WEST LAFAYETTE, Ind. — Indiana farmland values dropped slightly but held their own in a tumbling economy, according to the 2009 Indiana Farmland Values and Cash Rents Survey completed by Purdue University.

Statewide, top-quality land averaging 182 bushels per acre for corn was valued at $28.40 per bushel; average-quality land averaging 150 bushels per acre for corn was valued at $27.92 per bushel; and poor-quality land averaging 118 bushels per acre for corn was valued at $27.44 per bushel.

The survey, conducted each June by the agricultural economics department, reports that the value of top-quality farmland in Indiana declined 0.2 percent from 2008 numbers, while average- and poor-quality farmland declined by 1.2 percent and 1.7 percent, respectively.

Indiana farm managers, appraisers, land brokers, agricultural loan officers, Purdue Extension educators, farmers and representatives from the Farm Service Agency county offices, Farm Credit System and insurance companies were asked to complete the survey, which had 328 respondents. Results from the survey and a full report are available online at http://www.agecon.purdue.edu/extension/pubs/paer/2009/august/dobbins.asp

Craig Dobbins, Purdue Extension farmland economics specialist, said he was surprised that farmland values were not down more than they were.

“I expected the drop in grain prices and higher input costs would lead to a fairly significant drop in farmland values,” said Dobbins, who conducted the survey. “But farmland real estate is often seen as a strategy to hedge against inflation, so we may have some of that coming into play here.”

Statewide, top-quality land averaging 182 bushels per acre for corn was valued at $28.40 per bushel; average-quality land averaging 150 bushels per acre for corn was valued at $27.92 per bushel; and poor-quality land averaging 118 bushels per acre for corn was valued at $27.44 per bushel.

The average value of bare Indiana cropland ranged from $3,351 per acre for poor-quality land to $4,994 per acre for top-quality land.

“The top-quality land tended to hold its value better than poor-quality land,” Dobbins said. “This means people in the market are more picky or selective about the land they purchase.”

For cash rents, Dobbins said “variation” is the buzzword.

“On a statewide basis, we found cash rents moving in just about every direction,” he said. “For top-quality land, cash rents were up about 2 percent. For average-quality land, cash rents were just about constant with 2008 numbers, and for poor-quality land, cash rents were down 1 to 2 percent.”

The average estimated cash rent was $198 for top-quality land, $158 for average-quality land and $121 for poor-quality land. The report showed that statewide, rent per bushel of estimated corn yield was $1.03 to $1.09.

There were significant variations in cash rents by region of the state, Dobbins said.

Some areas did see an increase, such as the west central and southwest regions of Indiana, where cash rents increased from 2.1 to 6.7 percent. The central and southeast regions reported constant or declining cash rents, while the north and northeast reported increases for top-quality land and declines for average- and low-quality land.

The west central region had the strongest cash rents across all land qualities, ranging from $145 per acre to $220 per acre. Cash rents were weakest in the southeast, ranging from $86 per acre to $146 per acre.

In looking to the future and trying to decipher what these numbers will mean for the 2010 crop year, Dobbins believes margins will continue to get tighter.

“We’ve seen some input costs drop. Fertilizer prices seem to be declining and fuel declined but is coming back up,” he said. “At this time, it looks like the net return for crop production is going to be smaller in 2010 than in 2009, and certainly 2007 and 2008. Some cash rents will need to be adjusted downward.”

Dobbins recommends that if there were large upward adjustments in cash rents in previous years, tenants may need to convince landowners to make a downward adjustment.

“It does not appear that the large margins needed to support high cash rents will be there for 2010,” he said.

Now is the time, Dobbins said, for tenants to get out their calculators and budget through what the potential returns are for each rental farm.

“Given the variability to both parts of the profit equation, it’s dangerous to lock in input prices but not revenue, or to lock in revenue but not input costs,” he said. “Growers will have to work to protect both parts of the equation.”

The Purdue report also tracks the value of transitional and recreational land.

