Farm real estate values across the country fell 3.2 percent as of Jan. 1, the first decline since 1987, according to a recent report from the U.S. Department of Agriculture. But in Kentucky, the report showed, values held steady, averaging $2,850 an acre, $750 per acre higher than the national average.
Those values are further divided into values of cropland and pastureland. Nationally, both types fell in value, but in Kentucky, pastureland took a hit, falling by 5.8 percent, while cropland rose 1.6 percent. University of Kentucky Extension Professor in Agricultural Economics Richard Trimble attributes the decline in pastureland value to the "profitability challenges in livestock."
"We've had tremendous problems in the dairy industry. We've had some problems with beef — though not quite as bad — because we have high feed costs and stable to lower sale prices for our product. Therefore, there's no potential in there to bid up the price of pastureland, so pastureland has fallen, whereas in the crop sector, crop prices have been good," he said. "Now admittedly, the cost of production has been up, but relative to livestock, the crop sector has performed much better in the last two or three years. So we have folks bidding up the price of cropland and not bidding up the price of pastureland."
The USDA report also indicated that cash rents for cropland in Kentucky rose by nearly $10 an acre to $88 in 2009. This is $2 below the national average. The USDA attributes this increase to strong commodity prices in 2008. No figure is available for cash rented pastureland acreage in Kentucky.
Trimble annually surveys Kentucky Cooperative Extension agents to track farmland values in the state. His results are a tad higher than those of the USDA, showing overall farmland value averaging $4,100 an acre, down $10 an acre from last year. He said both his and the USDA's figures reflect the fact that Kentucky, though hit by the recession, doesn't seem to have been affected as badly as other states.
Still, he foresees likelihood that cropland values will decrease if things continue as they are through harvest this year, with corn, soybean and wheat prices substantially below the record-high levels of 2007-2008. Lower crop prices have reduced farm income and put pressure on land prices.
"Because the profit potential is down so drastically, I would hypothesize that you'll see a drop in cropland values. And the agents in the survey indicated to some extent they expected land prices to go down in the future," he said.
Craig Infanger, UK agricultural economist, said the near future may hold some indicators as to what's in store for Kentucky's agricultural land values.
"As we move into harvest season, it will become a little clearer whether or not farmland values will stop the steady upward trend of the last few years," he said. "If major commodity prices do not recover in the next few months, expect farmland values to be under downward pressure in 2010."
This, however, shouldn't be of major concern to most farmers in the state, unless they're planning to sell or buy land or seek financing for a large capital expense.
"If you're just out there farming and you've got no immediate thought of buying or selling, it really has very little effect on you, until it comes time to obtain a loan or renew a loan," Trimble said. "If they've been depending on their land as backing for the loan and their land value has declined, then they may have more difficulty obtaining financing. Or they may have to pay more for the financing they do obtain, because they have less equity than they used to."