Nebraska land values rise despite drought

Story and video by Erica Jobman, NewsNetNebraska

Nebraska is the epicenter of an agricultural land boom, which is ironic because it is also the epicenter of a drought.

“You would think the drought would have suppressed land values,” said Brian Fuchs, a climatologist with the National Drought Mitigation Center, “but it isn’t so. Land values have continued to increase.”

In fact, agricultural land values in Nebraska have increased 25 percent in the last year, according to a University of Nebraska-Lincoln report. Land values increased 30 percent from 2011 to 2012, which was almost three times the national average. Per-acre prices have doubled since 2010.

“That’s what you call a land boom,” said Bruce Johnson, a UNL agricultural economist.

Land values have increased 25 percent across the state.

Land values have increased 25 percent across the state.

There have been an exceptionally good set of years for crop producers, especially in irrigated areas, where returns have been through the roof, he said. This productivity carries forward into the bidding process when land comes up for sale, he said, and that combined with high commodity prices is what is driving the increases in land values.

This year, the drought showed up in more modest increases on rangeland, Johnson said. The land values for ranching communities have not increased as much as other agricultural sectors, especially irrigated lands, he said.

“The drought really hasn’t affected land values yet,” Johnson said, “but it will.”

The value of water

Irrigated land drew the largest value gains across the state, according to the UNL report. The drought has and will put a higher premium on land with more water potential, Johnson said.

“When people buy land, they are buying water as well as land,” he said. “The more we have an episode like last year in terms of drought, the more people are sensitive to that.”

The drought, he said, has been a reminder that water is a finite resource.

Fuchs agreed.

“In many states in the western half of the United States water is the new oil, the new gold,” he  said.

In Nebraska this is true as well.

“Water availability is going to be key,” he said.

Irrigated acres with reliable and strong water development are going to be very valuable, he said, and prices for that type of land probably will continue to rise. However, the prices for acres on marginal land or without water availability probably will level off at some point, he said.

“One of the biggest challenges for this year is what’s going to happen? What is Mother Nature going to do?” Fuchs asked.

The forecast indicates that the drought may ease this year, Fuchs noted. But should there be a dry and hot weather pattern in the middle of summer, the state will still be vulnerable.


The impacts of land value

Rising prices for productive natural resources means that there is a realistic value being placed on those resources in the long term, Johnson said.

“Perhaps as it is valued more, we use it more efficiently and we care for it better,” he said.

On the other hand, the higher value of land can create a situation where it changes who gets to play the game, he said. High farmland prices are now out of reach for many young farmers and ranchers who want to break into the business or expand, he said. That was possible for them five years ago.

“Now it just looks like a lost opportunity,” he said.

The biggest problem is when land gets inflated beyond fundamentals, Johnson said.

“You don’t want to presume that this is forever up,” he said. “History has proven that whenever there is a boom, there will come an adjustment, and it could be a bust.”

When the adjustment comes, some of the more aggressive land owners may end up in foreclosure and some people may be forced out of the business, he said. That’s hard on a progression of agricultural producers and on the family and the community dynamics.

“The best thing that could happen,” Johnson said, “is if we had some downward adjustment back to reality with fair returns on land.”

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