Now, with ethanol and exports part of a potent price mix, some sales are approaching $6,000.
ART HOVEY / Lincoln Journal Star | Posted: Wednesday, March 19, 2008 7:00 pm
In Aurora, Ill., on the western fringes of Chicago, the top entry on the city’s Web site Thursday was a bit on the bleak side.
“Avoid Foreclosure — Seek Help Now,” it said.
You can bet a lot of the lunchtime conversations in Aurora, Neb., were focused on brighter news: the biggest jump in the price of farmland in 30 years of recordkeeping at the University of Nebraska-Lincoln.
Aurora, Neb., auctioneer Tom Cornwell is certainly conscious of the contrast between the 23 percent jump in values in cornstalk country and the negative numbers facing many homeowners in metropolitan settings.
That’s not to say he’s getting carried away with it.
“If you can tell me that corn will stay at $5 a bushel for an extended period of time, several years, then land prices will continue to go up,” Cornwell said.
Of course, no one knows that, including Bruce Johnson, agricultural economist at UNL and the man who presides over the university’s annual land survey.
What Johnson does know is that a surge in prices for corn, soybeans, wheat and other crops has pushed land values into uncharted territory. Since 2003, the cumulative increase is 88 percent.
Leading toward the Farm Crisis collapse in land values in the 1980s, people were excited about $3,000 an acre. Now, with ethanol and exports part of a potent price mix, some sales are approaching $6,000.
“The market is perceiving a commodity price plateau that is pretty much justifying what we’ve seen with this percentage increase,” Johnson said. “(But) from here on, we may need to be a little more cautious.”
He’s aware the land market is “the antithesis of the sub-prime mortgage market,” but he’s not making any comparisons to urban conditions or dwelling on how the rural real estate outlook unraveled 25 years ago.
“Those closer to agriculture are saying, I think, that this is a pretty solid situation. It’s giving us a pretty good return — actually a very nice return.”
Take that to mean the signal to buy isn’t part of some speculative frenzy. Many of the buyers are farmers, and many of them are paying cash or as much as 40 percent to 50 percent down.
“The old land economists always say land value is the storer of value,” Johnson said. “And a lot of people are thinking that right now.”
Still, at $5,000 an acre, writing a check for an irrigated quarter section for something approaching $800,000 can test one’s faith in what’s ahead.
Cornwell can relate.
“When I first started in 1981 … we were selling land at $3,000 an acre, and then it plummeted. And now we’ve come back to record highs.
“I’m calm about it as long as commodity prices hang in here. We’ve got the lowest interest borrowing rate. How long has it been since you could borrow money for 6 or 7 percent?”
Details of the UNL survey suggest strong, statewide dimensions.
* The biggest gain was in northeast Nebraska, 28.4 percent, to an average per-acre value of $2,750.
* Survey tracking of cash rents topped $200 per acre. Those who might consider the rental rate for one year too high could buy a nontillable acre in northwest Nebraska for $287. But even that was up $37 from last year.
* Despite the weakening in prices in the livestock economy, the prize of a grazing acre in the Sand Hills was up 18 percent.
That might reflect, in part, the high corn prices that go with ethanol production and decisions to keep calves on grass longer before moving them to feedlots.
Farmland in York County and adjoining Hamilton County ranks with the best in the state, and Allan Heng of Heng Farm Management in York said the average $4,464 value of an acre irrigated by center pivot, as reported in the UNL survey, is definitely a moving target.
“Right now that would be on the low side,” Heng said.
Part of the picture of rising land prices is how little land gets on the market at a given time. To the extent it stays in the same hands, those making money in grain sales can’t convert that into a bigger land base.
“The missing link is land,” Heng said, “and because we’re so limited, whether we try to buy or lease ground, it’s a very competitive market to try to get control of land.”
Dick Schoenholz, an auctioneer and land broker at Geneva, agreed as he looked back on the recent sale of land at $5,275 an acre in his area and ahead to today’s offer of another 160 irrigated acres in Fillmore County.
“There’s not a lot of land for sale, and there’s a lot of operations around trying to add acres,” Schoenholz said, “and so the competition gets kind of tough.”
As they think about what they can afford to bid, farmer-buyers are also trying to cope with the rapidly rising costs for seed corn, fuel, fertilizer and other inputs. In very little time, a $3 price for corn that would have been considered quite acceptable as recently as 18 months ago might not pay the bills.
George Beattie, president of the Nebraska Bankers Association in Lincoln, said he and bankers across the state are mindful of the difficulties of keeping track of break-even prices when things change at such a fast pace.
Beattie sees opportunity, but he also sees rising costs making the farm economy more vulnerable to a price slide.
“I may be a lone voice,” he said, “but I think we are, yes.”
Turns out, he’s not a lone voice.
“Economics, as we speak, support these land prices,” Heng said. “Historic prices do not.”
Reach Art Hovey at 473-7223 or ahovey@journalstar.com