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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.
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By Laura Skillman
PRINCETON, Ky., (Nov. 2, 2005) – 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.
Writer:
Laura Skillman
270-365-7541 ext. 278
Contact: Richard
Trimble, 270-365-7541 ext. 223
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