Farmland values likely to hold steady

WEST LAFAYETTE, Ind. — Low interest rates, low supply of land and other factors are positive factors affecting land values, said Michael Langemeier, associate director of the Center for Commercial Agriculture, during a crop outlook webinar.

“As long as the economy stays relatively weak, there’s a tremendous pressure for the Fed to keep those interest rates low,” Langemeier said.

“That makes you more optimistic on farmland because low interest rates increases farmland prices. I think we are in a new normal for interest rates, they are going to be relatively low for the foreseeable future.”

Positive influences on land values:

• Thin market, low supply of land for sale.

• Low interest rates.

• Land is a good hedge against inflation.

• Investment potential for non-ag buyers.

Negative influences on land values:

• Relatively low net returns to land for operators.

• Working capital is depressed.

“These positive influences help explain why these relatively low returns we’re looking at for 2020 and probably for 2021, without some substantial government payments, are not going to have the expected negative impact on land values,” Langemeier said. “These positive influences are too strong to pull down land values strongly in response to the net returns.”

Langemeier expects land values to be stable short term and stronger five years from now.

Going into 2021, there is some downward pressure on cash rents.

“There’s a lot more downward pressure on below average and average productivity land than on high productivity land,” Langemeier said. “In northwest and central Indiana and perhaps parts of northeast Indiana, there’s going to be less downward pressure than in the southern part of the state, based on my computations.”

Learn more about the Center for Commercial Agriculture and view the complete webinar at www.ag.purdue.edu/commercialag.