Cornhusker Economics July 22, 2020
Historic Analysis of Flooding and Excessive Moisture Across Nebraska and Implications for Agricultural Lease Arrangements in 2020

The Nebraska Farm Real Estate Market Survey and Report 2019-2020 provides insight on recent trends on the market value of agricultural land and cash rental rates across the state. Each year, the special feature section from this report covers topics on new or emerging issues related to the agricultural land industry in Nebraska. These topics reflect interest expressed by panel members and readership of the Nebraska Farm Real Estate Market Highlights Reports. The special feature section in 2020 evaluates historic flooding and excessive moisture over the prior decade across Nebraska and implications on accounting for this type of risk in agricultural lease arrangements.

In 2019 Nebraska experienced periods of excessive rain causing historic flooding issues for operators across the state. Many farmers experienced delays in field operations and were not able to plant the intended crops in a timely manner due to excessive moisture. Prevented plant acres represent the failure to plant the intended crop by the final planting date or late planting period specified by the Federal Crop Insurance Policy (USDA-RMA 2020). Coverage provided by the Federal Crop Insurance Policy offsets a portion of the financial loss from prevented plant on cropland. Reported prevented plant acres and intended crop over the prior decade in Table 1 documents the historic effects of excessive moisture and flooding across Nebraska (USDA-FSA 2020).

Nebraska reported an average of 81,130 acres of prevented plant cropland from 2010 to 2019. The top three crops for prevented plant in the state annually included corn, soybeans, and wheat at 62,449, 16,659, and 1,036 acres, respectively. Rainfall and flooding events in 2015 and 2019 attributed to the highest number of prevented plant cropland at 188,463 and 421,958 acres, respectively. Excluding these two years from the prior decade drops the annual average to approximately 25,110 acres of prevented plant. Prevented plant may be a small risk to account for in cash lease arrangement annually, but periods may exist where excessive moisture can cause a significant disruption in production activities.

According to the 2017 Census of Agriculture, Nebraska has approximately 22 million acres of dryland and irrigated cropland (USDA-NASS 2019). Dividing the annual prevented plant acres by total cropland indicates that less than 1% of the land base typically experiences water-related issues. With the low probability of prevented plant in Nebraska, many land leases may focus on other forms of contractual risk. Figure 1 summarizes whether agricultural land lease arrangements contained mitigation provisions to address damages from flooding or excessive moisture in 2019 across the state.

According to responses reported by panel members, 78.1% of agricultural land leases in 2019 did not contain provisions to account for damages from flooding or excessive moisture. About 15.5% of the leases partially accounted for this type of risk while approximately 6.4% of the leases fully contained mitigation provisions. Failure to account for flooding or excessive moisture leaves uncertainty in addressing property damages and limitations imposed on the land.

With over 421,000 acres of prevented plant cropland in Nebraska in 2019, many cropland leases did not have adequate lease provisions to address the issues arising from the disruption to the production cycles. Table 2 summarizes responses from panel members on adjustments made to the cash rent for cropland if the property experienced extensive prevented plant during 2019.

Panel members reported approximately 36.4% of cropland leases had no adjustment made to the cash rent when extensive prevented plant occurred on the property. About 39.1% of cropland leases reported reduced rent due to excessive moisture or flooding. The remaining 24.5% of leases either did not have any rent paid or some other alternative agreement added to the lease. Operators may have traded remediation work to damages on properties to partially offset a portion of the cash rent due.

As shown in Figure 2, panel members indicated 12.3% of cropland lease provisions were either added or revised to account for risk from flooding or excessive moisture. In addition, 34.9% reported a partial revise to contractual provisions. Over half of the cropland leases did not receive any additional or revised lease terms.

Noticeable changes were reported by panel members in cropland lease provisions to better account for flooding and excessive moisture risk between 2019 and 2020 (Figures 1 and 2). Addressing risk and uncertainty as part of the lease arrangement improves the equitability of the contract for each party involved. Financial risk remains high for landowners and operators. Employing appropriate management strategies to account for risk remains an important feature for designing lease terms and provisions.

Survey results shown and discussed in this report are findings from the University of Nebraska–Lincoln 2020 Nebraska Farm Real Estate Market Survey. Complete results from the survey may be found at the Nebraska Farm Real Estate website: http://agecon.unl.edu/realestate.

Please address questions regarding the 2020 Nebraska Farm Real Estate Report to Jim Jansen at (402) 261-7572 or jjansen4@unl.edu.

References

Jansen, J. A. & J. Stokes. (2020, June). Nebraska Farm Real Estate Market Highlights Survey and Report. Nebraska Farm Real Estate Market Developments Highlights 2019-2020, 196, 1-65. Department of Agricultural Economics, University of Nebraska–Lincoln.

USDA-Farm Service Agency (2020). Crop Acreage Data Reported to FSA. 2019 Crop Year as of January 1, 2020, retrieved June 22, 2020, from the United States Department of Agriculture Farm Service Agency: https://www.fsa.usda.gov/news-room/efoia/electronic-reading-room/frequently-requested-information/crop-acreage-data/index.

USDA-Risk Management Agency (2020). Prevented Planting, retrieved June 18, 2020 from the United States Department of Agriculture National Agricultural Statistics Service: https://www.rma.usda.gov/en/Topics/Prevented-Planting#:~:text=Prevented%20planting%20is%20a%20failure,by%20crop%20and%20by%20area.

USDA-National Agricultural Statistics Service (2019). 2017 Census of Agriculture, Table 41. Land Use Practices: 2017 and 2012, retrieved June 16, 2020 from the United States Department of Agriculture National Agricultural Statistics Service: https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_2_County_Level/Nebraska/