Is Farmland Cooling?

While “red hot” would easily describe the farmland market a year ago, today’s market is more nuanced. In a few instances, I’ve seen and heard the word “cooling” used to describe the current farmland market. In this week’s post, we review the latest data and think critically about the current situation.

Recent Farmland Market Data

In his recent AEI Premium article (here), Randy Dickhut summarized the recent farmland market data. Here’s an excerpt from the article, along with a table summarizing various reports:

“Taken all together, the sources providing information on farmland values and trends do an important job of gathering and disseminating the data. What creates confusion at times is the understanding of why there can be different results obtained from the variations in survey methods, time periods covered, and classifications of land and regions. The cumulative information is extremely valuable in gauging where land values have been and how they are trending, which is important for multiple stakeholders.”

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This does not say that one source or the other is right or wrong. It brings up the variations that come about due to differences in sources, methods, and timing. Taken together, the different land value reports provide good general information about land value trends.

The Iowa data certainly posted the smallest increase as the +0.8% chance since September 2022 seems to stand in contrast to the “45% increase since 2021” observations from Illinois. Again, this is where timing and how one slices the data can arrive at different conclusions. Overall, the most recent reports show that farmland values have continued higher. In most cases, double-digit, year-over-year changes are still common throughout the Midwest.

Indiana

The AEI team carefully monitors the Purdue University annual Indiana Farmland Values and Cash Rents Survey, which will publish its 2023 results in August. Last year, top-quality farmland increased by an eye-catching 30%, which came on top of the 14.1% increase observed in 2021. These large, back-to-back increases have added $4,229 per acre in valuation since 2020, or they are 49% higher than just two years before.

Large, double-digit increases in farmland values always capture attention, but history suggests these are not entirely uncommon (Figure 1). For instance, top-quality Indiana farmland since 1975 has posted gains of more than 10% on 13 occasions. If we knew nothing about the farmland market in 2023, a reasonable starting point would be the base rate likelihood of 27% (13 times in 48 years).

Even the 30% increase in 2022 wasn’t an all-time record, as gains in 1976 and 1977 were larger.

To challenge our thinking about the farmland market and where conditions might be headed, we’ve posted the following Ag Forecast Network questions:

• What do you think is the probability of top-quality Indiana farmland values increasing by more than 15% in 2023, per the June 2023 Purdue Survey?
• What do you think is the probability of top-quality Indiana cash rent increasing by more than 15% in 2023, per the June 2023 Purdue Survey?

You can read more Indiana farmland trends here and even log your own forecast to track how your thinking changes. In mid-May, the Consensus – or the average forecast of active users – was a 28% chance of Indiana farmland values increasing by more than 15%.

Wrapping It Up

A year ago, farmland values were posting incredibly large gains, such as the 30% year-over-year increase in Indiana farmland values. Today’s market today isn’t as red-hot, which can make it hard to describe. For some of us, “cooling” would imply a slight decrease in farmland values, which wasn’t observed in any of the recent Midwest farmland reports. Instead, farmland values are still increasing, albeit at a slower rate than a year ago.