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Land price surge sticking around

Jeff Caldwell 03/13/2012 @ 3:50pm Agricultural content creator and marketer.

Whether driven by economics or emotion, the farm land value climb in Indiana's not going to change anytime in the near future, a recent survey there shows.

A survey conducted with Indiana farm managers and rural appraisers last month shows that the increase, which was pegged by the Chicago Federal Reserve Bank branch at 22% for much of the Corn Belt over the last year, shows most (48%) see the the climb continuing at least the next 5 years, while 31% said there would be no change and 21% said values would decrease.

"These results indicate that, in the short term, Indiana's farmland market is expected to remain strong. No one expects farmland values to decline for the year. But relative to the past few years, respondents expect the rate of increase to be much less," says Purdue University Extension ag economist Craig Dobbins. "Longer term, there is less certainty in how farmland values will change. Most respondents expect farmland values to be steady or higher, but sound risk management suggests that buyers need to explore the effect of a 15% to 20% decline in farmland values on the business."

Despite the unrelenting climb in land values, the demand certainly hasn't tailed off. In fact, Dobbins says demand is stronger now than it has been in a long time, maybe ever. It reflects the average Indiana farmer's optimism about the ag marketplace, he adds.

"These numbers tell us that the farmland market is very competitive. There are far more buyers than sellers," he says. "People in the market to buy farmland have a very optimistic outlook about the future, and they are willing to pay unthinkable prices."

Regardless of where land goes, Dobbins warns against following what the majority calls the trend, especially when it comes to borrowing to acquire more land in a time when grain prices are at profitable levels, too.

"One of the dangers is that buyers' expectations about the future of the market could be wrong," he said. "If land values or commodity prices decrease, that can really change profit margins. And it doesn't have to be a drastic decrease."

More severe problems can occur if buyers borrow a substantial amount of money to finance land purchases. Buyers need to be careful because farm debt levels will affect how hard the fall could be if commodity or farmland values decrease."

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