(Part 1) 2024 Indiana Farmland Values & Market Trends

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
James Mintert (00:05):
Thanks for joining us for our
podcast focused on U.S.
and Indiana farmlandvalues, the 2024 update.
I'm Jim Mintert, directorof the Purdue Center for
Commercial Agriculture,and joining me today
are my colleagues Dr.
Todd Kuethe, who's a professorhere in ag economics, and
Michael Langemeier, who'salso a professor of ag
economics and associatedirector of the Center for
Commercial Agriculture.

(00:26):
Todd, let's talk a littlebit about what's taking
place here with respectto farmland values.
And I guess our startingpoint is really the Farm
Sector Balance Sheet,which was published, uh,
actually just this pastFriday, uh, by USDA's
Economic Research Service.
And I know you and Michaelboth take a close look at
that when that report comesout, so I'll, I'll kick it
off by maybe letting youand Michael comment on that.

Todd Kuethe (00:47):
Sure, for me the big thing is it gives us sort
of a idea of what is happeningat the national level in
terms of the farm sector.
How they're managing bothdebt and assets, right.
And so the big takeawayfor me is always looking
at what they're projectingor forecasting, aggregate
land prices to look like,um, and then also how that
sort of fits in with therest of the balance sheet.

(01:08):
And again, farmland isthe major share of assets
for the farm sector.
They're showing a 83 percentof all of the assets, right?
So that's why when we thinkabout things like long run
financial planning, farmers'retirement, everything sort
of always comes back tosort of what's happening
with the land values.
But I know Michael maybethinks about things a
little bit differentlyas farm management.

Michael Langemeier (01:30):
Very consistent with that I mean,
I I think you'd care tocharacterize the the over
of the aggregate farm sectorbalance sheet as being very
strong And in particularlyin the in the non current
side of the balance sheetand that's primarily because
we've seen some prettyhealthy Increases in farmland.
We're going to look at a USfarmland in the Uh, trends
here a little bit, but they'vepretty much just been going

(01:52):
up for quite some time now.
And so that's made thisnon current portion of
the Farm Sector BalanceSheet really strong.
I do want to commenta little bit on the
debt to asset ratio.
It's coming in at 12.8%.
It's very important to keepin mind that includes part
time farms, semi retiredfarms, full time farms.
If you look at thedebt to asset ratio for
full time farms, it'smuch closer to 30%.

(02:14):
And so if you look at farmsthat are doing this for a
living, they do tend to takeon a little bit more debt.
But nevertheless, 30percent is still a really
healthy debt to asset ratio.
And with strong farmlandvalues, that balance
sheet, it remains strong.

When I was try to remind, like, my students
or extension audiences thatthis debt to asset ratio
is really just sort of whatis the aggregate debt in
the farm sector and whatis the average, or the
aggregate assets, and thenlooking at the relationship
between those two.
Not that it really capturesany person or subset of the
farm sector or the subsector.
It's really sort oflike national accounts.

(02:50):
The way we think about thingslike unemployment or inflation
of, like, what is sort ofthe macro perspective on
how the farm sector looks.
Um, and, and it sort of forthe last 20 years has sort
of hung around that, sortof fluctuating around that
13, 12 to 14 percent, uh,debt to asset ratio, right?
So it's part of the reasonthat our sector is viewed

(03:12):
as like, at least verystable and kind of a long
run financial viewpoint.
Even if we have sortof periods that are,
that are challenging.
Uh, if you look at sort of thelong, sort of slow moving arc
of the, of the sector, it's,it's usually pretty healthy.

Yes.

But I think Michael's point is the fact
that if you look at the debtto asset ratio, for example,
for corn belt farms thatare engaged in growing corn
and soybeans, which is thegroup that we talked to a
lot, that picture looks alittle different, right?
And I think your point,Michael, is at least
entering into thisdownturn of commodity
prices that we're seeing.
We're still walking intothis with a pretty strong

(03:49):
debt to asset ratio.

Yeah, and just trying to emphasize,
what we're trying to dohere , is just to tell people,
even though we're looking atweaker incomes, and we can
talk about incomes in moredetail, but even though we're
looking at weaker net returns,weaker incomes, particularly
lower net returns for cornand soybean producers,
because farmland is stillvalued fairly high, we've

(04:11):
got a strong balance sheet.

James Mintert: Yeah, good point. (04:12):
undefined
So when, when you startto worry is if we see
some weakness show upin farmland values.

Yes.

Yeah.

All right.

And so there's a reason why we focus
so much on farmland values.

So Todd, you spent a number of years
working at USDA's EconomicResearch Service and so
you're kind of the insideman with respect to knowing
how USDA collects data withrespect to farmland values
and also how we collect datahere in the state of Indiana
with the Indiana FarmlandSurvey and they're different.

(04:44):
So let's talk a littlebit about the values that
USDA collects and we'regoing to start off by
looking at the long run U.
S.
farm real estatevalue, but we'll also
look at some broadercropland values as well.
Talk to us a little bitabout how USDA collects
data because those numbersare different than what you
show and what Iowa Stateshows, what University of
Illinois shows, etc., right?

Yes, a lot of what the land grants do is
we tend to work with, as wedo here with our survey, work
with appraisers or lenders,folks that are involved
in farmland transactions.
The USDA surveys principally,USDA generally, surveys
farmers a lot, right?
So, uh, this actually comesfrom what they call the
June Agricultural Survey,or it used to be called

(05:26):
the June Area Survey, whichis mostly about production
and what crops farmers aregrowing in the summer, right?
It's taken in June.
Um, and then there's a coupleof questions in there about
land values and cash rent.
And so NASS, uh, assemblesthose from those individual
surveys and they're Theysurvey, you know, thousands
and thousands of farmersaround the country in what,

(05:46):
what, uh, what we call sortof a stratified, uh, survey.
And so they're surveyingintensively in places
that a lot of agriculturalproduction is taking place.
Um, and surveying, uh, to getan accurate picture of sort of
what crops are in the ground.
That's the main point of thatsurvey, um, and, and then

