Farmland Prices: How High Will They Go?

I am often asked: What is the value of good Indiana farmland?  The answer, of course, depends on the location, soil type, drainage, row crop versus pasture land, and other factors farmers know well.  But I think its safe to say that the value of Indiana farmland has been going steadily up.  I've personally heard of good corn and soybean farmland in Indiana selling for $10,000 per acre.

Brandon Smith at WTIU states that farmland values have "increased dramatically" over the last year.  He reports that the Federal Reserve Bank of Chicago shows a 25% increase in Midwest agricultural land values over the last year and a 29% increase in Indiana.  According to the Federal Reserve, that's the largest gain in more than 30 years.

Last Wednesday, the Des Moines Register reported that farmland in Iowa sold for more than $20,000 per acre, a state record.  This has prompted many economists to question how high prices will go.  One expert in the the Wall Street Journal cautioned:

A bubble appears to be building up and there is a cause for caution because returns are getting squeezed, said Daniel Hough, agricultural product specialist with Macquarie, on the sidelines of an agriculture conference.  

There is no justification for U.S. farmland prices to be three to four times higher than land where the same crop is planted in Brazil, or 30 times the corresponding prices in Russia, he said.

Citing data from the Federal Reserve Bank of Chicago, Mr. Hough said that in the year to June 30 there was an average 17% increase in farmland prices across Indiana, Illinois, Iowa, Michigan and Wisconsin, the biggest rate of increase for any year since 1977. During 2005-2010, the price of farmland climbed as much as 70% in some Midwest states, according to the U.S. Department of Agriculture.

Other experts are less pessimistic. R.D. Schrader of Schrader Real Estate is "bullish" in the long term.

As in any market, land values are being determined by supply and demand, Schrader said, with the increasing global appetite for food, the demand for renewable fuels driving corn prices to new highs and a shrinking value of the U.S. dollar driving sales.

Read the rest of Mr. Schrader's predictions together with others in the High Plains Journal.

Post by Todd Janzen