Returns to farmland in Nebraska and other agriculture-predominate states provided by the University of Illinois TIIA Center were highlighted in Tidbits a few weeks. For its analysis, the TIAA Center used USDA data which aggregates all categories of agricultural land into a single statewide average value. Now, agricultural economists with the UNL Department of Agricultural Economics have analyzed returns specific to irrigated, dryland, and grazing land in Nebraska using data gathered through the department’s annual farm real estate market surveys between 1990 and 2020.
Figures 1-3 plot the estimated returns from the UNL analysis for each type of land. The figures show annual statewide income or rent (blue line), capital gains (orange line), and total returns (grey line). For the period, total returns to irrigated land averaged 11.23 percent, returns to dryland ground averaged 10.92 percent, and grazing land averaged 10.00 percent. The researchers also examined volatility in returns over the period and found irrigated farmland had the highest volatility, slightly above that of dryland, while grazing land had the lowest. Year-to-year volatility in capital gains is the major cause of variability in total returns and appears to be increasing over time.
The UNL findings reinforce the TIAA Center findings that farmland has been a good investment over time with returns comparable to other investments. An investment in the S&P 500 over the same period returned 10.59 percent. An advantage for farmland, though, according to the UNL researchers, is farmland returns are less volatile than the stock market. However, like the stock market, much of the returns to farmland are on paper and are not realized unless the land is sold. More information on the UNL research can be found at: https://agecon.unl.edu/cornhusker-economics/2021/Is-Nebrsaka-Farmland-a-Good-Investment.pdf.
Figure 1. Nebraska Dryland Income, Capital Gain, & Total Returns
Figure 2. Nebraska Irrigated Land Income, Capital Gains, & Total Returns
Figure 3. Nebraska Grazing Land Income, Capital Gains, & Total Returns