Transcript Farmland Values & Rental Rates in Northwest Kansas

Farmland Values & Rental
Rates in Northwest Kansas
Daniel O’Brien
Extension Agricultural Economist
K-State Research and Extension
K-State Research and Extension
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)
K-State Research and Extension
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
K-State Research and Extension
A. Expected Farm Profits

Net Farming Returns or “Rent”

Crop & Livestock Production



Farm Markets & Prices



Bioenergy Demand, Feed Use, Grain Exports
Cattle Cycles, Red Meat Demand, Beef Exports
Production Costs


Weather, Yields, Pasture Conditions
Legal Water Rights & Water Availability
Inflation in cost to offset farm revenues
Farm Size Economies – Incentives to Expand
K-State Research and Extension
% Cropland Value from Agriculture
59%
52%
73%
31%
46%
47%
22%
51%
48%
60%
22%
53%
50%
31%
58%
44%
42%
49%
26%
44%
37%
54%
K-State Research and Extension
42%
43%
14%
U.S. % Ag Value of Cropland (States)
Kastens & Dhuyvetter (2007)
K-State Research and Extension
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? $/acre, years, etc.
K-State Research and Extension
% Cropland$: Government Payments
26%
53%
49%
36%
35%
45%
23%
40%
35%
39%
51%
13%
61%
88%
50%
67%
100%
31%
26%
28%
25%
29%
37%
50%
89%
47%
65% 75%
59%
K-State Research and Extension
B. Non-Ag Market Factors

Urban Development or “Sprawl”

“Parceling” or subdividing of farmland tracts
for construction of country / rural homes, etc.


Recreational Uses / Non-Ag Demand


Zoning – Ag Land Use Issues
Hunting Access-Leases &/or Agri-Tourism
Outside Investors

