Like most of the Midwest, Indiana farmland has experienced a considerable rise in value over the last 2-3 years. A recent study released by Purdue University (Survey: Indiana farmland values to continue climbing) shows that the farm managers and rural appraisers that were polled believe that in the short-term, values will continue their upward movement. Of those surveyed, the majority (53%) also believed that prices would continue to climb over a longer time horizon (5 years) as well.
One important thought/concern raised in the article is that if buyers begin to expect large value increases every year they may be in trouble if the market slows down and annual returns drop. When borrowing money for a farm purchase, the buyer will use the rent on the farm to determine if they can support the loan payment. Rents have increased the last few years along with farm prices. However, if corn and bean prices drop, and there is less money to the farmer, that farmer will be forced to lower his rent…meaning less money to the landowner. It’s something for a buyer to consider when crunching his/her numbers.
The study also asked the respondents about rents. None of those polled are seeing a decrease in rent prices from 2012 to 2013. A handful are seeing prices stay the same, while the majority of those polled said rent levels will be increasing for this year.