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Farmland values not crashing, but gains slowing

Recent double-digit annual increases in farmland value may be slowing, according to Purdue University's annual Indiana farmland survey.

Values aren't crashing, though, as top-notch farmland declined just 0.2% from last year. The survey, conducted each June, shows top-quality farmland with 182 bushel per acre yields dipped to $4,994 per acre in 2009 from its 2008 per acre value of $5,049.

Slightly larger declines surfaced in average and poor quality farmland. Average farmland values with 150 bushel per acre corn yields declined 1.2%, from $4,240 to $4,188. Poor quality farmland with 118 bushel per acre corn yields declined 1.7%, from $3,408 to $3,351 per acre.

"Compared to years past, this certainly is softening," says Craig Dobbins, a Purdue University agricultural economist who coordinated the survey of agricultural real estate professionals. "We've come through a period of two years of double-digit increases in land value and we’ve come to a stop at this point." Dobbins reported the findings at last month's Top Crop Farmer Workshop held at Purdue.

Other land value surveys find even more softening. A Chicago Federal Reserve land survey showed decreases in values of good farmland from January to April 2009 in several Midwestern states. They include:

  • Indiana, down 3%.
  • Iowa, down 7%.
  • Wisconsin, down 7%.
  • Illinois, down 4%.

Land values greatly varied between regions in the Purdue survey.

"Big differences show up when the market doesn't really know where to go," says Dobbins. "In the last two years, everyone was marching in the same direction. That wasn't true this year. Regional differences are rather sharp this year. In west-central Indiana, land values were up 2% to 4%. In the southeast, land values were down 5% to 6%."

Cash rents mirrored land value changes in the Purdue survey. Cash rents for top-quality farmland increased 2.1% from 2008 to 2009, rising from $194 to $198 per acre. Rents rose .6% for average farmland, from $157 to $158 per acre. Cash rents for poor quality farmland dipped 1.6%, from $123 to $121 per acre.

Most survey respondents are still farmland market bulls. Fifty-eight percent of respondents expected land values to be higher in five years than now. That's down from last year’s level of 75%, though.

A ravaged stock market means there's lots of money looking for more favorable returns -- and more competition for you from outside investors.

Farmland is enticing for these off-farm investors.

"Long-term land values going down for an extended period of time just does not occur," says Dobbins. "When you go back to 1900, there were two prolonged periods when land values went down -- the Great Depression and the 1980s. To get farmland to really go down, you have to have really difficult economic times."

Fueling land market bullishness is the concern ravaging inflation may be down the road, given recent multi-billion dollar federal bailout and stimulus packages. There's a belief that farmland is a good inflation hedge, due to its good performance during the last great inflationary period during the 1970s, says Dobbins.

Recent double-digit annual increases in farmland value may be slowing, according to Purdue University's annual Indiana farmland survey.

Still, timing is everything. Farmland buyers in the late 1970s are still waiting to break even. In 2009 dollars, average late 1970s Indiana farmland values hover around $5,600. Even though current average Indiana farmland values tally around $4,100, they still haven't returned to those levels.

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