(06:06):
they sort of aggregate upby, so they ask initially,
like, what is the land thatyou're farming, what do you
think it's worth, or what'sthe expected market value of
the land, as of sort of June,um, of that year, and then
it gets aggregated up at thestate, state NASS offices and
up at the national offices.
And at the beginning ofAugust, they release this
annual land values cash rentreport, which is historically

(06:28):
sort of called like the goldstandard of farmland values.
Um, but one of the issues isit's sort of what I would say
is a better measure of sort ofthe stock of farmland, right?
If you think the stockof the asset of land
we have in the country.
Um, where our surveys and theones that, uh, similar surveys
around the country run byland grants is really acting

(06:49):
people that are involvedin the marketing, right?
Which is more of like thefarmland Flow of farmland.
So looking at that sort of2 percent that changes hands
is really informative to whatwe think of in the value.
Where what USDAreports is what is the
aggregate stock of land.
And so that's why you tendto see it move much slower.
It's not quite as dynamic.
Um, but again, it stillpicks up, you know, since

(07:10):
2020, we've had this sort ofcontinued high growth in land
prices at the national level.
This is the lower 48contiguous states, um, where
we see sort of a flat afterthat high growth period out of
post RFS commodity price boom.
Then it kind of flattenedoff for a while.
Then around 2020, wesee it take off again.
Um, and so that's sort ofthe long run and that's kind

(07:31):
of the difference by why wepick up, um, a little bit
difference in sort of whatwe see per acre estimates.

So even here though, when you look at
the aggregate value forfarm real estate values,
Over the last roughly fourto five years, that's a
pretty sharp move upwards.
Even in those values, thedollar value looks low
because it's 4, 170 peracre, which sounds low.
But if you look at this changethat's taken place since about

(07:57):
2020, it's pretty dynamic.

Yeah, particularly for these sort
of large aggregate surveys,it's hard to get them to move.
Quite a bit right there.
They're looking at what iswhat, you know, everything
we define is The other thingI should point out is that
this is their value for farmreal estate, right, which
includes building structures,improvements, right.
This is sort of the biggestaggregate number we can
think about in terms ofwhat we would classify as

(08:21):
farmland or agricultural land.
Um, and so, yeah, to seethat kind of persistent
growth rate means that likeprices were really growing.

Yeah, so we saw a big upward move
these last four to fiveyears, and that's even
maybe a little more apparentwhen you start looking
at it at the individualstate level, and you did
a comparison of Illinois,Indiana, Iowa versus the U.
S.
number.

Yeah, and so this is again that
farm real estate, theyrelease it for the states.
They also report crop andpasture, crops split into
irrigated and non irrigated.
Generally, I think USDAnumbers, the bigger area,
the bigger bucket of thingsyou're looking at, the
more I feel like they do areally good job tracking it.
Sort of like we were talkingabout balance sheets, if

(09:04):
you want to think aboutindividual farms, there
may be better sources ofinformation for that, right?
And really, I alwayslook at this to see,
A couple of reasons.
One, I think people here inIndiana always think about the
sort of that I-State region.
Um, and you can reallysee the, we have the same
dynamics that we see sortof the national level.

(09:24):
But again, when we includethe national level, uh, it
looks, those changes lookalmost flat compared to what
we see here in the Corn Belt.
So, we tend to appreciatea lot higher when we do.
And then when there areperiods where it dips, it
tends to dip a lot more.
So it's much more dynamic.
Um, and those Again, I thinka lot of farmers, farmland
owners, when they lookat the USDA values, still

(09:46):
think that they feel likethey're always very low.
Um, again, sort of howthey track that data, but
you can really see thatappreciation, what we saw,
you know, sort of coming outof 2020, that rapid uptick.

So, you know, when I look at the USDA
numbers versus the numbersthat you publish for Indiana
or, Iowa State publishesfor Iowa, for example.
I think the difference,from my perspective, is
more along the lines ofthe land grant university
surveys are picking up what'staking place on the margin.
Those are based ontransactions that have

(10:18):
occurred recently.
It's not transaction data.
But it is based on recenttransactions, whereas when
the USDA surveys people, it's,it's asking people what do you
think that property is worth,which is influenced by recent
transactions, but really haskind of a little more of a
longer term perspective to it.

Yeah, and it's almost more of like a
balance sheet measure, right?
What is, what's the,what is what we have,
what is that worth?
Which is different than what'sselling right now, right?

So looking at the numbers, USDA
was up this year, right?
And if you look at Uh, whatthe lead number there is
Iowa at 9,420 per acre.
Illinois is at 8,700.
Indiana comes in at 8,510.
Michael, I know you've takena look at this with respect
to what accounts for thosedifferences across states.
What do you, what do you see?

I think, I think it's very consistent.
If you think about cornyields, Uh, the higher corn
yields tend to be in Iowaand in central Illinois,
but by the time you factorin southern Illinois into
there, that brings, thatbrings their number down
a little bit, and so I, Ithink it's very consistent
if you look at, at corn,uh, corn yields going from
Iowa all the way to Indiana.
A couple observations herethat, that I think are
very important when you'relooking at long run trends.

(11:26):
I, I talk a lot about,uh, what, what has
happened since 2007.
Uh, when we were starting theethanol boom, that's usually
the time period I pick, uh,to talk about these trends.
And both the U.
S.
data and the three I stateshave more than doubled.
Land values have more thandoubled, uh, since 2007.
Uh, and I, I want to,I want to bring that up

(11:48):
because that's so importantto the balance sheet.
As long as the farmland valuesstill stay relatively high,
we're going to have a strongbalance sheet because farmland
is over 80 percent of the,of the US balance sheet.
Another observation, whenyou look at the I states, it
seems to me that Illinois andIndiana are more correlated.
They seem to track eachother a little closer than
Iowa, though Iowa is alsocorrelated with these other

(12:10):
two states, but not as much.
And in particular, uh,I don't think I'm, this
isn't, um, I'm makingsomething up here, Todd.
It seems to me, Iowa hashigher, Higher highs and
lower, and when there'san adjustment downward,
they send it just morethan Illinois and Indiana.
I don't know if that's partof the urban influence coming

(12:31):
from Illinois and Indianaor what's going on there,
but it's very evident whenyou look at the Iowa State
survey and also the U.
S.
data for Iowa,Illinois, and Indiana.

