Purdue University professor Craig Dobbins says a variety of factors, ranging from legislation to commodity prices, will affect how land values change in upcoming years. The consensus is that increases will slow and, in some regions, values might stall or decline slightly, he said.
Purdue University professor Craig Dobbins says a variety of factors, ranging from legislation to commodity prices, will affect how land values change in upcoming years. The consensus is that increases will slow and, in some regions, values might stall or decline slightly, he said.
WEST LAFAYETTE, Ind. — A U.S. Department of Agriculture survey in August reported that farm real estate values, including the land and buildings on the farm, averaged $2,900 per acre in 2013. The number is 9.4 percent higher than 2012 values.

After years of increasing land values it is likely the trend will change, said Purdue University agricultural economics professor Craig Dobbins.

“My suspicion is that we’re going to probably enter a period now where we don’t see much of a change in farm land values,” he said. “It remains to be seen what will happen to prices.

“I suspect that supply is catching up with increases in demand, so we’re probably going to return to a more typical kind of environment for commodity production, where prices are close to just breaking even.”

If that happens, Dobbins said, the large increases in land values most likely will pause.

Tightening budget margins are expected to cause some land buyers to be more conservative in their spending.

“My sense is that buyers (farmers) have become more cautious than they were,” Dobbins said. “With the decline in corn prices the margins tighten up and so people are being a bit more cautious about making large capital investments.”

Lower land prices mean different things to different farmers. Dobbins compared the scenario to a double-edged sword.

On one hand, high land prices give land owners more borrowing capacity due to the increased value of equity in their business. For those looking to expand or start a new farm, however, high prices are an obstacle.

The thing that everyone wants to know is if we have reached a turning point in the market, Dobbins said.

“We’ve had some very strong increases,” he explained. “Are we going to have some major retrenchment of values? At this point it doesn’t look as if that is going to be the case. But there are lots of variables out there that we really don’t know what’s going to happen.

“Production agriculture finds itself in a situation where there isn’t much of a safety net under grain farmers. We used to have government supports. But the numbers they have in the farm bill are so low there really isn’t support there anymore. What’s Congress going to do? Are they going to go back and provide more support? That’s something to watch.”

Other influencing factors are long-term interest rates, which have been slightly rising, Dobbins said.

“As they (interest rates) rise more steadily it is less supportive of real estate values,” he said. “There are always uncertain things that happen and there are major things that could have an influence.

“Our tight rope is at a much higher level than it was, so if we fall it’s likely to be harder than it was in the past. I think it would be prudent to be cautious when buying farmland now.”