Audio Transcript

James Mintert: Welcome to the Purdue Commercial AgCast, the Purdue Center for Commercial Agriculture’s podcast, featuring farm management news and information. I’m James Mintert, Director of Purdue’s Center for Commercial Agriculture, and joining me today are my colleagues, professor Todd Kuethe who holds the Schrader Chair in Farmland Economics here at Purdue. And Professor Michael Langemeier who is the Associate Director of the Center of Commercial Agriculture.

This podcast is part one of a two-part series focused on the results of the Indiana Farmland Values and Cash Rent Survey conducted each year by Purdue’s Department of Agricultural Economics. In this podcast, we’ll focus on the survey’s results regarding changes in farmland values across the state and regionally, as well as key factors influencing farmland values.

In the second podcast, we’ll focus on cash rental rates for farmland both statewide and regionally. A detailed report summarizing the Indiana Farmland Values and Cash Rent Survey is available in the August Purdue Agricultural Economics Report. You’ll find a link to that report on the homepage of the Center for Commercial Agriculture’s website located at purdue.edu/commercialag. At the website. You can also download a set of slides containing the charts we referenced when recording the podcast. Finally, this podcast is available as a YouTube video on the Center for Commercial Agriculture’s YouTube channel, and on the Center’s website.

[00:01:27] Purdue Farmland Values & Cash Rental Rates Survey Overview

James Mintert: Todd, interesting survey. The history of this survey really goes back to the mid 1970s. Give us a little bit of background on the survey and how it’s conducted.

Todd Kuethe: Yeah, so I think I’m the third person to sort of run it. So we’ve had a long history of doing this here in the department. And the basic idea is just to provide valuable information about farmland markets. Thinking back when the survey was started, there weren’t a lot of sources of information to give farmers and landowners accurate measures, sort of what’s going on in the market.

And so we survey a number of what we call farmland market experts or people who regularly interact with the land market as part of their daily business. So that includes rural appraisers, ag lenders, farm managers. We have some farmers in there as well. And so we just ask them sort of what’s going on in your area, in your county, in terms of land values this summer, in June of ’23.

We send the survey out every June and then compile it mid-July. And so we also ask them about the previous December to give some idea of end of the last year and then also what they are projecting into the coming December. And so in their county, we ask for three levels of quality, top, average, and poor.

And those are sort of subjectively defined. So we ask them what they think is the long run corn yield at that quality grade across their county. So we can also put it in a per productivity measure across the state. We also ask about cash rental rates. And then we have a variety of questions about what they think is going on in the land market. Why do they think prices are changing in the way that they are?

James Mintert: So as you think about it over time, how has the response rate in the survey changed?

Todd Kuethe: It’s definitely lower in terms of the number of respondents but also that pool of potential respondents has shrunk. So I hope we keep a relative balance of percent of the population that interacts with the land market.

But as we’ll talk about, I’m sure, there’s definitely some areas in the state where there’s less landmark activity. And so sometimes those measures. Well, one, the prices themselves can be variable, right? Because of the lower activity. And so it’s harder to measure what is the average or expected value.

But then also, the people that respond to our survey, we have fewer of those folks and they’re dealing with limited information. So, as generally when you work with survey data, the bigger you go the better, right? So I feel confident in what we’re doing at the state level. At the regional level, get a little less confident. And then we don’t report county specific because for a lot of counties we don’t have enough response rates are really characterize it at that detail.

James Mintert: So some other universities do a survey that’s a little bit like this. For example, I know Iowa State survey gets quoted a lot. The Illinois survey gets quoted as well. How does the methodology you’re using compare to what they’re doing?

Todd Kuethe: I know that the Iowa State survey, they work in conjunction with a couple different appraisal groups.

James Mintert: Mm-hmm.

Todd Kuethe: With the state of Iowa, there’s several different measures that come out. And so Is a little bit tricky to say. I mean, we do lean heavily on the Indiana Society of Farm Manager and Rural Appraisers as a big core of our respondent group. But for example, in Illinois, they do a couple surveys of their society. But then also the society actually goes out and collects transaction data that they assemble. And so theirs is a little bit different than ours. There’s a little bit more based on sales data. Where we’re looking at the opinions of them characterizing that data.

