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

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

3. K-State Research and Extension Q. How to Estimate Farmlands 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

4. K-State Research and Extension 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

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

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

7. K-State Research and Extension 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.

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

9. K-State Research and Extension 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

10. K-State Research and Extension 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

11. K-State Research and Extension 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

12. K-State Research and Extension 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

13. K-State Research and Extension II. Farmland Prices & Cash Rental Rates By Region: Northwest, West Central KS & SW Nebraska Central & North Central Kansas By Land Use: Non-Irrigated & Irrigated Cropland Pastureland

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

40. K-State Research and Extension 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

41. K-State Research and Extension 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%

42. K-State Research and Extension 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%

43. K-State Research and Extension 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)

44. K-State Research and Extension 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

45. K-State Research and Extension 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)

46. K-State Research and Extension 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

47. K-State Research and Extension 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.)

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