Farmland Purchases: Tread Carefully

Purdue economists say close assessment is needed before taking the buying plunge

Published on: Feb 14, 2014

With profit margins tightening, taking the leap of faith to buy more farmland isn't a decision to be taken lightly, say Purdue Extension ag economists.

"The next couple of years for farmland values are going to be a little less certain than the last few years have been," says economist Craig Dobbins said. "Commodity prices have come down significantly in the last year, so these large returns we've kind of become accustomed to for the last few years have now shrunk.

According to a Purdue survey, prices in Indiana alone for farmland have tripled in the last 10 years.

"The probability of farmland values staying flat or seeing a small decrease is much bigger than the probability that we're going to see another double-digit increase," Dobbins added.

AVOID BUYERS REMORSE: Purdue economists say close assessment is needed before taking the buying plunge
AVOID BUYER'S REMORSE: Purdue economists say close assessment is needed before taking the buying plunge

Related: Are Farmland Prices Headed Towards A Plateau?

Along with three colleages, Dobbins discusses the issue in the new paper, Farmland: Is it Currently Priced as an Attractive Investment?

The paper is sponsored by Purdue's Center for Commercial Agriculture and is co-authored by agricultural economists Tim Baker, Mike Boehlje and Michael Langemeier.

The four economists analyze farmland value trends and compare the attractiveness of investing in farmland with that of other investment portfolio choices, in terms of long-run risk, return and inflation hedge characteristics.

While the results showed that farmland can be a good investment when compared with stocks, they also showed that now might not be the right time to make a purchase.

"Even though our data confirms the conventional wisdom that farmland has high returns, low risk and is a good inflation hedge, the current price to rent ratio suggests this is not a good time to buy," the paper states. "Those purchasing farmland today should not ignore the prospect of buyer's remorse."