That's an interesting point.

Yeah, you know, there's, um, there's a lot
of sort of discussion of whymaybe Iowa's different, right?
They also have some differentownership laws about who's
allowed to own farmland, uh,limits on how land can be
subdivided by a single owner.
There's a lot of people that,and we have some colleagues
here in the departmentworking with folks at Iowa
State trying to maybe lookat some of those issues about

(13:04):
maybe how different policiesmight be interacting there.
Um, But yeah, I mean,there's also the sort of
the agronomic part of it.
Most, most of Iowa's, youknow, very productive,
um, and, and so they don'thave sort of large forested
portions or, um, I mean,I guess you can go back to
glaciers or something tothink about how that, uh,
the, that soil gets allocated.

(13:25):
Uh, but I, I really thinkit, like you said, it really
comes down to sort of How muchoutput can you get per acre,
and then people basically buyaccess to that output for the
life they're going to hold it.

Yeah, so you look at those differences
across state, most ofthe differences can be
explained by, uh, yield.
Which means you're lookingat, if you look at value
at a per bushel basis, theyactually come out fairly close
with a little more extremevolatility on the Iowa values.
All right, so let's turnour attention, those are
the USDA numbers, let'sturn our attention to the,

(13:58):
uh, Purdue survey, whichhas been going on since the
mid 1970s, and you've takencharge of that here these
last four or five years.
So explain to us a littlebit about what you do with
respect to the Purdue survey.

Yes, I mean, I always kind of start with
kind of why do we do a survey?
Um, and, you know, it wasstarted in the late 1970s
for a reason, which is whenwe had sort of exploding
land prices and people werereally concerned, you know,
wanted to get a better ideaof what's going on here.
Um, and at that time, uh,there were limits to, uh, how

(14:29):
you could access transactions.
So the best thing to do wasto survey people involved
in, in those transactions.
So we've continuedthat tradition.
Uh, since the late 1970s,uh, where we ask people who,
we define it as people whointeract with land markets
as part of their regular job.
So that's usually alot of appraisers.
We have some lenders in there.

(14:50):
Um, there's a few sort of,you know, farmland owners,
um, in there as well.
Um, and just sort of getan idea of what does the
land market look likewhen we do the survey.
So it's always done in June.
Um, but then obviously, Uh,we're always interested in
kind of the winter time whereland sells a lot more, also
that's when people kind ofthink about their balance
sheet generally, so we askabout the June, land values

(15:11):
that June, but also theprevious December, and then
make some projections whatthey think the year will end
up at the end of December.
Um, and we, the thingsthat sort of differentiate
our survey, in additionto, uh, who we ask, but
also we split it out by,uh, Uh, quality grade.
So the USDA, it's justsort of your farm, right?
We're here, we are askingpeople, selling, what do

(15:32):
you think about the topland, the average, the
poor land in your market?
We don't reallydefine those for them.
We, well, part of the thingis we have, our participants
usually have done it for avery long time, so they think
about this nationally, butwe ask them what, what is
the, so we ask them about thecounties that they operate
in, and then, or they, theyserve, in their business, and
then top, average, and poor,and we ask about corn yields.

(15:55):
What's the expectedlong run corn yield or
productivity of top inyour area or average area?
So recognizing that topquality land in some
parts of the state is verydifferent than top quality
land in other parts.
But it allows us tosort of put that in that
productivity difference.
Um, and then we also askabout cash rental rates.
Um, but that's sort of thebasic structure of our survey.

So tell us again who you talked to.
You talked to peopleengaged in the land markets.

People that, people that interact with the
land market regularly as partof their professional life.
So, mostly appraisers, farmmanagers, lenders, um, and
then we have a few otherfolks in there as well.

There are some producers in there,
but not a lot, right?

Yeah, correct.

That's not a large portion
of your survey, so.

Correct.

So again, it kind of gets at this
idea that, um, you'recapturing values that are
more on the margin becauseit's based on recent
history of transactions,even though it's not
individual transaction data.

Yeah, we sort of asked them what, what is
sort of the typical value?
For this, each qualitygrade in the market that
they work in, in thecounty that they're in.

Alright, let's get to the numbers, because
that's what probably listenershave been waiting for.

Yes.

So, what'd you find out for this
year versus last year?

Well, um, so prices are up about sort
of 4%, somewhere between,three and a half to 5%
kind of in aggregate,um, across the state for
top, average and poor.
Uh, and that's sort of the,um, most likely outcome
over the history we'vedone the survey, right?
That's sort of.
Uh, four to 5 percentincreases, uh, very

(17:30):
different than what we'veexperienced the last
several years, where we hadrecord high appreciation
in 2020, really strongappreciation in '21, '22.
Um, and so now we'resort of back to kind of
like, what I would sayis sort of the expected
kind of market activity.
Um, so prices are up a bit.
The other thing is peoplealways kind of look at these
threshold values, right?
So we are above 14 at the top.

(17:52):
Um, We're, uh, approaching12 still in the 11 bucket at
the average, uh, and abovenine at the poor, right?
So people seem to always kindof look whenever we crossed
one of these sort of thousandor 250 or 500 threshold, that
sort of, uh, uh, people kindof anchor to that, right?
Yeah, so rounding offslightly, you came up with

(18:12):
14, 400 at the top levelsfor Indiana for this year.
Average was at 11, 600 andthen just barely above 9, 000
for the poor quality land.
So, your percentage rangeis, kind of your lowest
one was actually for theaverage quality at 3.
7.
Your highest increasewas actually shown for

(18:33):
the top quality, 4.
8%.
Michael, as you look atthose numbers, how does
that correlate with whatyou were expecting to see?

About what we were expecting,
I think Todd, Todd, bothof us were talking 0
to 5 percent increase,and we fell in there.
And let me talk a littlebit about why land
values tend to go up.
There's a couplethings going on there.
First of all, we askedthem for long term yields.
They go up every year.
2-3 bushel.
You can just, pretty muchlike clockwork, 2-3 bushel
increase in those poor,average, and top corn yields.