James Mintert: And the Iowa survey is also more of an opinion oriented survey.

Todd Kuethe: Yeah. Ours is very similar to Iowa in terms of the structure. In fact when I took over the survey, one of the first things I did was reach out to colleagues that run similar surveys around the country. And so Iowa State I’ve seen their survey. It’s very similar to ours.

[00:05:15] 2023 Indiana Farmland Survey Results

James Mintert: So let’s talk about results. I think that’s what listeners are interested in. What happened to farmland values in Indiana over the past year?

Todd Kuethe: So the, the quick answer is that values are up. But what I would describe as more typical growth rates that we see over a longer period of time.

So looking at statewide top level land values have gone up by 7.3%, average at almost six, and poor about 1% .Which is much more in line. So if you remember from last year, we had these record high appreciation rates across the state, similar to what was observed in Iowa and Illinois and other states. And so things are still moving positively, but sort of at a more muted. The things that people do gravitate towards. So at a per acre rate top land values is now at $13,700 and a little bit. And so whenever we cross a $500 threshold or in this case, a thousand dollars threshold, people really notice that. Right. So we’re now for average land above $11,000 an acre, $11,210.

James Mintert: Yeah. And looking at your top values, I mean, that was an increase of almost a thousand dollars an acre for the top quality farm land across the state, right?

Todd Kuethe: Yeah. Which in most years I think would get people very excited, but after the huge growth we had the previous year, it doesn’t seem quite as shocking. But it’s still a pretty robust growth.

James Mintert: Were you surprised that the poor quality of land essentially held steady?

Todd Kuethe: Not really. In conversations of folks I have involved with the land market around the corn belt, there wasn’t as much appetite for the lower quality land in part because there was a belief covid and post covid times that a lot of people were buying land, either for like safe investment purpose or even to used recreationally or have part-time access. So maybe they would farm it, but they’re really buying it to hunt or to get away from people in town. And so that diminished a bit, I think, in terms of the demand. And when there’s a lot of uncertainty, like we’ve had over the last couple years, there’s always a flight to safety, right? And so, we tend to see higher growth at higher values of assets than at the lower end.

James Mintert: Yeah, good point. So you took a look at some inflation adjusted values versus nominal values, and give us a little information on those as well.

[00:07:24] Inflation Adjusted Values vs. Nominal Values

Todd Kuethe: So this is looking at just the average quality land. And I set this into 2023, so current dollars. And so that’s why they touch now, but they go back. And you can see that we’ve had pretty good growth in terms of just a nominal growth that we mentioned of about. Almost 6%. But if we control for inflation as a part of that, we’re looking at more of like a 2% growth.

So it’s still a pretty decent growth, but some of that rise in value is because rise in general price levels of everything, right? So we’ve spent a lot of time as economists this last year talking about inflation and what does it mean? Where is it coming from? How high could it get? How long is it gonna last? And so, farmland, like other investments or assets, some of that appreciation is probably associated with general increase in price levels.

James Mintert: Let’s talk a little bit about those nominal values across time, which is kind of interesting to look at and think about, particularly as you go back to that 1980’s timeframe.

Todd Kuethe: Yeah, so we did set a new record high in a nominal terms this year, which is not that uncommon when we look at land. It tends to trend up. So I feel like every year I could characterize a report as like new record high and it’d be right most years. And so we did see some growth from the previous years, but it really jumps out when you look at the enormous growth that we’ve seen in farmland over the last 20 years compared to maybe 20 to 30 years before that. Right? So farmland used to sort of traditionally just grow basically at the rate of inflation, maybe a little bit higher. And then around the financial crisis, ethanol policy implementation, all these things sort of really ratcheted up farmland and growth rates compared to what was observed historically. And, and we did have a period there around 2013 to ’15 where we saw a little bit of a decline and hold off. But it does look like now we’ve had three to four years of pretty strong growth in the land market.

