WEST LAFAYETTE, Ind. – Weaker net returns may lead to a lowering of cash rents in Indiana next year, but the bigger impact may not be seen until 2026, according to Purdue University professors of agricultural economics.

Michael Langemeier, also associate director of the Purdue Center for Commercial Agriculture, expressed surprise at answers to questions about cash rents in recent editions of the Purdue/CME Group Ag Economy Barometer. In August, 70 percent of respondents said they expected cash rents to remain about the same. In July, the number was 72 percent.

“If you look at net returns, and prospects in 2025, they don’t look particularly good,” he explained. “And 2024 doesn’t look particularly good either. And so I would have thought there (would have) been a few more that were thinking about lowering cash rents. You can’t just look at one year of low returns, and say cash rents are going to go down next year. It’s a little more complicated than that.

“You really need two or three years of low net returns to land before the market seems to say, yeah, it seems like we’re in different times now. Perhaps we need to do an adjustment of cash rent.”

The professors appeared on the center’s Commercial AgCast podcast in September. The annual Purdue Farmland Value and Cash Rent Survey was released in August.

The average cash rent for top quality land in the state this year was $313 per acre, up from $306 in 2023, the survey found. Cash rents averaged $260 for average quality land (up from $257), and $204 for poor quality (down from $212). The survey categorizes farmland based on productivity.

Jim Mintert, the center’s director, said cash rents smooth out the changes and the returns to land that take place from year to year. Returns to land can be extremely volatile year to year, he noted. Cash rents don’t vary nearly as much, but they do respond over time to changes in net returns to land, Mintert added.

“We do see a response in those cash rental rates,” he said. “But it’s not immediate, and so from that context, maybe the results we got from our Ag Economy Barometer Survey make some sense, even though 2024 is a pretty weak year, maybe we won’t see much response in 2025, the response could actually show up more along the lines of 2026.”

To help make his point, Mintert noted there were weaker net returns in 2014 and 2015, but said there wasn’t much change in cash rents until 2016.

Langemeier said it makes sense that it may take a year or two for a reduction in cash rents to occur “because cash rents are negotiated, and before someone’s going to define a new normal, it takes awhile to convince people that we’re in a new normal.”

Todd Kuethe, also Schrader endowed chair in farmland economics at Purdue, said agriculture is unique in that owners tend to hold on to their land for long periods.

“If I was going to buy it and rent it out, if I was going to own it for 40 years, I’d feel pretty fine about it,” he said. “(That’s) one way that I think about it. But then I also kind of think about it in terms of how there’s also the part which is like the appreciation of the asset, like that capital gain you could get, and how much that’s maybe a driving influence.

“There are times where the cash rent is great because it gives you some positive return even if the market price is going to go down. Historically, you (have) kind of modest returns from owning farmland, but it’s a really great retirement source to own because the capital gains will be high over that 20 to 30 years.”

Langemeier said there’s not a close relationship between the stock market and the farmland market. If the economy were to go into a recession, it doesn’t necessarily mean agriculture will go into a recession, and vice versa, he pointed out.