Indiana farmland lost a surprising amount of value during the 12 months that ended this June, and losses in its northeast corner exceeded the state’s average, on a percentage basis, according to an annual Purdue University survey.
Northeast Indiana’s top-quality and poor-quality farmland was not expected to fall as much as the state’s, on a percentage basis, by the end of this year.
The August 2019 Purdue Land Value Survey published recently by Purdue’s Agricultural Economics Department showed Indiana’s farmland lost no value on average if it was of poor quality, but lost 0.9% if its quality was average and 5.3% if it was top-quality.
“The 5% decline is fairly significant in terms of changes in farmland values, either up or down. And so that was a little bit of a surprise this time in the survey,” Craig Dobbins, the agricultural economist there who authored the survey, said during an August webinar on it.
Because the survey asks respondents to project what could happen with farmland values by the end of the year as well as look backward, “we make an effort to contact people that are involved in the Indiana farmland market as a part of their career in one way, shape or form,” he said.
“We contact professional farm managers, we contact farm appraisers, we contact people that work in the credit industry, both for community banks or local banks, and also the farm credit services. And of course, we also include some farmers in the survey.”
In northeast Indiana, the average values for bare, tillable land fell 6.9% to $7,611 for top-quality, 2.1% to $6,678 for average-quality and 6.3% to $5,208 for poor-quality.
Most of the decline took place during the second half of last year, and during the first half of this year, the region’s average farmland values rose 1% for top-quality and 0.3% for average-quality.
All categories of farmland declined in the state’s northeast, north and southeast regions, according to the Purdue Agricultural Economics Report presenting the study’s findings.
Survey respondents projected by the end of the year northeast Indiana’s average farmland values would fall an additional 2% to $7,458 for top-quality, 3.6% to $6,436 for average-quality and 1.1% to $5,150 for poor-quality.
They projected values would decline for all qualities of farmland in Indiana’s northeast, north and central regions, ranging from 1.1% to 7.7%.
The west central, southwest and southeast regions were expected to see a mixture of decreases and increases.
Statewide, average farmland values were expected to fall by 2.9% for top-quality, 2.4% for average-quality and 2% for poor-quality.
“It’s the same story we’ve been hearing for the last couple of years: Current returns are not sufficient to support the current level of farmland values and cash rents,” Dobbins said in a statement on the survey results.
“We’re still seeing tight margins, low crop prices and continued fallout from a trade war with China. The future just isn’t looking too bright right now.”
On a percentage basis, statewide cash rent prices fell 4.6% for top-quality, 1.4% for average-quality and 1.2% for poor-quality farmland.
In northeast Indiana, the average cash rent price per acre fell 3% to $226 for top-quality, 1.6% to $189 for average-quality and 0.7% to $152 for poor-quality farmland.
“An interesting thing about these results is what’s happening to good quality farmland,” Dobbins said. “Frequently, you hear top quality farmland is better at retaining its value than poor quality, but that’s not been the case this year.”
Until this year, trends showing farmland values declining from their 2014 peak had supported conventional wisdom, he said.
In addition to financial strain farmers have seen for several years, future expectations help shape farmland buyer views on how easy or how difficult it will be to cover the investment. And Dobbins said uncertainty connected with important farmland market drivers has increased.
“Buying farmland is about what’s going to happen in the future, not what’s currently happening,” he said.
“Many buyers have enough to make the down payment but will need to borrow to complete the transaction. Increased uncertainty about the future increases buyer caution.”
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