Good news from the Heartland: Land values rising

Hoard's Dairyman: 

Good news from the Heartland: Land values rising

Fri, 01/14/2011

It’s just one state and it may not reflect what is happening across the rest of U.S. agriculture, but it’s still good news in an industry that can certainly use some: Farmland values in Indiana are shooting up.

In fact, the price of average quality ground in the nation’s 13th largest farm state nearly doubled between 2000 and 2010, according to Purdue University agricultural economists. Rising commodity values that make crops more valuable are the short explanation why; corn and soybeans are the key details.

The economists point out that in 2000 the average price of an acre of average-quality Indiana farmground – land that can produce 155 bushels of corn per acre – was around $2,300. By June 2010, it was $4,419, and they point out that prices continued to rise the rest of the year.

Demand and prices for corn alone soared tremendously during the last decade due to a huge increase in production of ethanol as a fuel substitute, especially the last five years. According to USDA, the average corn price from 2000 to 2005 was $2.10 per bushel; from 2006 to 2010 it was projected to be $4.43. Yesterday (January 13), corn at the Chicago Board of Trade closed at $6.42.

There is also another huge demand driver in the marketplace that is affecting farmland values: China. The economists point out that corn for ethanol plus soybean exports to China required 16 million acres of farmland production in 2005. Last year they estimate it took 41 million acres.

Since demand for both crops is not expected to decline anytime soon, farmland appears likely to continue being a fertile investment ground.