What is in this article?:
- Farmland values soaring, for now
- 25 million-acre increase in the demand for land
- Much of the U.S. economy has been slow to recover from the recession. That hasn't been true of farmland markets, which have continued to climb.
- "Even while some residential and commercial real estate values have been falling, that has not been the case for farm real estate. Instead, we've seen some high prices for farmland in recent months, even exceeding $10,000 an acre in some extreme cases."
25 million-acre increase in the demand for land
That's a startling 25 million-acre increase in the demand for land," Hurt said. "It represents about 10 percent of the U.S. crop base planted to major crops. That says we've had a very large increase in demand for land and is thus one of the primary contributors to surging land values on the demand side." Crop prices also are getting an indirect boost from Federal Reserve monetary policy. Hurt said the second round of the Fed's buying of Treasury securities through so-called "quantitative easing" is conducive to weakening the U.S. dollar and creating inflation. "
The act of creating more money tends to depress the value of the dollar. That generally results in stronger commodity prices, which would then push up returns to farmland and be an added stimulant to land values," he said. High crop returns also affect the rental rates landowners charge farmers to use their land. "
Cash rents are higher as a result of the greater returns to the land on which crops are grown, but farmland prices have been rising more rapidly than cash rents in recent years," Gloy said. A 2010 Indiana farmland value survey conducted by Purdue indicated that average-quality Hoosier farmland was worth $4,419 per acre in mid-June. Cash rents on that land averaged $161 per acre, meaning buyers were willing to pay a price for land that was about 27 times the annual rent. By contrast, this "value-to-rent multiple" was 20 in 2000 and just 12 in 1986. "
The increased value-to-rent multiples suggest that both rising crop incomes and falling interest rates have been leading contributors to today's land values," Gloy said. "Future land values will largely be determined by the economic returns to farmland ownership, the level of interest rates and by expectations, including inflationary expectations, of both land buyers and sellers."
The webinar is sponsored by Purdue's Center for Commercial Agriculture. Those unable to view the program online can listen by phone by contacting Aissa Good at 765-496-3884. The presentation also will be archived online for later viewing.