(19:02):
And so the productivity, we'regetting more from that soil,
and so that would tend tohave some upward pressure, but
more importantly is inflation.
Uh, and so, and so youcan, you can easily explain
that long run average.
I think you goback to 1960, Todd.
I think the average increasein farmland value is about 5.
5%.
So, time to get inflationin there, increase in

(19:23):
productivity, you can explainwhy land values tend to go up.
That doesn't mean theyalways go up, but there's
a reason long term whythey tend to go up.

And you know, Michael, thinking
about your comment earlierabout land values doubling
since 2007, that actuallyfits right in with that
long run average, right?
Even though there were someyears and there were some
big jumps, there was alsosome weaker years as well,
and so over that longerperiod of time, you're right
back to that, pretty closeto that average, right?

Yes.

Alright, so people are always interested
in the regional values.
Tell us a little bit aboutthe regional calculations
and how those are arrived at.

Yeah, so, um, we have this, uh, set
of respondents that againreport for their county.
Um, and then we aggregatethat up to the state
level, obviously.
But then, it's alsosplit into these six
regions in the state.
Uh, to be totally honest, I'mnot, this, this predates me by
a long time, how these regionswere, uh, put together.
And I, and it seems likeeverybody I talked to

(20:20):
would like the regionsto be defined a little
differently than they are.
But these are the regionsthat we kept just to have
a long history of the data.
And then obviously we, uh,have areas that have sort
of more active land marketsthan others, and sort of
more of those professionalsthat work in those spaces.
So, you know, as you movefarther down in the south,

(20:41):
we maybe have, Fewerprofessional farm managers,
fewer appraisers, lenders,so we don't have quite
as much coverage there.
Um, and those markets are alittle bit weird, so for a
lot of reasons, we tend to seemuch more dynamic, uh, sort of
movement year to year in thesouthern part of the state, in
terms of prices up and down.

We should probably characterize what
you mean by the word weird.

Oh!

Unusual, maybe?

Yeah, sorry, let me, uh, say that again.

What are you thinking about there?

Yeah, um, where did I say weird?
I'm not evenlistening to myself.

Well, you characterize southeast and
southwest as being, and Ithink what you're really
focusing on the fact thatyou've got more things
influencing land valuesthan just corn and soybeans.

Southwest and southeast, we can't just
think of it as bare cornand soybean land, right?
We have forest, we haveuh, recreational lands,
we have Uh, a differentmix of com commodities,
complex set of commodities.
There's a lot of thingsthat can drive that land
price, other than justcorn and soybean yields.
Right, and so, the, the pricestend to be driven by different

(21:45):
set of dynamics than we doin just a corn, soybean,
flat corn and soybean area.
And then in addition to that,We, uh, sort of have, uh,
fewer land market experts thatreally operate in those areas.
So they're much harderto characterize for
a number of reasons.

And that contributes to the fact
over the years you get morevariability showing up in
the values for southeastIndiana and southwest Indiana.

Yeah.

For all the reasons you
just described, right?

Yeah.

Now one thing I want to make
sure, and we probably shouldhave said it earlier Todd,
this is not, we're talkingabout non irrigated land.

Correct.
We ask about, uh,sort of bare farmland.
Corn and soybeanproduction land, right?
So we're also not reallythinking about pasture.

Michael Langemeier: Or hay ground. (22:31):
undefined

Yes, or hay, yeah.

So as you look at it, given all
those caveats, the topend was, what and where?

Uh, so the, the top value per acre always is,
they're typically found inthe upper part of the state.
That will shift around yearto year but generally hangs
around the central, westcentral part of the state.
Occasionally we'll seethe north or northeast
kind of dominate that.
Um, And we see those parts ofthe state, the increases are

(23:01):
much closer to what we see, anaggregate, up by a little bit.
Um, then we get to sort ofdifferent quality grades.
The, the, the lower qualityland tends to sell for
reasons not just agriculturalproduction, right?
So we do see, sometimesthose markets tend to be,
uh, Uh, sort of, again,more fluctuation in terms

(23:21):
of going up faster or goingdown slower, or going down
faster when they're declining.

So the typical is to see the
highest values on thehighest quality land in the
northern half of the state.
But in this year'ssurvey, you showed a
big jump for southwest.
And actually it came in atthe top end for the whole
state, which I have tosay was surprising to me.
I didn't expect to see that.
But again, I'm thinking aboutThe data collection process

(23:47):
in Southwest, and I actuallythink, and we were talking
about this before the podcaststarted, the fact that the
Southwest region reallycould easily be subdivided
into two regions, right?
One with fairly intensivecorn soybean production, and
another component, Withouta lot of intensive corn and
soybean production, a lot morepasture land, a lot more, uh,
timber land, et cetera, right?

Yeah, and, and the other thing, too, is
that, uh, and we'll talkabout, like, you know, urban
influence and development andthe, you know, we, we give our
respondents the opportunityto give us just sort of some
general market commentary.
Um, and in the south, weget, we've gotten in the last
several years, a lot of, uh,The things about, you know,
people buying farmland forretirement purposes or, uh,

(24:29):
potentially maybe to convertit or they'll buy it to
have a small house and rent.
Um, and, and we seea lot more of that
activity in the southernpart of the state too.

Yeah, which contributes to
the variability, right?

Yeah.

All right.
So if you take a look at theIndiana values and look at it
over time, that chart is kindof interesting just to take
a look at and the steepnessof the increase that's taken
place, especially for topquality and to some extent,
average quality land overthe last roughly four to
five years is quite striking.

Yeah.
Uh, in fact, when we, whenI, when I took over the
survey in 2020, right.
Um, and so.
We had that kind of,you know, obviously the
start of COVID, there's alot of uncertainty as to
what was going to happen.
And we saw these really highfarmland prices, really across
the Corn Belt in general.
Same thing with Iowa Stateand the USDA, um, with the

(25:25):
things that they're running.
Um, and then there were alot of people that said,
well, this isn't, doesn'tseem to be sustainable.
We don't think this willhappen forever, right?
And we're seeing a, instead ofa, you know, we're not seeing
a decline, but we're seeing,we're seeing a decline.
sort of a slow increaseover the last year.
Um, and some evidence thatmaybe that that growth is
starting to slow a bit.
Um, but yeah, we, this isnot the giant, uh, inertia

(25:48):
we had coming out of 2020.

