Indiana Farmland Values and Cash Rents Continue Downward Adjustments Michael Langemeier, Professor, Center for Commercial Agriculture James Mintert, Professor, Center for Commercial Agriculture Indiana Farmland Values Webinar August 16, 2017
Purdue Farmland Value Survey Process Survey conducted annually since 1970 Rural Appraisers, Ag Lenders, Farm Managers, Farmers Ask for land values in December 16, June 17, and December 17 Responses for top, average, and poor quality land Ask for current cash rent Ask for long-term corn yield to obtain productivity information
Indiana Farmland Values 2017 Survey Results Land Quality Yield (Bu./A) Value ($/A) 2016 2017 Percent Change Top 200 $8,508 $8,529 0.2% Average 169 $7,041 $6,928-1.6% Poor 139 $5,353 $5,280-1.4%
2017 Land Value Change Land Quality 6/2016 12/2016 12/2016 6/2017 Top 2.9% -2.6% Average 1.4% -3.0% Poor 1.9% -3.2%
Indiana Farmland Values 1970 2017, Average Quality Land 9,000 8,000 Value per acre ($) 7,000 6,000 5,000 4,000 3,000 2,000 Inflation Adjusted Value (2017 $ s) Nominal Value 1,000 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Year Market Inflation Adj. (2017)
Regional Farmland Value Changes Top -3.0% Avg. -2.3% Poor -5.4% Top -2.7% Avg. -3.1% Poor -5.1% Top -5.8% Avg. -5.4% Poor -2.1% Top -0.4% Avg. -1.2% Poor 2.8% Top -1.4% Avg. -10.6% Poor -14.5% Top 6.2% Avg. 8.3% Poor 5.8%
Survey Respondents View of Land Value Drivers 2.0 2015 2016 2017 1.0 0.0 Average value -1.0-2.0-3.0 Influence
Land on Market Today vs. Peak Land Supply Year (2011) and 2016 60% 56% 57% Percent of respondents 50% 40% 30% 20% 10% 0% 38% 39% 38% 36% 23% 7% Less Same More 5% 2011 2016 2017
Land Value Summary June 16 to June 17 Decline Slowed, Market remains weak Top Quality +0.2%, Average Quality -1.6%, Poor Quality -1.4% Down 13% - 14% from peak of 2014 Last half of 2017, respondents expect decline 2.2% to 3.0% Looking Ahead...year to year estimate Anticipate annual reduction 3% - 6% June 17 to June 18
Indiana Cash Rent 2017 Survey Results Land Quality Yield (Bu./A) Value ($/A) 2016 2017 Percent Change Top 200 $257 $253-1.6% Average 169 $204 $205 0.5% Poor 139 $157 $163 3.8%
Indiana Farmland Cash Rent 1975 2017, Average Quality Land Value per acre 400 350 300 250 200 150 100 50 0 1975 1977 1979 1981 1983 1985 Inflation Adjusted Value (2017 $ s) 1987 1989 1991 1993 1995 1997 Year Nominal Value 1999 2001 Market Inflation Adj. (2017) 2003 2005 2007 Nominal cash rents down 12% since peak in 2014 2009 2011 2013 2015 2017
Regional Farmland Cash Rent Changes Top -5.7% Avg. -2.5% Poor -0.0% Top -4.2% Avg. 1.5% Poor 7.4% Top 0.7% Avg. -0.5% Poor 1.1% Top -3.4% Avg. -2.6% Poor 0.0% Top -5.9% Avg. -7.6% Poor -6.0% Top -10.6% Avg. -3.4% Poor -4.5%
Cash Rent in 2018 Change Short Term Expectations % Respondents Average % Change Higher 7% 8.2% No Change 33% 0.0% Lower 59% -9.3% Average of All Respondents = -4.9%
Cash Rent Summary Cash rents declined 9.8% to 10.9% in 2016 Respondents expect 2018 rents to decline 4.9% Down from peak: 9% to 13% Anticipate decline of 3% - 5%
Cash Rents Downward Pressures on Cash Rents and Land Values Relatively low earnings for corn and soybeans Land Values Decline in cash rent Increase in long-term interest rates Increase in risk premium for the farming sector Relatively high P/rent ratio
Land Value to Income Multiplier 1975-2017, Average Quality Land Value/Rent Multiple 40 35 30 25 20 15 10 5 0 20.6 13.7 1981 1979 1977 1975 1983 12.4 1989 1987 1985 1991 1993 1995 1997 Year 1999 2001 2003 2005 34.4 2011 2009 2007 2013 2015 33.8 2017
5-Year Forecast By Survey Respondents Where do you expect farmland prices to be in 5 years? Direction % Respondents Change Increase 45% 9.5% 74% No change 29% 0.0% Decrease 26% -13.6% Overall 100% 0.7%
Cash Rents and Land Values in the Corn Belt Iowa (2013 to 2017) Cash rents declined 18.9% Land values declined 17.6% Illinois (2013 to 2017) Cash rents declined 21.1% Land values declined 24.2% Indiana (2014 to 2017) Cash rents declined 11.6% Land values declined 13.1%
June 17 vs. June 16 Land Value Summary Top Quality +0.2%, Average Quality -1.6%, Poor Quality -1.4% Declines of 2.2% to 3.0% are expected in last half of 2017 Over the next 5-years, respondents expect increase of only 0.7% in Indiana values, but there are significant differences of opinion
Cash Rent Summary Cash rents in 2017 flat for top & average quality land, small increase for poor quality land Respondents expect 2018 rents to decline 4.9%
Purdue.edu/commercialag Indiana Farmland Values Webinar August 16, 2017