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Land Prices and Cash Rent Still Edge Up in Short Term

Land Prices and Cash Rent Still Edge Up in Short Term
Land prices trend could modify and stabilize in long term.

The latest land price and cash rent survey conducted by Craig Dobbins, a Purdue University Extension ag economist, asking bankers and farm managers about trends in their area, still showed a possible uptick in prices for 2013.

Despite the big numbers you hear, when average land is priced, the statewide acreage land sale price for $2012 was $6,352 per acre in the Purdue Extension survey. Even at that level, indications are that prices may go another 5 to 10% higher.

On the cash rent side, they could go up another 4 to 8% in 2013.

Land price trends could modify and stabilize in long term.

What happens with prices and interest rates after that impacts return on investment and could affect land price trends, says Chris Hurt, Purdue University Extension ag economist. The rate of return to owning farmland became positive when commodity prices went up in 2007, dipped in 2008 and backed off in 2009, but has been positive compared to what your money could earn in treasury bonds in 2010, likely through 2013. In fact, Purdue projects positive returns until 2016. Stabilizing commodity prices and an uptick in interest rates could bring the return down to or below the rate of treasury bonds by 2016. All this assumes that various trends play out as the ag economists see things at the moment.

The interest rate used to compare returns per acre to in 2012 was 2.62%. Most projections indicate that the rate will trend upward to nearly 3.5% by 2016. Some believe it will move up faster than that, which would affect the rate of return on land compared to investing your money in stocks and bonds. Others think interest rates will still be only on a slow climb for the next three to four years.

At any rate, the Extension doesn't see a large drop in land prices over that period. People buy land often even when it doesn't show a positive rate of return.

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