Farmers face tight margins, high tax rates

INDIANAPOLIS — Farmers who are already struggling to make a profit are being furthered burdened by high tax rates on land.

Todd Davis, chief economist at Indiana Farm Bureau, created a report comparing Indiana’s ag base rate formula to profitability numbers from 2013 to 2025. The results paint a picture of how tight margins are for farmers.

Davis shared its implications with AgriNews.

Q: What are the main takeaways from the report farmers should know?

A: Commodity markets are cyclical, and the corn and soybean markets have been transitioning lower since 2022. Costs are stickier and adjust lower more slowly, so profitability margins have tightened and are negative.

Purdue University’s budgeted total variable costs peg the corn and soybean rotation to cost 40% more in 2025 than in 2013. Unfortunately, 2025′s budgeted revenue is 6% below 2013′s revenue.

Indiana grain farmers experienced tight to negative margins in 2023 and 2024. The budgeted negative profitability in 2025 is expected to be about the same as last year for the rotation.

Farms that rent a larger percentage of their land base or are still paying the land note are in a more difficult financial situation.

Budgeted profitability for the rented land has only been positive during the 2020 to 2022 period when the increase in market prices and the COVID transfer payments improved profitability.

Those farmers who do not rent a sizable percentage of their land base or have their loan paid are in a stronger financial situation.

Q: Are there any pieces of legislation you are watching related to ag taxes?

A: Senate Bill 1 is the main property tax bill this legislative session. Indiana Farm Bureau is advocating for legislation to modernize the income elements in the farmland formula by removing government payments and marketing year information from the calculations.

INFB has also requested to increase the maximum capitalization rates from 6%, 7% and 8% to 8%, 9% and 10% because higher market rates no longer protect from volatility in the base rate.

Q: Is there anything else about the report you would like to mention?

A: Farmers are adjusting to higher interest rates. For the period included in this study, the average interest rate for operating loans and farm real estate was below 6% from 2013 to 2022.

The higher interest rates are affecting how farmers use credit. Higher interest rates and reduced profitability may affect farmers’ investment decisions in machinery and equipment.

Q: What was the impetus for you to create this report?

A: I drafted this paper in response to a county Farm Bureau wanting assistance explaining the Department of Local Government Finance formula for agricultural land’s property tax base rate.

The formula is complicated and may confuse those unfamiliar with economics and finance. This paper describes the components of the formula in a way to help farmers communicate with their legislators.

The paper also compares the profitability of a typical corn and soybean farm to the base rate from 2013 to 2025. The paper aims to help Farm Bureau members communicate that their financial situation is declining while the agricultural base rate is increasing.

Property taxes are a priority issue for Indiana Farm Bureau, so this paper aims to help our members communicate this issue.