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  1. Farmland Values & Rental Rates in Northwest Kansas Daniel O’Brien Extension Agricultural Economist K-State Research and Extension K-State Research and Extension

  2. We will discuss…. • How to Estimate the Current Market Value of Farmland • Farmland Prices & Rental Rates • NW, WC, NC, C Kansas (1976-2007) • Southwest Nebraska (1978-2007) • An Example Analysis of Current Land Purchase Prices (KSU-Landbuy.xls) K-State Research and Extension

  3. 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

  4. 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 K-State Research and Extension

  5. % Cropland Value from Agriculture 59% 73% 31% 47% 22% 51% 52% 46% 48% 22% 53% 60% 42% 14% 50% 43% 31% 58% 44% 42% 49% 44% 37% 26% 54% K-State Research and Extension

  6. U.S. % Ag Value of Cropland (States)Kastens & Dhuyvetter (2007) K-State Research and Extension

  7. 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

  8. % Cropland$: Government Payments 26% 53% 49% 36% 45% 35% 23% 35% 40% 31% 39% 37% 26% 28% 51% 25% 50% 29% 13% 67% 88% 50% 61% 89% 47% 75% 100% 65% 59% K-State Research and Extension

  9. 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 K-State Research and Extension

  10. 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

  11. 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

  12. 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 K-State Research and Extension

  13. II. Farmland Prices & Cash Rental RatesBy Region:Northwest, West Central KS & SW NebraskaCentral & North Central KansasBy Land Use:Non-Irrigated & Irrigated CroplandPastureland K-State Research and Extension

  14. Kansas Crop Reporting Districts K-State Research and Extension

  15. Non-Irrigated Farmland PricesNW, WC Kansas (1976-2007),SW Nebraska (1978-2007) K-State Research and Extension

  16. Non-Irrigated Farmland Cash RentNW, WC Kansas (1976-2007),SW Nebraska (1981-2007) K-State Research and Extension

  17. Non-Irrigated Rent-to-ValueNW, WC Kansas (1976-2007),SW Nebraska (1981-2007) K-State Research and Extension

  18. Irrigated Farmland PricesNW, WC Kansas (1976-2007),SW Nebraska (1978-2007) K-State Research and Extension

  19. Irrigated Farmland Cash RentNW, WC Kansas (1976-2007),SW Nebraska (1981-2007) K-State Research and Extension

  20. Irrigated Cropland Rent-to-ValueNW, WC Kansas (1976-2007),SW Nebraska (1981-2007) At Issue: Investment-Upkeep of Irrigation System + Cropland K-State Research and Extension

  21. Pastureland PricesNW, WC Kansas (1976-2007),SW Nebraska (1978-2007) K-State Research and Extension

  22. Pastureland Cash RentsNW, WC Kansas (1976-2007),SW Nebraska (1981-2007) K-State Research and Extension

  23. Pastureland Rent-to-ValueNW, WC Kansas (1976-2007),SW Nebraska (1981-2007) K-State Research and Extension

  24. U.S. Farmland Rent-to-Value TrendsKastens & Dhuyvetter (2007) K-State Research and Extension

  25. Non-Irrigated Farmland PricesNorth Central & Central Kansas (1976-2007) K-State Research and Extension

  26. Non-Irrigated Farmland Cash RentNorth Central and Central Kansas (1976-2007) K-State Research and Extension

  27. Non-Irrigated Rent-to-ValueNorth Central & Central Kansas (1976-2007) K-State Research and Extension

  28. Irrigated Farmland PricesNorth Central & Central Kansas (1976-2007) K-State Research and Extension

  29. Irrigated Farmland Cash RentNorth Central & Central Kansas (1976-2007) K-State Research and Extension

  30. Irrigated Cropland Rent-to-ValueNC & C Kansas (1976-2007),SW Nebraska (1981-2007) At Issue: Investment-Upkeep of Irrigation System + Cropland K-State Research and Extension

  31. Pastureland PricesNorth Central & Central Kansas (1976-2007) K-State Research and Extension

  32. Pastureland Cash RentsNorth Central & Central Kansas (1976-2007) K-State Research and Extension

  33. Pastureland Rent-to-ValueNorth Central & Central Kansas (1976-2007) K-State Research and Extension

  34. U.S. Farmland Rent-to-Value TrendsKastens & Dhuyvetter (2007) K-State Research and Extension

  35. County Non-Irrigated Land Value Est. Kastens & Dhuyvetter, 2007 $656 $735 $642 $699 $800 $797 $628 $763 $670 $599 $611 $931 $746 $549 $595 $588 $490 $901 $620 $827 $628 $717 $624 $698 $631 $605 $585 $879 K-State Research and Extension

  36. County Non-Irrigated Land Rent Est. Kastens & Dhuyvetter, 2007 $30 $35 $37 $39 $34 $38 $32 $37 $37 $33 $32 $49 $38 $30 $31 $29 $28 $25 $29 $44 $39 $23 $31 $31 $36 $29 $32 $39 $42 $33 K-State Research and Extension

  37. County Pasture Land Value Estimates Kastens & Dhuyvetter, 2007 $334 $394 $347 $535 $524 $534 $338 $347 $375 $450 $437 $485 $628 $376 $328 $437 $458 $607 $543 $838 $515 $277 $366 $293 $408 $538 $604 $709 K-State Research and Extension

  38. County Pasture Land Rent Estimates Kastens & Dhuyvetter, 2007 $9 $9 $9 $15 $14 $14.53 $11.62 $9 $9 $10.62 $12 $15 $13.47 $8.50 $8.50 $10.50 $11 $11 $12 $18.45 $13.47 $10.54 $8.50 $8.50 $8.50 $10 $13 $14 $11.71 $18.74 K-State Research and Extension

  39. III. An Example Analysis of Current Land Purchase PricesThree (3) Scenarios (each 160 acres):1. Center Pivot Irrigated Cropland 2. Non-Irrigated Cropland3. PasturelandSource: KSU-Landbuy.xls (Kastens & Dhuyvetter, K-State Research & Extension, 2007) K-State Research and Extension

  40. 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 K-State Research and Extension

  41. 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% K-State Research and Extension

  42. 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% K-State Research and Extension

  43. 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) K-State Research and Extension

  44. 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 • No. Years Land to be Owned: 30 years • All Other assumptions the same K-State Research and Extension

  45. 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

  46. 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 • No. Years Land to be Owned: 30 years • All Other assumptions the same K-State Research and Extension

  47. 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

  48. Comments or Questions? • Email: dobrien@ksu.edu • KSU Ag Economics Website: http://www.agmanager.info • Northwest Research Extension Center Website: http://www.oznet.ksu.edu/nwao/ K-State Research and Extension