WEST LAFAYETTE, Ind. — The value of Indiana’s farmland declined in the first six months of the year, according to Craig Dobbins, a professor of agricultural economics at Purdue University.
The university’s most recent Farmland Value Survey found Hoosier values dropped 0.9-2.3 percent, depending on the quality of the land, from December 2013 to June 2014.
Top-quality farmland in the state averaged $9,855 an acre in December, but by June it had dropped to $9,765, the report said. Average-quality land dipped from $8,129 to $7,976, and poor-quality land fell from $6,303 to $6,160. The survey categorizes farmland as top, average or poor, depending on productivity, location and other factors. The values are for tillable, bare land.
Purdue’s survey is done in June for the previous 12 months. While land values in the state for the first half of 2014 were down compared to those in December, values for the period June 2013-June 2014 increased 6.4-7.1 percent.
Those percentage increases were smaller than the last couple of years. From 2012 to 2013, the increases were 14.7-19.1 percent, and from 2011 to 2012, 14.3-18.1 percent.
Those days of annual double-digit increases may be over, at least for a while, noted Dobbins, who co-authored the university’s report. Survey results were released last month.
"The high prices and large profits we’ve seen in the agricultural sector weren’t going to continue," Dobbins said. "It certainly appears the pendulum has shifted. It seems like we’ve reached an inflection point. We’ve gone from an environment with strong upward movement to an environment where we’re likely to see declines."
Reports released last month by the USDA’s National Agricultural Statistics Service (NASS) also show average cropland values in Indiana rising at a slower rate, as are those in Ohio. The NASS numbers are as of Jan. 1, 2014.
Indiana’s average cropland values were up 7 percent over last year, from $6,590 per acre in 2013 to $7,050 in 2014. From 2012 to 2013, values increased 12.8 percent. For Ohio, values increased 8.9 percent, from $5,190 in 2013 to $5,650 this year. Ohio’s cropland values had gone up 11.9 percent from 2012 to 2013.
Nationwide, cropland values increased 7.6 percent, from $3,810 to $4,100. In the Corn Belt, values rose 8.2 percent, from $6,470 to $7,000, according to NASS.
In Indiana, Purdue’s survey found from June 2013 to June 2014, the value of top-quality land in the state increased 6.4 percent, from $9,177 per acre to $9,765. For average land, the increase was 7.1 percent, from $7,446 to $7,976.
Poor land also rose 7.1 percent, from $5,750 to $6,160. For the report, 217 professionals, including farm managers, rural appraisers and agricultural loan officers, were surveyed.
Factors such as farm income, interest rates and supply and demand impact land values, Dobbins said. "The farmland market has certainly softened up," he stated. "We’ve seen a very large decline in corn, soybean and wheat prices. Input costs haven’t really budged.
"All that flows directly into the bottom line. Margins have gotten a whole lot smaller than they were, causing people to be more cautious."
There’s an expectation that interest rates will rise a bit, especially if the Federal Reserve Bank reduces the amount of monetary stimulus later this year, Dobbins said.
As for supply and demand, "farmland is still a competitive and desirable investment vehicle," he noted. "There’s still a perception that buyers are in a pretty strong cash position. They don’t have to borrow money."
Prices for farmland do seem to be leveling off, said R.D. Schrader, president of Schrader Real Estate & Auction Co., based in Columbia City, Ind. "Change is happening, but in the rate of appreciation and not in the value of the land," he noted.
"People can still expect very strong prices. They’re just not climbing at such a strong rate."
Farmers and investors have cash they’re looking to put into land, he said. "Value (of the land) tends to be a function of potential profit," he stated. "Commodity prices go up and commodity prices go down. Savvy buyers know this and they know more ups and downs are coming.
"It’s our experience that most land buyers are long-term thinkers. Is it quite as exuberant as when we had $7 corn? They might not be as exuberant, but there’s still a demand."
Officials with Halderman Real Estate Services in Wabash, Ind., have seen steady prices for farmland over recent months, said Pat Karst, the company’s vice president. Last fall, the sale price for a farm in Huntington County offered by Halderman’s ranged from $9,000 to just over $10,000 an acre, Karst noted. Recently, a farm about four miles away and with less tillable land sold for $9,272 per acre.
"To me, that’s no difference in price," he said. "Farmland is worth what someone is willing to pay for it. There’s still some pent-up demand for farmland. The guy who ended up purchasing the (recent Huntington County) property had been a runner-up (for other land) the past few months."
How quickly a piece of land might sell depends on its quality, Karst noted. "Most of our representatives would say if it’s a good farm in a good area, they’ll get lots of phone calls, lots of interest and lots of active bidding," he said.
"When a farm isn’t quite as good, maybe it has a flaw or two, with a lower percentage of tillable land, the prices seem to be holding steady but there’s less interest. It’s harder to get bids and harder to get it sold."
