What is in this article?:
- Survey: Indiana farmland values reach new heights
- Poses a challenge
• According to the 2011 Purdue Farmland Value Survey, statewide increases ranged from 22.8 percent to 25.3 percent because of strong grain prices, low interest rates, strong farmland demand and a limited supply of farmland being brought to the market.
• The survey found that the value of poor-quality farmland averaged $4,386 per acre, average-quality farmland $5,468 and top-quality farmland $6,521.
Poses a challenge
Farmers who want to purchase farmland may also find the increasing land prices challenging. Dobbins urged potential buyers to think about the possibility of revenue declines and input cost increases before they make final decisions.
"Farmers have to think about what a farmland equity loss would do to a specific operation," he said.
While the economy remains volatile, Dobbins said farmland owners are better positioned now to handle a downturn than they were 30 years ago when agriculture struggled to deal with another financial crisis.
"It seems farmland is mostly held in financially strong hands and purchases are being made with modest borrowing," he said.
"We may see a pause or decline in farmland values, but because there is less debt against the land, such a change should not cause financial stress like in the 1980s. Of course, it depends on the amount of actual decline."
This is why Dobbins encourages farmers to do some financial stress testing of their businesses. They need to know where the business will stand if there is a decline in farmland values of 10 percent or 15 percent, or if the cash flow margin becomes negative.
"In this volatile environment, farmers not only need a Plan A, but a Plan B and maybe a Plan C," he said.
For more comments from Dobbins and a full analysis of the 2011 Purdue Farmland Values Survey, log on to the Purdue Agricultural Economics Report at http://www.agecon.purdue.edu/extension/pubs/paer/.