November 2, 2005 | By: Laura Skillman
PRINCETON, Ky.

The value of farmland continued to climb in 2005 in Kentucky and across the nation, driven in part by low interest rates and strong nonagricultural uses.

At the beginning of the year, farmland in Kentucky was valued at $2,200 per acre, an increase of $200 above the 2004 value, according to the U.S. Department of Agriculture’s Center for Economic and Policy Research. Average U.S. land values are somewhat lower at $1,510 per acre, but that was an 11 percent increase above 2004 figures.

Since 1996, farmland prices have increased 47 percent when adjusted for inflation.

All the factors driving increases in U.S. land values are also present in Kentucky, including low interest rates, good commodity production and prices, and strong nonagricultural demand, said Richard Trimble, an agricultural economist with the University of Kentucky College of Agriculture. Kentucky may have seen an even higher jump if not for the uncertainties surrounding a tobacco buyout in much of 2004. 

A survey of UK Cooperative Extension Service county agents for agriculture and natural resources showed an expectation that rates would continue to increase through this year with nonagricultural demand being a prime factor in central Kentucky.

Crop land cash rentals for Kentucky were estimated by the USDA at $73 per acre for this year, up a dollar. However, rental payments vary within the state, based on the agent survey which shows west Kentucky with the highest at $99 per acre followed by the central part of the state at $70.18 and eastern Kentucky at $53.71. The agent estimate was somewhat lower than the USDA at $70.24. Cash rents as a percentage of the overall land value have declined.

With the perception that current farm credit is solid and credit availability is plentiful, the upward trend in land values is likely to continue, Trimble said.

Yet, while land prices have been booming, there is some need for caution, he said.

Interest rates are beginning to move upward, gross income from corn and soybeans relative to land value is decreasing and energy costs are skyrocketing. In addition, farm household spending has been on the rise.

If interest rates move upward, gross cash rents and land values could make adjustments. The upward trend could change if lenders perceive a reduced capacity by borrowers to pay their existing debt or if they begin to suspect erosion in the value of real estate used to secure debt.

Fear of inflation may continue to spur increased interest rates, and the way energy costs play out in the coming months is likely to impact land values in 2006.

 

Contact: 

Writer: Laura Skillman 270-365-7541 ext. 278

Contact: Richard Trimble, 270-365-7541 ext. 223