Farmland Values and Cash Rent

January 13, 2022

PAER-2022-8

Author: Todd Kuethe, Associate Professor, Schrader Endowed Chair in Farmland Economics

Farmland Values

Indiana farmland prices set a new record high in 2021. The 2021 Purdue Farmland Values and Cash Rent Survey indicated that top quality farmland prices increased by 14.1% to $9,785 per acre. Average quality land values increased by 12.5% to $8,144, and poor quality land values increased by 12.1% to $6,441. Farmland prices are determined by a complex set of economic forces, such as commodity prices, net incomes, interest rates, and agricultural policy. In 2021, the Purdue Farmland Values and Cash Rent Survey respondents suggest that all of these forces put upward pressure on farmland prices. Farm incomes and commodity prices were higher than recent years, as was agricultural policy support. Conversely, low interest rates lowered the cost of borrowing. The survey respondents were optimistic about continued growth for the remainder of 2021. In addition, recent results from the Purdue University-CME Group Ag Economy Barometer suggest farmers remain optimistic about long-term farmland value expectations.

While the prospects for continued farmland price growth seem likely, rising input costs and continued supply chain disruptions may dampen positive price appreciation. As the economy adjusts to changes originating with the COVID-19 pandemic, a large amount of economic uncertainty remains.

Cash Rental Rates

Cash rental rates also increased across Indiana in 2021. The 2021 Purdue Farmland Values and Cash Rent Survey indicated that cash rent on top quality farmland increased by 3.9% to $269 per acre. Average quality land rents increased by 4.6% to $227, and poor quality rents increased by 4.6% to $183. Unlike land values, the cash rental rates do not exceed the previous highs set 2013 or 2014. Cash rental rates are typically negotiated well in advance of the growing season, and as a result, rental rates reflect the expected costs and returns to production. While commodity prices remained above recent lulls, the expected costs of production may limit farmers’ willingness to pay higher cash rental rates in 2022. At the same time, landowners may expect farm incomes to remain elevated and try to negotiate rate increases.

 

The recent 2022 Purdue Crop Cost & Return Guide suggests that the contribution margin, the difference between market returns and variable costs, is expected to rise in 2022 for both rotation corn and rotation soybeans. Increasing margins generally sign upward pressure on cash rental rates, as farm operators will have additional revenues to allocate to labor, investment, and land. As shown below, the contribution margin for average quality farmland in 2021 exceed the average cash rental rate, which also places additional upward pressure on cash rental rates.

 

Figure 1: Cash rental rate and contribution margin for rotation corn and soybeans for average quality land, 2010-2022.

Figure 1: Cash rental rate and contribution margin for rotation corn and soybeans for average quality land, 2010-2022.

Tags

Publication Appeared Within:

Latest Articles:

General Economic Outlook – COVID calls the shots again

January 13, 2022

Uncertainty over the course of the pandemic and the response by workers and businesses to inflationary pressures are expected to be the determining factors in what is likely to be slower GDP growth in 2022.

READ MORE

The Impact of COVID-19 on Households: Lessons for 2022?

January 13, 2022

COVID-19 exposed how lack of childcare impacts households and employment.

READ MORE

Trade and trade policy outlook, 2022

January 13, 2022

While trade policy does not appear to be a major priority of the Biden Administration, it does affect many key objectives. One example is the supply chain problem, which may not be fully resolved in 2022.

READ MORE

Delivered right to your inbox

The Purdue Agricultural Economics Report is a quarterly publication written by faculty and staff from the Department Agricultural Economics at Purdue University.

By joining this mailing list, you will receive an email when a new publication is released. This mailing list is kept solely for the purpose of sharing the report and is not used for any other purposes.