Farmland Values | Fundamentals vs. Circumstance
From the kitchen table to the coffee shop, the opinion on farmland values is as varied as the grain markets. As with many things in life, value is in the eye of the beholder. Farmers, lenders, ag economists and appraisers assign value to farmland for a variety of reasons, each holding merit in the marketplace.
According to the Purdue University Agricultural Economics Report (PAER), “the West Central Indiana region continues to have the highest per acre farmland values.” Top quality farmland in for the West Central region in 2014 averaged a value of $11,726 per acre, average quality at $9,616 per acre and low quality at $7,611 per acre. With this data as our yardstick, our region has seen sales go well over the $13,000 per acre mark.
What drives these sales?
Whether your decision to buy or sell is financial, emotional or legal there are a variety of factors that play into the farmland real estate market. Ag economists might argue that the underlying fundamentals never be overlooked when valuing agricultural land. But, simply put, not all farmland or farmers are created equal – soil type, soil health, the markets, returns and human nature play a vital role in the price per acre.
High yield soils, calculated by the weighted soils average, always command top dollar. West Central Indiana top quality soils remain the highest in terms of bushels per acre, cash rent per acre and price per acre in the state. What you can do in terms of efficiencies, moisture retention and yields also influence the value on farmland.
Producers that remain in a strong cash position may be willing to pay above and beyond market value for farmland, regardless of the soil quality or market conditions. Little to no-debt operations buying smaller tracts (< 100 acres) to grow land holdings may become more frequent as commodity prices remain low and interest rates go up.
The old cliché remains true, location matters. Farmland close the core operation of a producer or in areas where the land use is changing for development generally has a higher value placed upon it. This said, the value your neighbor places on the land may be out of sync with the underlying fundamentals, particularly if they are in a strong cash position.
What is important to you?
Your answer to this question, in terms of buying or selling farmland is really what matters most. Your concern about price may be offset by the location and vice versa. Value priced land could make sense as you consider how you can improve yields. As a seller, your financial position might be changing or you may be emotionally tied to the family farm. Emotions, human nature, the markets and much more are all motivational forces that drive the sales of farmland.
When will be the best time to buy or sell farmland in Indiana? As expectations of value and the reality of current corn and soybean prices combine, we leave it at this…”Timing has a lot to do with the outcome of a rain dance.” – Author Unknown
About the Author
Johnny Klemme is a published author, graduate of Purdue University and Land Broker specializing in farms, recreational property and development land in West Central Indiana. Born and raised on a local farm, his commentary on issues that are important to the farming and real estate community can be found at www.PrairieFarmland.com/blog