Three decades is a lot of experience for Tom Cornwell to bring to bear in tracking land prices. But the Aurora auctioneer was quick to concede on Thursday that it wasn’t enough to predict the huge surge in the value of some of the state’s most fertile acres in the last three years.
“Never did I dream that we would see these kinds of prices,” Cornwell said.
The latest altitude adjustment emerged earlier in the day with the release of the University of Nebraska’s annual Farm Real Estate Market Development Survey.
And news of the 25 percent gain in the value of the average agricultural acre in the last year came wrapped in words of caution from UNL ag economist Bruce Johnson.
“Here we are in the epicenter of drought in the country,” said Johnson, who’s presided over the survey for the last 35 years, “and we’re in the epicenter of a land boom.”
Whether that’s sustainable or not, one way to grasp the historical implications of the market would be to compare the essentially free land available 150 years ago in 160-acre increments during the homesteading era with the $1.6 million that a typical center-pivot irrigated parcel that same size would bring in eastern Nebraska in 2013.
The latest UNL update, which covers the 12 months up to Feb. 1, pushed the value of center-pivot irrigated land in eastern counties into the unheard of territory of $10,000 an acre.
The university survey puts its stamp of verification on earlier public and private reports of sizzling land sales and extends a 22 percent gain in its own 2011 numbers and a 32 percent gain in 2012.
“The markets are moving very quickly,” said Johnson, “and, frankly, the people on top of the markets are shaking their heads.”
Behind the numbers is an unprecedented, multiyear surge in agricultural prosperity based largely on exports and on expansion of the ethanol industry. But exports have been lagging lately, the livestock industry is shrinking and ethanol producers have struggled with the high price of corn.
Nonetheless, last year was the “biggest year we’ve ever had,” said Cornwell, citing overall sales of 3,266 acres from 28 farms in Hamilton, Hall, Merrick and Clay counties for almost $35 million.
“The lowest we’ve sold has been for $5,000 (an acre) for some (unirrigated) and the highest was for $14,500.”
The Omaha-based Farmers National Co., an active auction presence in 24 states, was involved in a record $360 million worth of land transactions in the fourth quarter of 2012, said President Jim Farrell.
The 76 auctions in October accounted for one of numerous records, Farrell said.
The variation in the latest price increases across the state was extreme, reflecting where irrigation expansion is possible, where there are irrigation moratoriums and where the impacts of drought have been the most severe.
Dryland cropland in the northwest, for example, rose just 6 percent, while center-pivot irrigated land ranged as high as 38 percent.
For center-pivot irrigated acres in the east, the price climbed from $2,347 in 2003 to $10,025 in the new 2013 numbers.
“Are we ready for an adjustment and a necessary adjustment?” Johnson said of a possible leveling out and cooling off in the market. “Those are good questions that everybody should be asking.”
Among the factors that could contribute to a slowdown, if not a partial reversal in value trends, are increasing competition for international corn customers from Brazil and eastern European countries and a weakening in the drought pattern in other major corn-producing states that don’t have irrigation to fall back on.
As that happens, prospects increase for a bigger corn supply, weaker corn prices, and a cap on what land costs.
“If you’re an investor out there paying that kind of price -- and you’ve looked at your return lately -- it’s falling below 2 percent,” Johnson said.
Signs of increasing farm debt load (although the numbers are nowhere close to where they peaked during the 1980s farm crisis) are another reason to watch for a retreat in land prices.
“To presume that it will continue upward -- that gets to be foolhardy,” Johnson said. “We really have to be watching carefully the signals.”
Cornwell had just two years of experience under his belt when he sold a parcel for what was then a record $3,000 an acre in 1981.
The UNL survey took away more than half the value of an irrigated acre by 1987.
“I’ve never forgotten those days,” Cornwell said, “but I just don’t feel like we’ll see that again.”