Kentucky Land Values Buck the Trend

Dick Trimble, UK Ag Economics

U.S. farm real estate values reached a historical high during 2007, and started to decline during 2008. According to information released by USDA in August, the value of farmland and buildings on farms across the US averaged $2,100 per acre on January 1, 2009. This $2,100 value is 3.2 percent ($70/Ac) less than the record high of $2,170 set last year. The declines were widespread. Crop land values went down by $100 per acre (4.0 percent) to $2,650 per acre. Pasture land declined less, dropping $20 per acre (1.8 percent) to $ 1070 per acre.

These changes seem to reflect the profitability challenges facing all sectors of the agricultural economy. It is also reflective of the general economy and a reduced demand for recreational and investment purposes. All of these factors have contributed to the general decline of US land values.

As indicated in the following table, Kentucky’s average value of agricultural land was $2,850 per acre as of January 1, 2009, unchanged from 2008. This result is somewhat surprising as all surrounding states experienced lower farm land values during 2008. Both Missouri and Tennessee experienced the greatest decreases of 4.3 percent. Illinois had the smallest decline of 0.4 percent.

The reason for the stability of Kentucky land values is uncertain. It may be a result of the mix of crop, livestock, and tobacco enterprises that make up our agriculture. It could be related to the relative small size of land parcels that typically change ownership across the commonwealth. Smaller parcels typically sell at higher prices per acre than do larger parcels. Another possible influence could be the urban demand for recreational land across the state. For whatever reason, Kentucky land values have obviously maintained their current level to a greater extent than that of surrounding states.

A survey of Kentucky County Extension Agents was conducted in October 2008 to supplement the USDA information. According to the survey, participating agents estimated Kentucky farm real estate values to be higher than indicated by the USDA. The average value of Kentucky farm land, according to the agent survey, was estimated to be $4,155 per acre, which is $10 per acre (0.2 percent) less than in 2007. Regional estimates were as follows: East Region - $4,316, Central Region - $4,547, and West Region - $3,528.

Falling commodity prices, combined with dramatic increases in cost of production have resulted in falling agricultural profit margins. Combining this with a recession in the general economy, the land market seems to have cooled off recently. If these conditions continue or become more pronounced, we should expect Kentucky land values to move lower, as has been the case across the US. This would also be consistent with expectations expressed by agents in our October 2008 survey.