James Mintert: And before we’re done, we’re gonna have a forecast, right? For what’s gonna take place over the course of the next year?

Todd Kuethe: I promise to give you my respondent’s forecast. But everyone really wants to hear Michael’s, I think.

James Mintert: All right, so let’s look at the regional breakouts, ’cause those are fascinating.

[00:09:32] Variability Around the State

Todd Kuethe: Yeah. The thing about looking at what’s happening at the state level is it does mask a lot of variability around the state. So actually some places, in the southwest portion of the state, where the survey suggests land values have dipped a little bit from the previous year. Where in the southeast we saw really robust growth. But in the northern two thirds of the state, it was much more in line with what we saw in aggregate.

James Mintert: Looking at the results for southwest versus southeast, they strike me as surprising. Particularly when I look, for example, top quality land southwest, which is gonna be pretty high productivity, $12,857, almost $13,000. Southeast top quality land, which typically would be lower productivity than southwest, reported average of $12,200. So a discount of only about $640 an acre. That’s surprising to me.

Todd Kuethe: To me as well. So I should say, taking over the survey, I always get nervous anybody wants to call and ask me very detailed questions. So I go through all the responses and make sure that it is not being pulled by one outlier, right? So you don’t have just one person saying this is tanking or this is taking off like a rocket ship. That would be really driving it. And so I do check to make sure at least everything’s around the same in the middle, right? I think part of it might be a convergence across the parts of the state, which we kind of talked about. So, ’cause the other way to look at it, if you ignore that change column, it looks like the southeast and southwest have pretty similar values across, right?

So we may see some kind of convergence across the growth rates. And then I think part of it too is also just that land sales are much less frequent, particularly, you know, we ask about, bare farmland of a certain quality. And you just don’t see that in the southern part of the state as much. We have more forested land or smaller parcels or you know, I hear all the time about somebody saying like, oh, you know, so-and-so has watched this piece of land forever, and they just couldn’t wait to buy it. And so it gets bid up.

James Mintert: And, and the small parcel phenomena would probably be especially true in southeast, right?

Todd Kuethe: Yeah. Yeah. And sort of nationwide, there’s a lot of research about farmland markets and there is this small parcel premium for a variety of reasons. It’s easier to add it into your production. Or it’s easier to convert it to something else. Or maybe on a total investment size, it’s a smaller dollar amount to buy it, even though on a per acre it’s higher. If that makes sense.

James Mintert: When, when I visit with people in southeast Indiana and talk to them about farmland values, one of the things they point out is the tremendous amount of urban pressure. Not so much to build houses, but people coming from urban areas to purchase that rural piece of property. And I hear about that in that part of the state, probably more than anywhere else.

Todd Kuethe: Oh, and we got a lot of responses. So in our survey, we always have an open-ended question, "do you have any sort of general observations you’d wanna share?" And particularly in the southeast, but also in the southwest? We got a lot of respondents mentioning that, like I think one responder referred to as leaching out of Louisville and surrounding urban areas. Or, or even Indianapolis looking at buying some land. The southern part of the state makes sense that way.

James Mintert: So as you think about it, and again, this is the kind of the point you made earlier, we’re showing some differential impacts here, right? So you’ve got several categories and several parts of the state showing a decline. Several showing some pretty big increases.

So getting back to your original point, you’ve got more confidence in what’s going on at the state level. And a little less confidence because of the variability in responses and variability conditions as you start breaking it down to the individual regions of the state. Right?

Todd Kuethe: Yeah. And variability, not just in terms of the responses or what people are reporting to me, but also potentially what they’re seeing in their local markets, right? So the, the smaller place you pick, the less frequent sales are gonna be, and so it’s easy to sway your opinion one way or the other based on one frequency.

James Mintert: It could be both a supply factor and a demand factor, right?

Todd Kuethe: Yep. Yep.

James Mintert: Good, good point. So one of the things you do is ask people about what has happened in the first half of this year, and then what they expect to happen in the second half. So share those results with us.

