Lexington – Land prices have been rising steadily across Bluegrass state for much of the past decade. As a result, leasing farmland has become a more attractive option than buying it from many Kentucky producers.
Each year, the US Department of Agriculture publishes a Land Values ââSummary which includes Cropland Values ââfor land used to grow grains, vegetables, and hay. According to the U.S. Department of Agriculture’s 2020 Land Values ââSummary, average cropland prices in Kentucky were $ 4,400 per acre. This is an increase of $ 1,220 an acre from 2010, when cropland prices across the state averaged $ 3,180 an acre.
The rise in farmland prices is due to several factors, said Greg Halich, an agricultural economist at the University of Kentucky College of Agriculture, Food and Environment. Many towns and cities, including the major metropolitan areas of Kentucky, Lexington, Louisville, northern Kentucky, and the traditional farming centers of Bowling Green, Owensboro, and Elizabethtown have experienced substantial growth over the past decade. This has caused some agricultural land to be observed by developers and investors. In addition, a large part of the population wishes to live in rural areas, but not necessarily on the farm.
âAny land close to a city is valued for development and, therefore, is overvalued for agricultural purposes,â he said. âWe see more farmers renting than buying farmland because it’s often cheaper to rent. Rental agreements tend to value land based on its agricultural use rather than its development potential. ”
Every few years, Halich surveys county agriculture and state natural resource extension officers on the estimated cost of local rural land prices and cash rents. Although these are only estimates, they give a good indication of rural land price trends across the state.
According to its 2018 survey, the value of cropland in the Midwestern Kentucky subregion, which includes Daviess, Warren and Christian counties, is the highest in the state with average prices estimated at $ 6,100 per acre. The Bluegrass subregion, which includes Fayette and surrounding counties, had the second highest average cropland value. Officers estimated the average price of cropland there to be $ 5,200 per acre.
For hay land purchases, the Bluegrass had the highest appraised land value at $ 4,100 an acre. The North Central subregion, which includes Jefferson and Northern Kentucky counties, was second at $ 3,800 an acre.
Higher land prices make it difficult for producers to purchase land and more difficult for new farmers to enter the industry.
âLand, especially land priced for development, is difficult for producers to make profitable,â said Halich.
Cash rents are significantly cheaper than buying land. The average cash rent for cropland in the Midwestern Kentucky subregion was $ 210 an acre for the best land and $ 150 for the fair land. In the Bluegrass, the average cash rent for cropland was $ 130 an acre for the best land and $ 90 for the fair land.
Haylot rentals were more expensive in the North Central region, with average cash rents ranging from $ 65 to $ 40 an acre. In the Bluegrass area, cash rents have been estimated to be between $ 50 and $ 30 an acre. The cash rents for the Bluegrass haylands were comparable to those in the North-East, South-East, Center-South and Near-West subregions.
Another reason renting has become more attractive to producers in the state is that average cash rents have been declining statewide since 2014, when commodity prices fell. Between the 2015 and 2018 surveys, rental prices fell from $ 10 to $ 15 an acre as grain crop profit margins weakened.
With grain prices on the rise again this year, this could lead to higher spot rents.
âNow that commodity prices are rising again, producers may see an increase in cash rents in future contracts,â said Halich.
As commodity prices rise, Halich warns producers about paying too much for the land.
âProducers need to ask themselves where commodity prices are going to be in the long run before they outbid farmland,â he said.