So one of the things that you do on the
survey, and this goes backa number of years, is to
ask people about a series offactors that could potentially
influence land values andshare those results with us.

Yeah, so this is without a doubt my
favorite part of the survey,in part because uh, this
is the thing people hassleme about the least, right?
The prices people willsay like, I don't think
this is quite right.
Uh, but this one, itseems like everybody
kind of agrees, right?
And so we ask all of theseexperts, what, you know,
these things that we tend tothink sort of move farmland
prices, which is basically,The returns you get from

(26:25):
owning farmland, that'sthe biggest one, right?
But then all of thethings we think about as
farmland is an investment.
So how does it compareto other investments?
What are the interestexpenses we'd have on a,
on a, on a mortgage, right?
Um, and then ask them torate, you know, is this
important in your market now?
And as it, ranges from,you know, very important
and positive to veryimportant and negative.

(26:47):
Uh, we, we ask them sortof on a five point scale,
you know, how much is thisreally happening, and then
we aggregate those up.
And so we think about like2020, for example, uh, when
I took over the survey,everything that we would ask
about from income to crop, orto commodity prices, interest
rates, exports, Inflation,agricultural policy, they
were all putting positivepressure on farmland prices.

(27:09):
Everything that we thinkcould drive farmland prices
is really pushing prices up.
Um, and then over the lastcouple of years, we've
started to see, uh, interestrates putting negative
pressure as the Fed wasincreasing interest rates.
Um, and then we see ourmortgage rates increasing.
That's putting downwardpressure, moderating
pressure, what we sort ofhad the last couple of years.

(27:31):
Into '24 now we're seeingdownward pressure from
commodity prices, uh,particularly crop prices, but
also farm incomes, um, exportlevels, and now we're starting
to actually see a little bitof downward pressure from
The return to alternativeinvestments, right?
So as the, as the economystarts to improve and
change, um, they're saying,well actually there's

(27:53):
maybe other things wecould be getting better
returns from than farmland.
So maybe there's a slowing,uh, sort of non farm
investment interest in, infarmers, or people outside
of the farm sector, arethey looking at other things
to put their money into?

So Todd, uh, given that Michael
and I do the Ag EconomyBarometer, I've kind of
turned into an index person.
So I'm looking at the results,and I think I could start
thinking about a way tobuild an index out of this.

Oh, okay.
I'll take it.

And if you look at it, uh, and this
year, it's really interesting.
Seven out of the ten factorsare showing negative.
And as you pointed out,three or so years ago, 10
out of 10 were positive.
This strikes me as reallystarting to illustrate a shift
in where we're headed withrespect to farmland values.

I'm gonna stick my neck out here and
let's look ahead to '25.
Of the factors in '24 thatare positive, livestock
price is probably still goingto be slightly positive.
Um, the growth and returns,I'm not exactly sure how
they're interpreting that,but that probably will
stay slightly positive.
The one that I'm worriedabout is liquidity.
We're gonna we're burningthrough some liquidity now

(29:00):
because the low net lowernet returns people are gonna
people are gonna want to holdon to that liquidity and not
necessarily dump it into thefarmland market like they did
the last two or three years.
And so and so 2025,I'm not saying we're
gonna have a crash.
I just don't think it's It'sgoing to be similar to '24,
if not slightly worse, ifyou look at the factors.

Another thing that I didn't put in here, I
talk about it in the report,which also, uh, to go back,
the, uh, those regional thingsare all available in the
report, right, so we mostlyfocus at the state level.
Um, the, uh, Was askingabout land converting out of
agriculture to other things.
And that's the thing that'slike, that's what everybody's
talking about in Indianathe last two years, right?

(29:41):
And it goes to thingslike solar development,
but also, you know,large public projects,
large private projects,housing construction, Uh,
so I did ask about that.
I didn't put it in because weonly have the year for 2024.
But that is almost asstrong as interest rates,
but in the positive.
So what they're sayingis really that conversion

(30:02):
potential is reallyholding prices up.

Michael Langemeier: On the positive side. (30:03):
undefined

Yeah, and then the other thing here that we
don't sort of include in thisbracket that we ask about
is the value, the volume ofland for sale in the market
and everyone is basicallyeveryone is reporting, there's
a lot less for sale in 2024than what we saw in '23.
We saw the same thing in'23 relative '22 so that
the supply sort of peoplenot as prone to want to

(30:25):
sell out, sell their landto someone else, uh, is,
is really kind of keepingthat price high, right?
Because the demand isstill pretty robust.
We see a lot less forsale, so that's kind
of keeping prices up.
Um, but those are the kind ofthings off of this chart that
I think could, uh, still kindof help keep land prices up.

Michael Langemeier: In that 0-5%. (30:43):
undefined

Yeah, that will keep it from totally
maybe tipping downward.

Following up though, I guess, wrapping,
putting a little wrapon this with respect to
what Michael was saying.
In this year'ssurvey, liquidity
was still a positive.
Looking ahead to thenext year's survey, I
think, Michael, you'rekind of anticipating that
turning into a negative.

More neutral, slightly negative.

Yeah.
Because people are going towant to hang on to it, right?
If the downturn continues,which is kind of what
we expect at this point.
So, one of the thingsthat influences farmland
values is what's goingon with interest rates.
And we just saw that withrespect to the survey
question about factorsinfluencing values.
So you took a look at farmmortgage rates versus the

(31:27):
federal funds rate, whichis the policy rate, and
the prime interest rate.
Talk to us a littlebit about that.