Todd Kuethe: Yeah. So in the first half of 2023, there is sort of modest growth in top and average quality land and a small decline in poor. And then asking what do they expect to see in December? They seem to sort of generally think that land prices will decline by a little bit, so somewhere in the one to 2% range, depending on quality.

And that varies around the state, but there is a general belief that they think, you know, markets are starting to cool off. They’ll see prices come back down a little bit. Now I should also note, like I’ve looked through sort of the history of the survey.

Generally the respondents are a little bit more, I hate to say pessimistic, but at least a little bit more cautious in their, in

James Mintert: Subdued, perhaps.

Todd Kuethe: Yeah, but it goes both ways. So when prices are falling, they don’t expect ’em to like the floor to fall out of it. But when prices are increasing, they don’t expect the growth. So you know, I generally think if anything hanging in that 2% range is relatively unchanged. But yeah, they are thinking that maybe we’ll start to see declining values going forward.

James Mintert: So I’m curious, when you think about reading through some of the comments people make, did you pick up a lot of comments about inflation and what impact that might be having on farmland values?

Todd Kuethe: There wasn’t as much about inflation as there was interest rates. And, and the opinion varied widely. So there was some that were saying as interest rates are going up, this is putting a lot of downward pressure and other people saying like, it doesn’t seem like interest rates have played a role at all because of high liquidity or cash position of farms. So there’s been kind of a range there. Haven’t heard as much talk about inflation. I actually heard a lot more about inflation a year or two ago, and inflation is really tricky. Because for a long time farmland has sort of been viewed as a good hedge against inflation, right?

So inflation, generally, when we as economists, we talk about inflation, it just means sort of a rise in the price of everything, right? And so when that happens, the things that produce bulk commodities, generally they tend to rise with inflation or even a little bit ahead of it. So farmland being a great example of that, right? That’s why we say it’s a hedge against inflation saying, well, you know, the costs will go up, but so will the value of that output. Same thing you read in the literature about mining, right? Or, or. mineral production. And so it, it’s tricky because in some ways they say, well, you know, inflation’s really driving prices up.

This could be a bad thing for a lot of reasons. Right. So also, you know, farm input costs going up, maybe don’t want to bid as much into land. And so it’s tricky. It’s hard to test out empirically. The other thing is we ask about their expectations for inflation and they’ve actually moderated a bit from last year. They’re still above what they’ve been four or five years of recent past. But it does seem like they’re less concerned about inflation as they were a year ago.

James Mintert: Okay. Interesting point. So let’s talk a little bit more broadly about the drivers of value, because that’s a question that’s been a part of the survey for a long time.

[00:16:35] Drivers of Farmland Value

Todd Kuethe: So we asked the respondents for a list of 10 different things ranging from income to commodity prices, interest rates, inflation, ag policy. How do you think this is impacting the farmland market in your area? And they range from this is a very strong positive influence. So they, you give us a value of five or this is a really strong negative influence, value of negative five or zero right in the middle for saying doesn’t really seem to matter. And so the figure that we have here, and that is in the report as well, sort of shows kind of the last three years. Of what people are saying.

And so the big takeaway I think here is that the only large negative pressure is the rising of interest rates, right? So the cost of borrowing or the expenses of farm mortgages. So if we rewind three years ago, in 2021, the respondent suggested everything that could put pressure on land values was putting positive pressure, right?

And then in 2022 we have this record, high appreciation rate. And I think a lot of that has to do with the positive pressure that was going the year before. And then in 2022, interest rate starts to give some negative pressure. And then in 2023, that negative pressure’s more intense.

And then all the things that they say are positive. Most of those actually have moderated their influence and so it doesn’t seem like they’re getting as strong of pressure from things like farm income or farm liquidity positions, or even ag policy payments as they were the last couple years.

James Mintert: Yeah. Looking at the chart you can see how the impact of net income is smaller than it was the last two years. Crop prices, quite a bit less positive than the last two years. So those are the ones probably that jump out at me the most. Liquidity is still up there though, suggesting that people think there’s still a lot of cash out there.

