The August 2019 Purdue Land Value Survey, published in the Purdue Agricultural Economics Report (PAER) by the Department of Agricultural Economics, lays out changes in farmland values and cash rents.
Craig Dobbins, professor of agricultural economics and the survey’s author, said both farmland values and cash rents are down across the state of Indiana. The decline indicates changes are still occurring because of the tight margins in crop production.
“It’s the same story we’ve been hearing for the last couple of years: Current returns are not sufficient to support the current level of farmland values and cash rents,” Dobbins said. “We’re still seeing tight margins, low crop prices and continued fallout from a trade war with China. The future just isn’t looking too bright right now.”
According to the survey, top quality and average quality farmland decreased in value from last year by 5.3% and 0.9%, respectively. Poor quality farmland remained stable with almost no change on a statewide basis.
Cash rents also experienced a decline. In 2018, the statewide average increased for all land qualities. This survey reported a decline across all land qualities. Top quality farm land experienced a 4.6 percent decline in cash rents, followed by a 1.4% and 1.2% decline in average and poor quality farmland, respectively.
“An interesting thing about these results is what’s happening to good quality farmland,” Dobbins said. “Frequently, you hear top quality farmland is better at retaining its value than poor quality, but that’s not been the case this year.”
Before this year, the decline from 2014 peak in farmland values had supported the conventional wisdom. While farmers have experienced financial strain for several years, Dobbins said future expectations also help shape a farmland buyer’s view of how easy it will be to pay for a farmland purchase. There is increased uncertainty associated with important drivers in the farmland market.
“Buying farmland is about what’s going to happen in the future, not what’s currently happening,” Dobbins said. “Many buyers have enough to make the down payment but will need to borrow to complete the transaction. Increased uncertainty about the future increases buyer caution.”