A Purdue Farmland Value survey shows Indiana farmland values have nearly tripled in the last decade. But abundant corn and soybean crops in 2013 have caused commodity prices to fall, making farm profit margins much tighter. Less profit means less money available to invest in farmland. Craig Dobbins with Purdue says prices have come down significantly in the past year, alluding to another turn in overall values.
“People remember the 1980s where we had a large run up in land values and then it suddently it all came crashing down.”
Unlike the 70s, Dobbins says farmland values aren’t being swept up in high inflation rates.
“So I don’t think we are going to wind up with a large crash like we had in the 1980s; but again, it depends on how low commodity prices are likely to go.”
Dobbins says one other thing has changed this time around – the safety net for farmers.
“In the past, we’ve always had a government program that would come in and make up the difference between where would like prices to be and where prices really were. We’ve shifted to primarily crop insurance as being our safety net now. That doesn’t work in the same way, it re-prices every year. Last year when farmers were planting their crop, corn had an insured price of $6.05. That’s not going to be the case this spring. It’s more likely going to be $4.25 to $4.50 or something in that range.”
He offers advice to farmers mulling over a land purchase – practice caution.
“If the purchase fits in well with their plan for the farm business, they’ve got sufficient cash reserves to withstand downturn for the next couple, three years, then, you know, go ahead, okay? But if this purchase in any way kind of threatens the farm business, then I would want to be very, very cautious about making this purchase.”
News Source: Purdue Ag Answers