Todd Kuethe: Yeah, and interesting ’cause liquidity now is often accrued net income from previous years. Right. So I would suspect that even if farmers are in a good cash position, and that’s still the overwhelming purchaser of farmland, right. But if they’re not going to be adding to that liquidity at the pace they had been the last few years, maybe that shrink a little bit going forward.

Michael Langemeier: It’s interesting how that contrast a little bit with some of the results we’re getting from the Ag Economy Barometer. Specifically in the Ag Economy Barometer Survey, the alternative investment or the influence of outside investment is more important. Also I think the net income is probably a little bit more important than it is in the Ag Economy Barometer Survey. And so there is a little bit of difference, the Ag Economy Barometer is the entire U.S. where this is Indiana. But I think that’s interesting to note that there is some differences in opinion.

James Mintert: Yeah, that is interesting and I wondered actually if some of that could be how questions are phrased.

Michael Langemeier: Perhaps.

James Mintert: Because on the Ag Economy Barometer, we ask people about non-farm investor demand and they come back with a very positive reaction in terms of that being supportive of farmland values. On this survey, you phrase it as alternative investments, right?

Todd Kuethe: Yeah. And I think the legacy of the way this survey was constructed, it’s maybe less about that idea of investors as so much as if you’re going to invest in something, would you invest in farmland or something else. Right?

And so if you see, you know, stock markets or bond rates very high, maybe you’ll take your money and put it into those assets. And so that’s how I interpret the question. And just to reiterate, you know, that average to essentially zero impact this year, right? So you’re saying that doesn’t seem the sort of broader economy investments don’t seem to be influencing farmland.

James Mintert: Yeah, whereas on the Ag Economy Barometer the way we’ve handled that question is we ask people who tell us they think farmland is going to go up in value, why they think it is, what’s the dominant reason or what are the primary reasons? And they come back pretty overwhelmingly saying their number one choice is non-farm investors supporting the farmland market. Which is an interesting response.

Todd Kuethe: Yeah. Those are often the folks that also want to talk to me in the back of the extension meetings or something too. Right. So I know that’s a pervasive view.

James Mintert: Per perspective. Yeah. So let’s kind of summarize a little bit and then we’ve got a couple other points we wanna talk about from a longer term perspective.

Todd Kuethe: So again, we are once again at a new record high. So we did have a slower growth this year, more in line with what we see traditionally in terms of farmland growth in Indiana. Traditionally being over the last 25 years. And a lot of that’s supported by farm income and commodity prices and liquidity. The negative side, or what’s putting downward pressure is the rising cost of borrowing as interest rates and mortgage rates continue to increase. And the negative pressure is a little bit stronger, but even more importantly, what our respondent suggests is the positive pressure things that are influenced by things that go up. Those have muted in terms of their impact. And they’re a little bit pessimistic about the rest of the year and going forward. But if we ask five years out those still always say pretty high growth. Maybe they’re signaling a little bit of a decline or softening over the next year or so.

James Mintert: So a much more muted outlook than what we’ve seen the last couple of years. As you pointed out, a couple years ago, almost everybody in the survey thought all the factors were positive. Last year, a little less so, and this year even less so. Right?

Todd Kuethe: Yeah.

James Mintert: With some negativity showing up. So Michael, you’ve taken a look at some information that, that you’ve been keeping track of for many years now, and that is the rate of return based on when you purchased farmland. So I’ll let you explain that a little bit.

[00:21:49] Farmland Rate of Return

Michael Langemeier: Yeah. What we’re trying to do here is, is we’re trying to look at a 10 year rate of return. So an average over the previous 10 years and compare that to what we’re calling the p/rent 10 ratio. The p/rent 10 ratio is really much simpler than it sounds. It’s simply the farmland price divided by the 10 year moving average of cash rent. So the previous 10 years of cash rent. And then we’re seeing if that p/rent ratio is really high, are the returns much, much lower and that’s intuitive, that it might be. Because if the p/rent 10 ratio is relatively high, that means the price of land is high relative to the earnings coming from cash rent.

