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Farmland keeps climbing despite drought

Jeff Caldwell 09/07/2012 @ 2:30pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

Indiana farmers have been hit harder than most in the Midwest by this summer's drought. But, that hasn't stopped land values from going crazy in that state in the last year, a new survey shows.

This year's rendition of the annual Purdue University survey of land values, gleaning information from almost 300 farm managers, apprasiers, land brokers and ag lenders, shows that state's land has grown in value between 14% and 18% in the last year. That's translated to cash rent increases between 12% and 15%, says Craig Dobbins, Purdue Extension ag economist who conducts the annual survey.

"Robust net farm incomes, favorable interest rates, strong farmland demand and a limited supply of farmland for sale kept Indiana farmland values and cash rents moving higher," he says.

Those increases add up to an average land value for crop land of just over $5,000/acre for land in the "poor" category -- that capable of raising 126-bushel corn -- while the top-end ground -- that able to produce 192-bushel corn -- is just over $7,700/acre.


More of the latest land values & rent features


Taking on land values

This climb, Dobbins points out, certainly makes establishing a land base a heavy lift for young and beginning farmers, and it creates a dilemma for landowners who, when the market's this high, are having trouble deciding whether or not it's a good time to sell and take profits. There are farmers in both camps.

"With grain prices at all-time highs and farmland at all-time highs, it seems to me a good time to look at selling all this and investing in the future of our grandchildren's education," says Agriculture.com Farm Business Talk contributor minnisota.

Selling now, though, may just undercut future profit potential, adds Farm Business Talk veteran contributor Kay/NC. "Frankly, right now, farmland is appreciating in value faster than just about any known asset...so, not necessarily a case of 'selling out makes sense,'" she says. "The money you get for it of you sell can sit in the bank at 1% at best. Meanwhile, as it grows in value, it turns you a profit every year, either in shares of income in the corp, or in rent of her share of the land. Most likely, the former."

What about rent?

While the outlook's still largely bullish on the land value front, things are a little less clear when it comes to land rents, farmers say. In many instances, the bidding may ease back at the high end of the price range. That is why it may be best to look into alternative rental arrangements rather than simple cash rent, says Farm Business Talk senior contributor Blacksandfarmer.

"Let the land owner get a percentage of the profits. I am thankful for crop insurance this year and the fact that I didn't go around the area and offer top price for land unlike some," he says. "The days of 'sport farming' as I like to call it or in other words paying more for a chunk of farmland that isn't yours without a chance of breaking even just to put your name on more acres may be over with this year."

But, as long as the value trend in all sectors of the farm economy -- namely farmland and grain prices -- stay as strong as they are now, land rents likely won't see a huge drop, adds Farm Business Talk veteran contributor kraft-t. Especially considering the crop conditions unique to this year that are helping underpin those bullish markets.

"Land ownership is not the ticket to never-ending prosperity. However, there is demand for land to rent and I suspect the bidding will be aggressive this year as well," kraft-t says. "However, it is possible that the crop losses may curb some of that aggressive bidding."

   

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