Yeah, so, yeah, I mean, we, we ask in
the survey about expectedinterest rates, right?
I mean, um, one of thechallenges, kind of,
which interest rate dowe think about, right?
And, and as economists,what interest rate do we
think about when we thinkabout the farm sector?
Um, so obviously, wesee a lot of discussion
about the fed funds rate.
That's the policy rate, Um,that's what the Fed pays banks

(31:56):
on overnight deposits, right?
Um, and that's the one thatthey can influence, right?
So the Federal Open MarketCommittee gets together
and they vote, uh, whatshould the interest rate be?
Um, banks take thatinformation and they
use that to inform howthey set other rates.
The one that we thinkabout next, I think, is
the prime rate, right?
So that's the short runbusiness lending, which

(32:17):
has a relatively fixedrelationship to the Fed funds
rate, basically their costof doing business, right?
So we want to Charge these,these, uh, these successful
businesses as least we canto keep them as part of our,
uh, financial relationship.
Um, and so they tend tosort of move lockstep.
Where farm mortgage rates,they use that as part of

(32:37):
the, uh, information set.
But they also look at the,what's the risk of lending
to the ag sector in long termrelative to businesses, right?
There's a, there'sa lot of things that
sort of go into that.
And so, You know, overthe last couple of
years, we've seen the Fedincrease that policy rate.
Um, started to leveloff a little bit.
They're giving some indicationthat it could decline.

(33:00):
Um, and we saw prime ratessort of move lockstep
with that in terms of whatthey've, uh, increased
and sort of held steady.
Um, the farm mortgage rateshave gone up, but not as fast
as what we've seen for the Fedfunds rate or the prime rate.
Um, in fact, now we see thefarm mortgage rate below the
prime rate, meaning that,uh, lenders essentially feel

(33:21):
more confident that long runinvestments in the ag sector
are better than short runbusiness commercial lending.
Um, there's a lot less riskthere, they feel right.
Um, and so, you know, if theFed starts to unwind, and
decrease the Fed funds rate.
..We could maybe expectprime or farm mortgage
rates to start to come down,but I don't think we'll

(33:43):
see them quite as quick.
Um, in part because ithasn't built up as quick.
There's less of a cushion,um, between that and the,
and the farm mortgage orthe, the Fed funds rates.

So state it another way right now,
the, um, prime rate isrunning almost a full point
ahead of farm mortgagerates based on the most
recent data that we've had.

Yep.

And If the Fed loosens as almost
everybody expects overthe next few quarters, the
likelihood is we'll seethat prime rate and the
farm mortgage rate probablycollapse on each other.
Does that seem...

Yeah, I think that's more likely.
Right.
I think the most likely isyou see the farm mortgage rate
move very little and the primerate sort of come down to it.

Um, Michael, I think you had a comment with
respect to thinking aboutWhat this means with respect
to the capitalization rateand the impact on farmland.

I don't want to confuse the listener
here, but we throw theseterms out, the interest
rate obviously is veryimportant to land values,
but we also have this termcalled capitalization rate.
And what that is, is cashrent divided by land values,
and the point I want tomake there is that's trended
downward for a long timenow, and currently it's

(34:56):
about two and a half percent,if not slightly lower.
Uh, depending on theregion you look at,
the state you look at.
I think for Nebraska it'scloser to 2 percent Uh, for
some land I own out there.
And so, and so it'sreally low right now.
Uh, if these interestrates stay relatively high
compared to what they havebeen since 2008, there's
probably a little bitof pressure to increase,

(35:17):
uh, the capitalizationrate a little bit.
There's certainly not a oneto one there, but if, but
higher interest rates over along period of time tend to
increase the capitalizationrate, uh, not just for land,
but for also for stocks.
Uh, but, but, but, but giventhe fact that, as we were
talking about earlier beforethe podcast, given the fact
that the Fed's going to adjustthe, uh, adjust the, adjust

(35:38):
the Fed funds rate and theprime rate's gonna come down
probably 2%, there's probablynot that much pressure.
So what I'm, I'm reallyarguing in a very roundabout
way is the current 2.
5 percent uh, capitalizationrate's probably gonna
hold for a while.
We're not going to go anylower, but there's, but,
but, but given this, thatthe Fed's reducing the
interest rates, it's probablytaking off a little of the
pressure to increase those.

Yeah, stated another way, if we
maintain, if the Fed wasn'tgoing to loosen, there
might be some pressureto raise that cap rate.
And raising the cap ratehas a negative impact.

Michael Langemeier: Decreases land values. (36:10):
undefined

On land values.
Lowering the cap ratehas a positive impact.
And can actually have,particularly over
long periods of time.
Big impact.

Michael Langemeier: Oh, huge impact. (36:19):
undefined
Part of the part ofthe increase from
2007 to today for landvalues is low cap rate.

Yeah.

Michael Langemeier: Low interest rate (36:25):
undefined
and low cap rate.

And you can make that argument
with respect to everyasset in the U.S., right?

Michael Langemeier: Yeah, stocks. (36:29):
undefined

Yeah, that's, that's

Michael Langemeier: commercial real estate, (36:31):
undefined
residential real estate,

macroeconomists talk about sort of the
secular decline of of caprates, you know, cap rate
suppression across the economysince the nineties really.

Yeah.

So one of the questions, and you
kind of alluded to thisearlier, is this whole idea
of the development premium.
And, and so you've been askingabout that more explicitly
in the survey, right?

Yeah.
And we've tracked, youknow, since the, the start
of the survey, the valueof land transitioning out
of agriculture, right.
So, and that,and that's a big.
market driver, particularlyin sub markets where we see
a fair amount of development.
Um, but then there's kindof spillover effects to
where it'll affect places,um, all over the state.
And so, I think that thething that I get calls and

(37:14):
requests about the most overthe last couple of years is
really questions about whatdo you think development
is going to do to land.
Um, part of it is we'reseeing, I mean we've always
had sort of, um, you know,across the Corn Belt, across
the United States, kind oflike urban fringe development
and conversion of land.
But now we have things likesolar or other infrastructure
projects that are maybehappening outside of that

(37:36):
sort of, you know, traditionalkind of suburban ring.
Um, and so, uh, there'sa lot of concern.
Uh, so we, we look at thevalue of land transitioning
out of agriculture.
And that's, that's alwaysbeen, High above what we
see even for top qualityland that sort of remains
in farming, right?
We're actually looking closernow to more than doubling

(37:57):
your land Again on averageacross the state if you
sell it for transitionalpurposes, you'll more than
double what you would makefor Agricultural production.

Yeah to put that number in perspective.
You're showing just 14, 400for the top quality land
in Indiana and with thatdevelopment or transition
premium in there, you're upover 30, 000 an acre, right?