Diversifying their portfolio of Financial Assets

Tax Management issues
K-State Research and Extension
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
K-State Research and Extension
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
K-State Research and Extension
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:
Pastureland:
Irrigated Cropland:
K-State Research and Extension
2.4% annually
2.1% annually
?? % annually
II. Farmland Prices & Cash
Rental Rates
By Region:
Northwest, West Central KS & SW Nebraska
Central & North Central Kansas
By Land Use:
Non-Irrigated & Irrigated Cropland
Pastureland
K-State Research and Extension
Kansas Crop Reporting Districts
K-State Research and Extension
Non-Irrigated Farmland Prices
NW, WC Kansas (1976-2007), SW Nebraska (1978-2007)
$800
$680
$600
$559
$400
$200
NW KS (2002-2007): +6.4% /yr
$0
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Non-Irrigated Farmland Cash Rent
NW, WC Kansas (1976-2007), SW Nebraska (1981-2007)
$45
$35
$40
$35
$30
$25
$34
$20
$15
$10
NW KS (2002-2007): +1.5% /yr
$5
$0
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Non-Irrigated Rent-to-Value
NW, WC Kansas (1976-2007), SW Nebraska (1981-2007)
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Irrigated Farmland Prices
NW, WC Kansas (1976-2007), SW Nebraska (1978-2007)
$2,000
$1,575
$1,750
$1,500
$1,250
$1,000
$750
$1,400
$500
$250
NW KS (2002-2007): +5% /yr
$0
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
Southwest NE
'06
Irrigated Farmland Cash Rent
NW, WC Kansas (1976-2007), SW Nebraska (1981-2007)
$140
$128
$120
$100
$83
$80
$60
$40
NW KS (2002-2007): +4.8% /yr
$20
$0
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Irrigated Cropland Rent-to-Value
NW, WC Kansas (1976-2007), SW Nebraska (1981-2007)
At Issue: Investment-Upkeep of Irrigation System + Cropland
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Pastureland Prices
NW, WC Kansas (1976-2007), SW Nebraska (1978-2007)
$450
NW KS (2002-2007): +13%/yr
$400
$400
$350
$300
$250
$200
$313
$150
$100
$50
$0
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
Southwest NE
'06
Pastureland Cash Rents
NW, WC Kansas (1976-2007), SW Nebraska (1981-2007)
$15
$12.00
$12
$9
$10.50
$6
NW KS (2002-2007): +1.6% /yr
$3
$0
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Pastureland Rent-to-Value
NW, WC Kansas (1976-2007), SW Nebraska (1981-2007)
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
'76
'79
'82
Northwest KS
'85
'88
'91
'94
West Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
U.S. Farmland Rent-to-Value Trends
Kastens & Dhuyvetter (2007)
K-State Research and Extension
Non-Irrigated Farmland Prices
North Central & Central Kansas (1976-2007)
$1,200
NC KS (2002-2007): +12% /yr
$1,000
$1,000
$800
$600
$900
$400
$200
Central KS (2002-2007): +8.3% /yr
$0
'76
'79
'82
'85
'88
'91
'94
North Central KS
K-State Research and Extension
'97
'00
'03
Central KS
'06
Non-Irrigated Farmland Cash Rent
North Central and Central Kansas (1976-2007)
$60
NC KS (2002-2007): +4.1% /yr
$50
$47.00
$40
$30
$35.00
$20
$10
Central KS (2002-2007): Small +% /yr
$0
'76
'79
'82
'85
'88
'91
'94
North Central KS
K-State Research and Extension
'97
'00
'03
Central KS
'06
Non-Irrigated Rent-to-Value
North Central & Central Kansas (1976-2007)
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
'76
'79
'82
'85
'88
'91
'94
North Central KS
K-State Research and Extension
'97
'00
'03
Central KS
'06
Irrigated Farmland Prices
North Central & Central Kansas (1976-2007)
$2,250
$1,800
NC KS (2002-2007): +5.2% /yr
$2,000
$1,750
$1,500
$1,250
$1,650
$1,000
$750
$500
Central KS (2002-2007): +6.2% /yr
$250
$0
'76
'79
'82
'85
'88
'91
'94
North Central KS
K-State Research and Extension
'97
'00
'03
Central KS
'06
Irrigated Farmland Cash Rent
North Central & Central Kansas (1976-2007)
$150
$128
$120
$80
$90
$60
$30
NC & Central KS (2002-2007): +1% /yr
$0
'76
'79
'82
'85
North Central KS
'88
'91
'94
Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Irrigated Cropland Rent-to-Value
NC & C Kansas (1976-2007), SW Nebraska (1981-2007)
At Issue: Investment-Upkeep of Irrigation System + Cropland
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
'76
'79
'82
'85
North Central KS
'88
'91
'94
Central KS
K-State Research and Extension
'97
'00
'03
'06
Southwest NE
Pastureland Prices
North Central & Central Kansas (1976-2007)
$800
$730
$700
Central KS (2002-2007): +15.6% /yr
$600
$500
$650
$400
$300
$200
$100
NC KS (2002-2007): +14.2% /yr
$0
'76
'79
'82
'85
'88
'91
'94
North Central KS
K-State Research and Extension
'97
'00
Central KS
'03
'06
Pastureland Cash Rents
North Central & Central Kansas (1976-2007)
$20
$16
NC KS (2002-2007): +3.4%
$16
$12
$14
$8
Central KS (2002-2007): +2.6% /yr
$4
$0
'76
'79
'82
'85
'88
'91
'94
North Central KS
K-State Research and Extension
'97
'00
'03
Central KS
'06
Pastureland Rent-to-Value
North Central & Central Kansas (1976-2007)
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
'76
'79
'82
'85
'88
'91
'94
North Central KS
K-State Research and Extension
'97
'00
'03
Central KS
'06
U.S. Farmland Rent-to-Value Trends
Kastens & Dhuyvetter (2007)
K-State Research and Extension
County Non-Irrigated Land Value Est.
Kastens & Dhuyvetter, 2007
$656
$628
$735
$763
$642 $699
$670
$800
$797
$599 $611
$931
$746
$549
$595
$588
$490 $901
$620
$827
$624 $698 $631 $605 $585
$628 $717
$879
K-State Research and Extension
County Non-Irrigated Land Rent Est.
Kastens & Dhuyvetter, 2007
$30
$32
$30
$35
$37
$31
$37
$39
$34
$38
$37
$33
$32
$49
$29
$31 $31 $36 $29
$38
$28
$25
$29
$32
$23
$39
$39 $44
$33
$42
K-State Research and Extension
County Pasture Land Value Estimates
Kastens & Dhuyvetter, 2007
$334
$338
$394
$347
$347
$535
$375
$450
$524
$534
$437 $485
$628
$376
$328
$437
$458
$607
$543
$838
$277 $366 $293 $408
$538
$515
$604
$709
K-State Research and Extension
County Pasture Land Rent Estimates
Kastens & Dhuyvetter, 2007
$9
$9
$9
$9
$9
$15
$10.62 $12
$14 $14.53
$11.62 $15
$13.47
$8.50 $8.50
$10.50
$11
$11
$12
$13.47
$8.50 $8.50 $8.50 $10
$13
$10.54 $14
$18.45
$11.71 $18.74
K-State Research and Extension
III. An Example Analysis of
Current Land Purchase Prices
Three (3) Scenarios (each 160 acres):
1. Center Pivot Irrigated Cropland
2. Non-Irrigated Cropland
3. Pastureland
Source: KSU-Landbuy.xls
(Kastens & Dhuyvetter, K-State Research & Extension, 2007)
K-State Research and Extension
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:
Non-Irrigated Cropland:
Price for All Acres:
$1,500 /acre
$ 640 /acre
$1,312 /acre
K-State Research and Extension
Example: Irrigated Cropland (more)

Cash Rent:

Irrigated Cropland:
Non-Irrigated Cropland:

Cash Rent for All Acres:

$120 /acre
$ 34 /acre
$101 /acre

Non-Ag Rent Income:
$0 /acre

No. Years Land to be Owned:
30 years

Tax Rates:


Income Tax Rate:
Capital Gains Tax Rate:
35%
15%
K-State Research and Extension
Ex: Irrigated Cropland (still more)

Financial / Lending Requirements:


Interest Rate:
% Purchase price financed:
8%
90%

Ag-Related Land$ & 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%
K-State Research and Extension
Results: NW KS Irrigated Cropland

Original Market / Purchase Price:
Irrigated Cropland:
Non-Irrigated Cropland:
Price for All Acres:

$1,500 /acre
$ 640 /acre
$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)
K-State Research and Extension
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:
$

No. Years Land to be Owned:

All Other assumptions the same
K-State Research and Extension
0 /acre
30 years
Ex. 2 Results: NW Kansas Dryland

Original Market / Purchase Price:
Non-Irrigated Cropland:

$640 /acre
Present Value of Purchase (+/- Purchase $)
@ 3.0% Growth  PV = $721 /ac (+$ 81 /ac)
@ 4.0% Growth  PV = $818 /ac (+$178 /ac)
@ 5.0% Growth  PV = $946 /ac (+$306 /ac)
K-State Research and Extension
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:

No. Years Land to be Owned:

All Other assumptions the same
K-State Research and Extension
$
0 /acre
30 years
Ex. 3 Results: NW Kansas Pasture

Original Market / Purchase Price:
Non-Irrigated Cropland:

$330 /acre
Present Value of Purchase (+/- Purchase $)
@ 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.)
K-State Research and Extension
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/
K-State Research and Extension