Value of Indiana farmland likely to drop in 2016
December 22, 2015
WEST LAFAYETTE, Ind. - Higher interest rates and low crop prices will likely drive down the value of Indiana farmland in 2016, but any losses should be moderate, Purdue University agricultural economist Craig Dobbins says.
"Land values would be expected to fall more quickly in an economic environment of low returns in combination with rising interest rates," Dobbins writes in the latest issue of The Purdue Agricultural Economics Report. "This appears to be the economic environment that agriculture will face in 2016."
But since there is a limited supply of farmland on the market, Dobbins expects values to fall slowly, continuing a trend that began last year after a decadelong rally.
He forecasts farmland values dropping 5-12 percent throughout the state next year after nearly tripling in value from 2003 to 2014.
According to the 2015 Purdue Land Value and Cash Rent Survey, prices for the state's top-quality farmland declined by 5.1 percent for the year, from an average of $9,765 per acre in 2014 to $9,266. Farmland considered to be of average quality fell by 3.8 percent, from $7,976 to $7,672 per acre, and prices for low-quality land fell 4.8 percent, from $6,160 to $5,863.
Analysts said last year's losses in farmland values were due primarily to low commodity prices after two straight bumper crops. This year the major concern could be higher interest rates, which make it more expensive for buyers to borrow money for major purchases such as real estate.
"To date, lower expected returns have likely been the major force weakening the farmland market," Dobbins writes. "While there are still some reports of strong farmland prices, most broad surveys of farmland values in the Midwest consistently indicate that farmland values are declining."
Dobbins also expects cash rents to continue to fall statewide in 2016 after declining in 2015 for the first time in almost 30 years. The primary reason rents have been going down, he said, has been the drop in farm incomes.
"In addition to the tight margins faced by farmers in 2015, the wet Indiana spring and summer weather in many areas of the state took its toll in the form of lower yield," he writes. "While some of the yield loss will be offset by crop insurance indemnities, these localized yield losses did not raise fall prices, and thus the crop insurance revenue floor was not nearly as strong as the 2012 Midwest drought."
To read Dobbins' full analysis, download the Purdue Agricultural Economics Report at https://ag.purdue.edu/agecon/Pages/Purdue-Agricultural-Economics-Report.aspx.
Writer: Darrin Pack, 765-494-8415, firstname.lastname@example.org
Source: Craig Dobbins, 765-494-9041, email@example.com