Yeah, yeah, and so again, more than
doubling in terms of, youknow, going from 14, 000 to
you know, 30, 000 to 31, 000.

And obviously as you get closer
and closer to where it'salready been developed,
that 30, 000 will be higher.
This is an average.

Yeah, yeah, yeah, yeah, yeah.
Yeah, no, and, and, I mean,people, I'm sure you get it
as well, call with some veryhigh sales and places say, can
you believe what this one had?
Oh, yeah, yeah.

Very close to where there's
already development.

So, the interesting thing, Michael,
is, you know, we've beenasking about this, The
impact of various factorson farmland values in the
Ag Economy Barometer Survey.
And it's a different survey,different pool of people.
And it's a nationalsurvey as well, not
just an Indiana survey.
But one of the things we'vebeen picking up lately is
people telling us they dosee an impact coming out

(39:07):
from Energy developmentand really focusing on the
combination of wind and solar.
And that most ofthose are for rental
agreements, not for sales.
Very few, that I'm aware ofanyway, in Indiana, would be
a sale for solar development.
Almost alwaysthose are leases.
But that's a factor, right,going in here, as opposed

(39:29):
to, uh, a factor influencingland values, right?

No, certainly.

Yeah, rental rate goes up,
and the present valueof the land goes up.

So you looked at a little more specific
aspect of development,namely what's going on
in the housing marketrelative to land values.

Yeah, and part of it is that's the easiest
thing to track, right?
So we, the, the state ofIndiana has, uh, you can
look at housing permits bycounty, by the state level.
Um, and really, the,looking at housing
construction permits inIndiana really tracks how
that transitional premium.
So that transitional landrelative to top quality

(40:11):
farmland really followswhat we see in terms of
permit construction, right?
So we had, uh, really, uh,high amounts of construction
from kind of going the1990s till, uh, probably
right before or aroundthe 2008 financial crisis.
And then when we seethat happen, we see a
real reduction in, inpermits and construction.

(40:31):
And that housing premium.
That we see, or thattransitional premium
from it really fell.
Um, and then starting in about2010, '11, '12, we start to
see that rebound and startto rebuild in construction.
And then we see thatpremium really go up again.
And so, um, in fact, you know,that premium is almost back

(40:51):
to where we were pre 2000.
Uh, 7, 8, um, but justa little bit below what
we are seeing in termsof a percentage value.
Um, and similar withconstruction permits, right?
So construction has reallygone up, uh, but we're
still below where wewere kind of right before
the financial crisis.

So looking at the chart that you've
got, and just to remindthe listeners, you have an
opportunity to download thecharts that we're looking at
as we record this podcast.
But looking at the chart,it's really interesting to
see that that developmentpremium in about what, 2011
to 2012 got pretty close tozero, above just top quality.
That's a, to me, I have tosay, a little bit surprising.

Well, you know, I, maybe it is a
little bit surprising otherthan, you know, a lot of,
we've talked about it.
I've done some researchin other, uh, parts
of the Corn Belt.
Uh, and that's, that wassort of observed around the
time in, I mean, again, itgoes back to that RFS, right,
where commodity prices areso high, uh, the cost of
borrowing is slow, so low,right, because the, the, the

(41:50):
2008 crisis is also when wecut rates to the historic low,
the first time they've beenthat low in probably ever.
Um, and so, the, thevalue of land for its
agricultural purposeswas particularly high.
Um, there was very lowdemand for transition, um,
and, and farmers were, itwas a, you know, a golden

(42:11):
age of commodity prices,um, and so it really
drove that premium down.
In fact, there were, uh,I remember at that time
talking to, uh, people thatbought land, uh, uh, to
convert it, realizing withthe financial crisis they
couldn't convert it, and theywere like we don't want to
sell this back, now we wantto turn, we want to keep it
as farmland, tell us how tofarm it, right, because the,
the, the commodity returnswere so high at that time.

And your data is looking at Indiana
housing starts or permits.
But actually, on a nationalbasis, those also collapsed
during that time frame.

Oh, even more so than we had in Indiana.

Yeah, you had two things going on
at the same time that werecausing the relationship
to do exactly what yourdata is showing, right?

Yeah, which essentially, we have one
sector of the economy, ahuge sector in terms of
housing, construction, uh,that was just, you know,
record low, while we as a,you know, sort of commodity
production, particularlycorn and soybeans, record
all time high, right?
That's what we have sortof, uh, doom and gloom in
one area, uh, golden agein another, and you can

(43:11):
really see that in the data.

So Todd, one of the things you do in the
survey is ask people to, askpeople, uh, not only what
change in price or value theysaw in their region, uh, from
December to June of this year,but you asked them to project
and forecast what they thinkis likely to happen between
June and December, and thoseresults are very interesting.

Yeah, so the first part that is interesting
to me is the, what the, whatour respondents observed
between December of '23 andJune of this year when the
survey went out, June of '24.
Which is In aggregate, kindof across the state, they
saw prices declining, right?
So meaning that that, thataver that aggregate increase

(43:54):
we saw from June of '23 toJune of '24, mostly that
growth took place at the endof '23 and has been declining
at the first half of '24.
So, some indication maybethat Uh, at least in kind
of a local time, again, uh,Uh, we've seen maybe kind of
a peak and prices startingto recede a little bit.

(44:16):
Um, and they actuallyexpect that, that decline
to continue through therest of this calendar year.
So, they saw prices decliningin the first half of '23.
or '24, sorry, relativeto '23 and they think
that's going to continue.
But again, uh, you know, atthe top in average quality,
a little bit more muted.
Um, actually expecting,you know, uh, maybe the

(44:38):
decline to increase a littlebit in that poor quality
land across the state.
But, uh, again, they're, they,They aren't really optimistic
about sort of the rest of '24.

And when I look at your data, particularly
this projection for thelast half of '24, it makes
a lot of sense to me.
What they're really sayingis they expect demand to
hold pretty strong on highquality farmland and the
pressure to be mostly on poorquality land, fewer buyers
stepping up to the plate.
Makes a lot of sense from afarm management standpoint.

(45:09):
Do you agree withthat, Michael?