“There was a significant decline for both transitional land and recreational land,” Dobbins said.

The value of transitional land – or land moving out of agriculture – was down 7 percent, and the value of recreational land had decreased by 13 percent, according to the survey.

“I think this is a general reflection of the economy,” Dobbins said.

For questions and additional information about the survey, contact Dobbins at 765-494-9041, cdobbins@purdue.edu

WEST LAFAYETTE, Ind. — A global economic slowdown isn’t likely to hit agriculture as hard as other industry sectors, but that doesn’t mean farmers and their lenders won’t see changes ahead, said Michael Boehlje, a Purdue University agricultural economist.

While Boehlje said he believes credit will be available for crop and livestock producers, farmers and ranchers might have to jump through more hoops to borrow money. Banks, on the other hand, could require more information and documentation from borrowers.

“At a minimum, producers are going to have to do a better job of showing their lender what kind of profitability they’ve had and what kind of income they’re generating,” Boehlje said. “Secondly, it’s quite possible that the lender is going to be asking for more detail on the inventory side of a producer’s balance sheet. They might ask, ‘Have you got some of your products priced with futures or forward pricing contracts for next year? Have you got some of your production costs locked in for next year, and how much?’

“Producers might end up with more projection work. Whether they’ll have to do a full-blown cash flow projection isn’t certain. But they certainly are going to at least have to give some additional evidence than they’ve given in the past of the cash that’s going to be generated by their operation next year.”

Lenders also could increase their oversight of borrowers, Boehlje said. That might come in the form of more frequent farm visits and monitoring of checking and deposit account balances and spending.

Producers could discover lenders aren’t willing to loan them as much money as they ask for, especially if the loan is for purchasing machinery or land.

“We’re probably going to see capital expenditure loans are a little more difficult to obtain this next year than they might have been otherwise,” Boehlje said. “I suspect lenders are going to be asking more questions about land purchases. Particularly, what kinds of financing will be needed to buy land.

“My sense is we already have seen some indication that lenders are being more conservative in their financing of land purchases. They are worried about the land prices. They might not be willing to finance 80 percent of the land purchase. They may only want to finance 50 or 60 percent of the land purchase. So if a producer wants to make that purchase, they’re probably going to have to come up with more cash out of their own pocket.”

Other farm credit issues the agricultural industry could face in the months to come include:

* Less aggressive lending. “When there’s a lot of uncertainty and increased risk in the markets, lenders turn conservative and are less likely to take on new customers,” Boehlje said. “It’s probably wise to stick with your current lender and not shop around for a better interest rate.”

* Increased restrictions or covenants at loan signing. Lenders might, for instance, require borrowers to have crop insurance or insist on prior approval for capital purchases, Boehlje said.

* Modestly higher interest rates. “Since we don’t see the same kind of risk in the agricultural sector that we see in other industries, we don’t expect to see dramatic rises in interest rates to reflect those increased risk premiums,” Boehlje said.

Producers could be in for one unexpected shock: higher taxes.

“A lot of farmers report their income on a Schedule F tax return, and they are able to use the rules of the Schedule F to lower their tax burden by delaying sales and prepaying expenses,” Boehlje said. “What that does is pull their taxable income down. This year, particularly for those who have cash flow problems and find themselves needing to liquidate some assets or sell some of their inventory, that could mean an increase in their taxable income. It’s a technical issue, but the tax basis for all raised grain and livestock is zero, so every dollar of sale of that inventory is ordinary taxable income.”

Agriculture remains a strong industry and credit risk, Boehlje said. Producers who practice sound money management and accounting should weather the economic storm, he said.

For more information about agricultural borrowing and lending in today’s tough economy, read Boehlje’s papers, “The Financial Crisis: Implications for Farm Borrowers” and “Financial Stress in Agriculture: Implications for Lenders.” Both are posted on the Purdue Extension Financial Crisis Information Web page, located at http://www.agecon.purdue.edu/news/financial_crisis.asp