And what we’ve found here in a nutshell, even though the p/rent 10 ratio is very high for the last three years of data we have here. 2011, 2012, 2013. Those are purchase years. That’s why they’re the last three in this chart. What we found here is the rate of return is still pretty healthy for those three observations, despite the fact that the p/rent 10 ratio is very high. In this particular chart, we do see some returns that are below 5%. You know, historically, looking at this 10 year average, but 2011, 2012, 2013 are from five to 7%. So some very strong return returns despite the fact that the p/rent 10 ratio’s high.

James Mintert: Yeah. So just for clarity, the p/rent 10 ratios, that, which those farmland purchases were made were ranging between the high thirties to almost 50. Right? So those are very high and higher than what we have today.

Michael Langemeier: Definitely. Yeah.

James Mintert: So let’s take a look at a little different perspective. And that is the 20 year perspective, not the 10 year perspective.

Michael Langemeier: This chart’s actually more interesting. First of all the range looking at 20 year returns is about 6% to 15%. Let’s think about this. This data goes all the way back to 1970. And we’re looking at 20 year returns that are ranging from six to 15. That sounds pretty good when you compare land to other things like stocks, CDs, and bonds and things like that. I mean, the lowest 20 year rate of return is 6%.

And I should point out here that the rate of return includes cash, rent, and capital gains. And so it has both of those in there. Now let’s turn to what the latest observation looks like. So 2003 would be the latest observation. That would be the latest time that land is, is purchased. The rate of return is very solid. Looking at that 2003, it’s about 11%. So a pretty strong return for 2003. You know, looking at the last 20 years. It’ll be interesting to see what happens here as we get further and further or closer and closer to that the, the start of the ethanol boom, that 2007-2008 period, and to see if the return still hangs in there around that 10%.

James Mintert: Yeah, the 2003 purchases were made just before the ethanol boom started to kick in. So that was a pretty prescient time to make a purchase. So let’s take a look at the current versus the five and 10 year cyclically adjusted p/rent ratios for west central Indiana. Those are kind of interesting as well.

Michael Langemeier: What we’re trying to do with this particular chart is we’re seeing if the current rent, compared to the five year average rent, compared to the 10 year rent are similar. What we saw around 2011, 2012, 2013, the 10 year average rent was much, much lower. Well, that makes sense because if you think about the 10 year average in 2011, for example, you’re bringing in years before the ethanol boom . And so that made sense. The rents weren’t similar. I call that equilibrium. So we weren’t really an equilibrium ’cause we were still seeing what was gonna be the impact of the ethanol boom. Speed ahead here to 2023, and even though the rents aren’t identical, you know, the current rent versus the five year average, versus the 10 year average, they are similar.

That gives me confidence that we’re not seeing land that’s overpriced or we’re not just using the current rent to drive up land prices.

James Mintert: One more chart to take a look at with respect to your cyclically adjusted ratio.

Michael Langemeier: Yeah. I encourage people to take a look at this one to fully understand what’s going on in the mind of an outside investor or even a retired farmer or someone lives in a rural community that runs an agribusiness, they’re interested in farmland. Why are they interested in farmland? Well, one of the reasons why they’re interested in farmland, if you look at the p/rent 10 ratio, which is the land price divided by the previous 10 years of cash rent, and you compare that to the p/e10 ratio, which is the stock price, S&P 500 stock price, divided by the last 10 years of earnings. They’re not closely related. The correlation is quite low. And what that means is someone that’s looking to invest in land is saying I want to invest in things that aren’t perfectly correlated, that don’t follow one another. And certainly the stock market and the land market do not follow one another. That’s positive from an investor’s standpoint. And it explains one of the reasons why people outside of production agriculture are interested in farmland.

James Mintert: Yeah. They’re trying to balance their portfolios effectively,

Michael Langemeier: Balance their portfolio.

James Mintert: And that actually improves, well, it reduces volatility, right.

Michael Langemeier: Yeah.

James Mintert: And that actually has a potential

Michael Langemeier: It’s analogous to when you see an index fund, it combines stocks that have less variability. I’ll throw out an example. Hormel has a fairly low beta. Meaning it doesn’t move as much as the market compared to the tech stocks, which may be 1.5 or twice as variable as the market. The index fund combines those. The same idea here when you’re investing in farmland and stock market, you’re diversifying, you’re reducing your risk.