Michael Langemeier: Definitely. (45:10):
undefined
We're talking about cash rentshere, but the profitability
prospects on poor qualityland are not near as good.
None of them are good,but not near as good
as the average and top.

So, Michael, this is a good time maybe to
talk about what we picked upon our most recent Ag Economy
Barometer Survey, which wasdone in the middle of August.
And, of course, every monthwe ask people about their
farmland price expectationslooking out 12 months.
And I want to emphasizethis is a national survey.
It's not an Indiana survey.
So it's a fairly broad survey,but the results in August

(45:46):
were quite interesting andreally kind of correlate
with what Todd was pickingup on the Indiana survey.

Michael Langemeier: Definitely. (45:50):
undefined
They're still, they'restill overall optimistic.
But only by a slight amount.
Uh, if you did an indexof this, it'd be 105,
where 100 is neutral andbelow 100, uh, would be,
would be pessimistic.
And, and essentially whathappened in August is we
saw a 10, 10 to 11 percentincrease in those that
said, lower farmland values.

(46:11):
To put that in perspective, itwas about 13 percent in July,
now it's 24 percent in August.
That is a huge movement.
Uh, you know, it's prettyrare since we've been asking
this question that we've seenthat big a movement in terms
of people that think we'regoing to have lower farmland
values in the next 12 months.
Uh, the people that thoughtwe were going to have
higher farmland values alsowent down a little bit.

(46:32):
Uh, but it's, it'svery, very noticeable.
That the pessimists cameout of the woodwork in
August compared to July.

And when you look at our survey for the
barometer on these farmlandvalues going back to 2021,
and that's when peoplewere most optimistic that
farmland values are goingto continue to increase.
And the way I like to lookat that slide or that, that
data over time is there'sbeen an erosion of confidence.
And farmland that iscontinuing to grow, uh,

(47:00):
I think that's exactlywhat you're picking up on
the Indiana survey, Todd.

Yeah, and I think, you know, you talked
about sort of people beingon the margin, right?
So I think when you thinkabout, you know, farmers and
how they think about land,there's sort of this group
that's always optimistic,they think it's great, they
want to own more of it,they, you know, they love it.
And then there's always thispessimistic group that, like,
it's about to fall apart.
And the, where the peopleon the margin are those
that are switching from it'spessimistic, optimistic, and

(47:25):
back and forth, and reallyI think what's happening
is that marginal group, thepeople on the margin, are now
starting to be more negative.

Good point.

We can relate that back to
the factors that Todd wastalking about, because that's
also my favorite chart.
You go back to that'21 '22 period, all the
factors are positive,like you were saying.
Therefore, we had some prettystrong, you know, you know,
a lot of people thoughtthat land values were going
to continue to increase,rightfully so, I would argue,
and then we went into '23,where it was more, a little

(47:56):
bit more mixed, still quitea few factors that, factors
that were positive, and sowe saw land values come, you
know, not quite as strongas they were, uh, in '21
and '22, and then we movedinto '24, where more of
the factors were negative.
And we got, we got lessdifference between those
that thought there wasthought land values are going
to increase and decrease.
And then, uh, you know, goingon to '25, perhaps even more

(48:20):
factors that are negative.
And you're goingto see it more.
They're gonna bemore neutral overall.
And so I think, I think itall has to depend on, on,
on, on the, on these factors.
How many, how manyfactors are positive?
How many are negative?

Well, and I think the ones that are
positive, people feel lessstrongly that those are
positive and those thingsthat are negative, they're
feeling more strongly thatthose are negative, right?
And so,

Well, as economists, we always
think the fundamentalsare the, are the returns
and the interest rates.
There is other things thatimpact land values, but
those are the fundamentals.
They're not positive.

So let's just kind of summarize here, Todd.

Yeah, so again, you know, the kind of headline
that I may be getting tiredof writing is that, uh,
Indiana prices are at a newrecord high, right, because
that tends to be true moreoften than not as prices
kind of generally increase.
Uh, a lot like what wesaw over the last year,
sort of 4 to 5 percentincreases year over year.
We're kind of backto that, kind of our

(49:17):
expected change, right?
Cooled off a bit fromthose rapid appreciation.
We saw in '21-'20, um, alot of that has to do with
the interest rate pressurewe've talked about, but also
lower commodity prices, uh,lower returns, um, putting
downward pressure on land.

(49:37):
Again, maybe the thingkind of keeping it up are
things like developmentpressure, or just fewer
people wanting to sell land.
Um, but in, in aggregatewhat we see sort of across
the state is sort of modestgrowth from '24 over '23.
The bulk of that tookplace at the end of '23.
Um, there's some signs thatwe're seeing declines through

(49:58):
the first half of '24.
People expect that to sortof continue going into '24.
Um, so people are, it appearsour respondents at least,
a little bit gloomier nowthan they were a year ago.
Um, and they don't, uh, seemto think that that gloominess
is going to go away magically.
Um, and so, uh, I don't thinkwe're at a place where I say,

(50:19):
you know, price is about tofall off a cliff, things are
going to, there's still thingskeeping positive pressure,
um, but maybe a little lessoptimistic about, you know,
the remainder of '24 thanwe were, you know, about the
remainder of '23 a year ago.

So that wraps up our podcast for today.
You can get fulldetails on our website.
And Todd, you've got acomprehensive report.
You can also watch thisagain and download the slides
that we were discussing aswe recorded the podcast.
So I want to thankmy colleagues, Dr.
Michael Langemeier and Dr.
Todd Kuethe forjoining us today.
And on behalf of theCenter for Commercial

(50:54):
Agriculture, I'm Jim Mintert.
Thanks again for joining us.

All Episodes

Episode Transcript

Popular Podcasts

Las Culturistas with Matt Rogers and Bowen Yang

On Purpose with Jay Shetty

Dateline NBC

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}(Part 1) 2024 Indiana Farmland Values & Market Trends

Episode Transcript

Popular Podcasts

.css-r6mb8g{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:1;overflow:hidden;}Las Culturistas with Matt Rogers and Bowen Yang

On Purpose with Jay Shetty

Dateline NBC

All Episodes

(Part 1) 2024 Indiana Farmland Values & Market Trends

Las Culturistas with Matt Rogers and Bowen Yang