)

III. An Example Analysis of Current Land Purchase Prices (KSU-Landbuy.xls)


Q. How to Estimate Farmland’s 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


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


% Cropland Value from Agriculture

58%

60%

73%

51%

49%

59%

53%

26%

50%31%

48%52%

47%

46%

54%

44%

44%

22%

43%42%

31%

42%

22%

14%

37%


U.S. % Ag Value of Cropland (States)Kastens & Dhuyvetter (2007)


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.


% Cropland$: Government Payments

50%

67%

100%

53%

45%

39%

88%

51%

35%

49%

31%

29%

50%

59%47%

26%

23%

13%

61%

65% 75%89%

36%

35%40%

37%26%25%

28%


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


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


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


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


II. Farmland Prices & Cash Rental Rates

By Region:Northwest, West Central KS & SW NebraskaCentral & North Central Kansas

By Land Use:Non-Irrigated & Irrigated CroplandPastureland


Kansas Crop Reporting Districts


Non-Irrigated Farmland PricesNW, WC Kansas (1976-2007), SW Nebraska (1978-2007) $680

$559

$0

$200

$400

$600

$800

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06

Northwest KS West Central KS Southwest NE

NW KS (2002-2007): +6.4% /yr


Non-Irrigated Farmland Cash RentNW, WC Kansas (1976-2007), SW Nebraska (1981-2007) $35

$34

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NW KS (2002-2007): +1.5% /yr


Non-Irrigated Rent-to-ValueNW, WC Kansas (1976-2007), SW Nebraska (1981-2007)

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06



Irrigated Farmland PricesNW, WC Kansas (1976-2007), SW Nebraska (1978-2007)

$1,400

$1,575

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NW KS (2002-2007): +5% /yr


Irrigated Farmland Cash RentNW, WC Kansas (1976-2007), SW Nebraska (1981-2007)

$83

$128

$0

$20

$40

$60

$80

$100

$120

$140

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NW KS (2002-2007): +4.8% /yr


Irrigated Cropland Rent-to-ValueNW, WC Kansas (1976-2007), SW Nebraska (1981-2007)

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


At Issue: Investment-Upkeep of Irrigation System + Cropland


Pastureland PricesNW, WC Kansas (1976-2007), SW Nebraska (1978-2007)

$400

$313

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NW KS (2002-2007): +13%/yr


Pastureland Cash RentsNW, WC Kansas (1976-2007), SW Nebraska (1981-2007)

$10.50

$12.00

$0

$3

$6

$9

$12

$15

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NW KS (2002-2007): +1.6% /yr


Pastureland Rent-to-ValueNW, WC Kansas (1976-2007), SW Nebraska (1981-2007)

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06



U.S. Farmland Rent-to-Value TrendsKastens & Dhuyvetter (2007)


Non-Irrigated Farmland PricesNorth Central & Central Kansas (1976-2007) $1,000

$900

$0

$200

$400

$600

$800

$1,000

$1,200

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06

North Central KS Central KS

NC KS (2002-2007): +12% /yr

Central KS (2002-2007): +8.3% /yr


Non-Irrigated Farmland Cash RentNorth Central and Central Kansas (1976-2007) $47.00

$35.00

$0

$10

$20

$30

$40

$50

$60

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NC KS (2002-2007): +4.1% /yr

Central KS (2002-2007): Small +% /yr


Non-Irrigated Rent-to-ValueNorth Central & Central Kansas (1976-2007)

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06



Irrigated Farmland PricesNorth Central & Central Kansas (1976-2007)

$1,800

$1,650

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NC KS (2002-2007): +5.2% /yr

Central KS (2002-2007): +6.2% /yr


Irrigated Farmland Cash RentNorth Central & Central Kansas (1976-2007)

$80

$128

$0

$30

$60

$90

$120

$150

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06

North Central KS Central KS Southwest NE

NC & Central KS (2002-2007): +1% /yr


Irrigated Cropland Rent-to-ValueNC & C Kansas (1976-2007), SW Nebraska (1981-2007)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06

North Central KS Central KS Southwest NE

At Issue: Investment-Upkeep of Irrigation System + Cropland


Pastureland PricesNorth Central & Central Kansas (1976-2007)

$650

$730

$0

$100

$200

$300

$400

$500

$600

$700

$800

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NC KS (2002-2007): +14.2% /yr

Central KS (2002-2007): +15.6% /yr


Pastureland Cash RentsNorth Central & Central Kansas (1976-2007)

$16

$14

$0

$4

$8

$12

$16

$20

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06


NC KS (2002-2007): +3.4%

Central KS (2002-2007): +2.6% /yr


Pastureland Rent-to-ValueNorth Central & Central Kansas (1976-2007)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

'76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06



U.S. Farmland Rent-to-Value TrendsKastens & Dhuyvetter (2007)


County Non-Irrigated Land Value Est. Kastens & Dhuyvetter, 2007

$620$901

$717

$931

$827

$746

$656

$628

$735

$763

$642

$670

$699

$599

$800 $797

$611

$549 $595 $588 $490

$628$585$605$631$698$624$879


County Non-Irrigated Land Rent Est. Kastens & Dhuyvetter, 2007

$29$25$28$29$31$30

$49$32$33$37$37$32

$30 $35 $37 $39 $34 $38

$31 $31 $36 $29 $32 $23 $39

$39

$38

$44

$33 $42


County Pasture Land Value Estimates Kastens & Dhuyvetter, 2007

$543$607$458$437$328$376

$338 $347 $375 $450 $437 $485

$334 $394 $347 $535 $524 $534

$838

$709

$628

$277 $366 $293 $408 $538 $515 $604


County Pasture Land Rent Estimates Kastens & Dhuyvetter, 2007

$12$11$11$10.50$8.50$8.50

$9 $9 $12

$9 $9 $9 $15 $14

$15

$13 $14

$10.62 $11.62

$8.50 $8.50 $8.50 $10 $10.54

$14.53

$13.47

$13.47

$11.71

$18.45

$18.74


III. An Example Analysis of Current Land Purchase Prices

Three (3) Scenarios (each 160 acres):1. Center Pivot Irrigated Cropland 2. Non-Irrigated Cropland3. Pastureland

Source: KSU-Landbuy.xls (Kastens & Dhuyvetter, K-State Research & Extension, 2007)


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


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%


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%


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 $)

@ 3.0% Growth PV = $1,893 /ac (+$ 581 /ac)

@ 4.0% Growth PV = $2,092 /ac (+$ 780 /ac)

@ 5.0% Growth PV = $2,355 /ac (+$1,043 /ac)


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


All Other assumptions the same


Ex. 2 Results: NW Kansas Dryland Original Market / Purchase Price:

Non-Irrigated Cropland: $640 /acre


@ 3.0% Growth PV = $721 /ac (+$ 81 /ac)

@ 4.0% Growth PV = $818 /ac (+$178 /ac)

@ 5.0% Growth PV = $946 /ac (+$306 /ac)


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


All Other assumptions the same


Ex. 3 Results: NW Kansas Pasture Original Market / Purchase Price:

Non-Irrigated Cropland: $330 /acre


@ 3.0% Growth PV = $268 /ac (-$62 /ac)

@ 4.0% Growth PV = $318 /ac (-$12 /ac)

@ 5.0% Growth PV = $384 /ac (+$54 /ac)

Results likely to be more positive IF add in additional Non-Ag Income (Recreation, etc.)


Comments or Questions?

Email: [email protected]

KSU Ag Economics Website:http://www.agmanager.info

Northwest Research Extension Center Website: http://www.oznet.ksu.edu/nwao/

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