By LINDA McGURK
Indiana Correspondent WEST LAFAYETTE, Ind. — Bad news if you’re an Indiana farmer who plans to expand your acreage: Land is getting harder to come by and you’ll be paying more for it than you did a year ago.
Conversely, those thinking about downsizing will likely find more farmers, investors and people wanting to live in the country make ever-higher bids on their property. The reason? Indiana’s old friend – the biofuel boom – according to Purdue University’s annual Land Values and Cash Rent Survey.
“The message is that we have increasing demand from all kinds of sources, and when you have limited supply, that leads to increasing prices,” said Craig Dobbins, a Purdue extension farmland economics specialist and survey coordinator.
During the 12-month period ending in June, higher grain prices – triggered by strong demand for grain for ethanol and biodiesel plants – resulted in the biggest rise in land value in Indiana since 1977.
Standard quality land value in Indiana increased by 16.6 percent, to an average of $3,688, and poor quality land went up 16.9 percent, to an average of $2,991. The value of top quality cropland increased the most, 19.2 percent, which brought the average up to $4,407 per acre.
Dobbins said the increases could be the beginning of a trend. “That suspicion is based on what’s happening with corn and soybean prices. If we make the assumption that we’ll have reasonably strong prices the next few years, we’re likely in for a time of increases in land value,” he said.
“There’s nothing that indicates it’s going to slow down a whole lot.”
The increases varied considerably among the state’s six geographic regions defined in the survey. Northeastern Indiana reported the biggest jump in land value, 25.9 to 29.7 percent, whereas cropland in the southeast only increased by 6.2 to 12.9 percent. However, west-central and central Indiana still have the highest average land values. Cash rents increased along with land values in the past year.
Statewide, the average cash rent jumped 9.4 percent for standard quality land, to $139 per acre, and 10 percent for poor quality land, to $110. Cash rent for top quality land took the biggest leap, 10.3 percent, to $171 per acre.
However, cash rent as a percentage of the value of the farmland is still fairly low, 3.9 percent. Over the 32-year history of the Purdue survey, cash rent has averaged six percent of the land value.
Northern and northeastern Indiana experienced the biggest jump in cash rents, which increased by 12.3 to 14.9 percent in these regions, but the highest prices are still found in west-central Indiana, where a farmer can expect to pay an average of $1.06-$1.12 per bushel in cash rent.
Land scarcity and high prices could make decisions about land expansion or renewals of leasing agreements difficult enough. But in the current marketplace, farmers also need to factor in the volatility of grain prices and fluctuations in input costs, Dobbins said.
“There’s increased variability in this new environment, and farmers need to protect themselves from bad things happening. Things can change quickly and the market adjusts rapidly,” he said.
When buying land, farmers need to be cautious about bidding the current high grain prices into higher land values or higher cash rents, Dobbins advised. They should budget carefully and assess what’s going to happen to grain prices, yields and input costs over the next few years.
When asked if the market for farmland is too hot, Dobbins replied it’s common for the real estate market to swing too far in one direction or the other, although it usually corrects itself after a while.
“Are we likely to overdo it? Yes. By how much? I don’t know the answer to that one,” he said. “In some parts of the country the housing market overdid it, and we’re correcting that now.”
This farm news was published in the Aug. 29, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee. |
