Continued strong corn prices and good profit margins along with low interest rates is the reason for the continued strength in the land market. Dobbins says, as long as profit margins look good, the demand for land will continue. But he warns all this could change very quickly, “A return to more normal weather could increase corn and soybean yields enough for commodity prices to fall quickly, tightening producers’ profit margins.” He warned that farmland buyers who borrow large amounts of money could find themselves in a financial bind, “Buyers who use borrowed funds are committing themselves to extra cash outflows over a number of years. Falling commodity prices could cause smaller cash inflow at a time the buyer needs more cash.”
The annual Purdue survey revealed, however, that there is a great deal of optimism about land values among Indiana farmers and land owners. Although survey respondents agreed that farmland value would increase in the short run, they disagreed about the five-year outlook. Fifty-three percent of respondents thought farmland values would be higher in five years, 27 percent thought there would be no change, and 20 percent expected values to decrease.
The survey also measured farmland rental rates for 2013. The respondents indicated that the average, per-acre cash rent rate of farmland with average productivity is $278 this year. Most respondents said their cash rents were higher in 2013, six said their rates stayed the same, and none reported a decrease. The climbing farmland rent rates have led some landlords and tenants to look at non-traditional lease agreements, Dobbins said. Respondents indicated that, while 47 percent of their lease agreements were fixed cash, 36 percent of the leases were flexible agreements. In a flexible lease, or variable cash agreement, the landlord and tenant agree on a minimum amount of rent and share a portion of the yield and price risk associated with crop farming.