Indiana Correspondent

WEST LAFAYETTE, Ind. – The value of Indiana farmland rose to record highs from June 2020 to June 2021, bolstered by low interest rates, high expected incomes and limited inventory, according to a recent Purdue University survey.

Top-quality land averaged $9,785 per acre, up 14.1 percent from $8,579 last year. Average land was up 12.5 percent, from $7,236 to $8,144. Poor land increased 12.1 percent, from $5,746 to $6,441. The annual farmland values report was released in July.

Farmland in southwestern Indiana had the largest increases, with top land up 27.8 percent. Average land rose 20.2 percent and poor, 20.1 percent. Every region in the state saw prices go up for each category of land.

“I suspected we would have had growth this year, but the level of growth was unexpected,” said Todd Kuethe, the report’s author, associate professor and Schrader endowed chair in farmland economics at Purdue. “The market factors were pretty positive. There is still a lot of uncertainty with the next phase of COVID, and the economy. I thought that uncertainty would have kept growth moderated and maybe it did. Maybe prices could have been higher.”

Average cash rents also increased from June to June. For top land, rents rose 3.9 percent, from $259 per acre to $269. Average land rents were up 4.6 percent, from $217 to $227, and poor land rose 4.6 percent, from $175 to $183.

As a part of Purdue’s survey, respondents were asked to evaluate 10 market forces that might influence farmland values, including current net farm income, crop and livestock prices, exports, inflation and U.S. agricultural policy.

In previous years, some of those market forces might have been seen by respondents as negatively impacting prices, Kuethe said. For this year’s report, “everything put positive pressure on prices. Incomes are high, interest rates are low.”

The survey was done in June for the prior 12 months. Respondents included farm managers, rural appraisers and agricultural lenders. The survey categorizes farmland as top, average or poor, depending on productivity. The values are all for tillable, bare land.

For farmland owners, high prices are good, especially if they have plans to sell or use the land as collateral, Kuethe said. The prices could be prohibitive for new or beginning farmers, or current producers looking to grow, he added.

Most land that’s sold is to settle an estate, Kuethe stated. “When farmland is passed on to the next generation, usually two-three owners or heirs are involved. It’s easier to split money than split land.”

Howard Halderman, president and CEO of Halderman Real Estate & Farm Management, said while there is plenty of demand from investors and farmers, there’s not much land for sale. “We’re seeing the amount of land available remaining tight,” he explained. “We aren’t seeing a ton of land out there being advertised. Some may be off-market sales. For some farmland owners, it’s a hedge against inflation.”

For those thinking about selling, Halderman said they should consider doing it this year.

“If there are some folks who are going to sell in the next two-three years, I would do it in 2021. Not so much because of the high values but for the potential for tax changes regarding capital gains. We don’t know what they will be in the future. My counsel is a bird in the hand is worth two in the bush. Why not sell now into a really strong market.”

Some landowners may decide to sell because of the increase in land values, but most owners look at land as an investment, Halderman said. They don’t try to time the market, he added.

Increased incomes and low interest rates are making it a good atmosphere for operators to buy into the market, said R.D. Schrader, president of Schrader Real Estate & Auction Co. “Operators are the drivers of the market. Their demand is ultimately what’s pushing values higher. Corn and soybean prices are boosting incomes, giving farmers confidence to be more aggressive in buying land. There are a lot of variables. Knowing that market is very strong now certainly impacts some sellers. The high values are a positive if you’re thinking about selling.”

The possibility of changes to the tax code does have some owners wanting to sell before any changes might be made, he said.

Cash rents tend to trail increases in land values and incomes, Schrader noted. Quite a few leases are for three years. Eventually, Schrader said, if corn and soybean prices stay up, there’s likely to be increased pressure on cash rents.

As for future land values, Kuethe said he expects a 2-3 percent increase over the next six months. Halderman said he sees a 5 percent increase over the next year.

Schrader said while farm income and low interest rates are a good combination to keep land values going up, it’s difficult to know if it will be at the same pace.

“China is a wildcard,” he explained. “Will their demand continue? If inflation goes up, will interest rates go up?”