Saturday, April 28, 2012

Nebraska: Don’t Forget the Supply Side of Agricultural Land Markets

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In today’s bullish agricultural land markets across the nation’s heartland, it is easy to attribute the climb in values to strong demand on the part of buyers wanting to invest in land to capture good returns of recent years. While true, that may be only half the story underlying the land market dynamics. Just as  “it takes two to tango,” it takes the supply side of the market as well as demand to create the land market dance.

We have been following the market for many years, observing the amount of land being offered for sale in any given time period. Historically, the agricultural land market has almost always been a “thin market,” with no more than three to four percent of the land base sold in any given year. That would suggest that the average probability of any typical agricultural land parcel coming onto the market was about once every 25 to 30+ years.

More recently, however, market observers have indicated that the number of offerings for sale are even lower than these historical rates. Apparently, individuals owning land are not as anxious to sell it given the perceived limited rates of return on alternative investments, and the satisfaction of enhanced wealth in recent years from holding ownership to agricultural land.

Using recorded real estate transfer records from the Nebraska Department of Revenue-Property Tax Division, we were able to get an accurate assessment of arms-length agricultural land sales (parcels of at least 40 acres) for each county in the state. Using the volume of acres sold from January 1, 2010 through June 30, 2011, we determined the average monthly sales rate and converted it to an annual average. When divided by total acres in farms for each county (from the most recent 2007 Census of Agriculture) the result is an annual percentage rate of sales turnover (Figure 1 on next page).

 
 

The results are rather surprising. The recent rate of agricultural sales activity for the state is 1.24 percent, far less than half the historical average. And in some counties, particularly some eastern counties where the land value climbs have been the most extreme, the turnover rates fall well below 1% per year. This means that the probability of a particular land parcel being offered for sale now is more like once in a hundred years!   Complete Report from Cornhusker Economics

 

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