James Mintert: Yep. All right. So one of the things that we’ve been talking about here as we got ready for this podcast was the contrast in what we’re picking up on the Ag Economy Barometer surveys, that we do each month, versus what Todd was picking up on on the survey this summer. And the first point to make I guess before we go any further is to point out that we’re not really surveying the same people or the same kind of people. The Ag Economy Barometer targets ag producers exclusively. We don’t target non-Ag people at all. In fact, we try pretty hard to make sure that everybody in the survey is in fact an ag producer of commercial scale. But when you look at those responses versus maybe what you’re picking up on on the survey of people who are maybe more actively engaged on a professional basis in the farmland market, the responses are a little bit different.

We’ve got a chart we’re looking at right now, which is the Long-term Farm Land Value Expectation Index, which is the five year ahead index. As you look at it the most recent observations here from June and July are about the same as they were last year and almost identical to what they were two years ago. And maybe even more interesting than that is the fact that if you go back to late 2021, It looked like we had peaked in terms of our expectations for growth and farmland values, and we’re in a bit of a downtrend until early part of this year. And then over the last several months, that index has kind of bounced back. So it bottomed out at an index value I think of around 135 or so, and more recently is now up around 151. And so for clarity, anytime the index is above 100, that means more people in the survey say that they expect to see farm land values go up than expect to see it go down. But that change over time suggests we’ve actually gotten a little more optimistic in recent months, which would be almost the opposite of what you’re starting to pick up over the course of the last year, or at least comparing the ’22 survey to the ’23 survey.

Todd Kuethe: Well, and I think the important difference here is thinking about long term. So we do ask about what they expect in five years. And at least in the years I’ve been studying the survey, that’s almost always positive. But the projections we were showing is for like this December, so that’s very short horizon of six months. They’re expecting a modest decline. But for the longer run they’re still positive.

James Mintert: Still optimistic.

Todd Kuethe: Right. And I think that’s I think in line with farmers’ expectations as well, I think they’re in agreement in the long run part. But it is interesting to think about the difference between short run expectations. I heard a lot in the last few years, post covid, is land prices were going up. There are a lot of people saying, well, they’re gonna come back down a little bit. This can’t, this isn’t sustainable. They’re gonna come down. Even people that had just bought farms, right? And they said, well, they’re gonna come back down. And they said, well, you know, but you just bought this farm. They said, well, yeah, but I think 20 years from now it’s gonna be great. Right? Like, I’m not trying to buy it for nine months or something. Right. So,.

James Mintert: Yeah, that’s a good point. But it is a little bit of an interesting take, I guess, Michael, you and I have been talking about the contrast that we picked up in this long-term index versus the short-term index, right?

Michael Langemeier: Yeah. First of all, the short-term index is not as optimistic as the long term. Though the short-term index is positive. And so that does contrast some of the results from the survey. But the long run, the way I think about that, and Todd mentioned this earlier, if you look at the long run rate of return for farmland, I’m gonna go back to 1960, before the survey, you’re looking at a capital gain of about 5.5%. And so that’s certainly positive. But moreover, there’s probably only been two or three, five year periods where the return was actually negative. A couple of those occurred in the 1980s, as you might expect. And then one occurred recently, I think from 2014 to 2018. It was a slight negative rate of return for farmland. And so, for the most part, if you look at history, farmland does have a positive return over a five year period.

James Mintert: Yeah. Good point. Well, that wraps up the farmland value highlights from the Indiana Farmland Values and Cash Rent Survey. A reminder that the full report of the survey’s results is available on the Center for Commercial Agriculture’s website purdue.edu/commercialag, along with a copy of the slide deck we used when recording the podcast.

Part two of this podcast series will focus on cash rental rates for farmland in Indiana. I am James Mintert. On behalf of the Center for Commercial Agriculture and my colleagues, Dr. Todd Kuethe and Dr. Michael Langemeier, thanks for listening.