What is in this article?:
- No ceiling for Midwest farmland prices
- Rental prices strong
- People in the market to buy farmland have a very optimistic outlook about the future, and they are willing to pay unthinkable prices.
- Farmland values in Iowa, and parts of Indiana, Michigan, Wisconsin and Illinois have increased by 22 percent since early 2011. That is the largest annual increase since 1976.
Rental prices strong
With the strong market, rental prices for farmland also have been on the rise. Survey respondents indicated the average 2012 cash rent was $253 per acre. A majority reported that rate was higher than it was in 2011, and only two reported their rental rates to have stayed the same. None had decreased.
According to Dobbins, the increasing cash rents have led some landlords and tenants to get creative in lease agreements. While 42 percent of respondents said lease agreements were traditional fixed cash, others were using flexible lease agreements and crop share leases.
In a flexible lease agreement, or variable cash, the landlord and tenant agree on a minimum amount of rent and share a portion of the profits. In a crop-sharing agreement, the tenant and landlord both invest in the production costs and share the crop yields after harvest. Both types of agreements help tenants and landlords share the risk associated with crop farming.
While all of the survey participants agreed that farmland values were on the rise, they did not agree about the change in land values over the next five years. Forty-eight percent of the respondents indicated farmland values would be higher, 31 percent thought there would be no change, and 21 percent expected them to decrease.
"These results indicate that, in the short term, Indiana's farmland market is expected to remain strong," Dobbins said. "No one expects farmland values to decline for the year. But relative to the past few years, respondents expect the rate of increase to be much less.
"Longer term, there is less certainty in how farmland values will change. Most respondents expect farmland values to be steady or higher, but sound risk management suggests that buyers need to explore the effect of a 15-20 percent decline in farmland values on the business."