April 4, 2005

Purdue survey shows Indiana farmland still hot property

WEST LAFAYETTE, Ind. – Indiana farmland is a hotter commodity than some of the crops it grows.

A February survey by Purdue University indicated Indiana farmland values exceeded $3,500 per acre on average this past fall and winter, said Craig Dobbins, a Purdue Extension farm management specialist.

"To get a sense for how the Indiana farmland market was changing, we conducted a survey of the Indiana Society of Farm Managers and Rural Appraisers when they held their meeting in Lafayette," Dobbins said. "We asked them to provide us with their estimate of the sales price for a bare tract of land that's 80 acres or larger with no buildings and capable of producing, year in and year out, 145 bushels per acre of corn.

"When we pulled all of their answers together, the average value was $3,512 an acre for this tract. They said that land values were up about 11 percent for the year, from February to February."

About 30 society members from mostly northern and central Indiana counties participated in the survey, Dobbins said. The survey showed the steady rise in farmland values has picked up steam in recent months.

Since 2000, each increase in the average price per acre of farmland has set a record, Dobbins said. Dobbins attributed the booming land market to development, tax incentives, farm expansion and modest long-term interest rates.

A June 2004 Purdue survey found that an acre of bare Indiana farmland averaged between $2,131 and $3,278 in value, depending on production potential. The annual survey indicated land values rose about 8 percent in the previous year.

The June survey polled 321 farm managers, rural appraisers, land brokers, bankers, farmers, Purdue Extension educators and representatives of the Farm Credit System, Farm Service Agency and insurance companies. "It will be interesting to see this June if our larger survey confirms our smaller February survey," Dobbins said.

Several factors continue driving farmland prices up.

"They're the same reasons that have been pushing the farmland market for the last several years," Dobbins said. "One of them is the continued demand for homes in the country and land for development purposes, for subdivisions or commercial properties. Another factor is farmers are interested in buying land in order to expand the size of their business.

"Then there are tax-free exchanges – or what is known as 1031 exchanges – within the tax code. These exchanges let people sell their property to developers for big prices and then reinvest that money back into real estate without paying capital gain taxes on the transaction. A final factor is low interest rates. Long-term interest rates have stopped going down and have been creeping up a little bit, but they're still relatively low."

The February survey also asked farm managers and appraisers to estimate the cash rent value of the hypothetical 80-acre tract. Survey respondents said the land could rent for $147 per acre, up $7 per acre from 2004.

"To find a cash rent increase this strong, you've got to go all the way back to 1996," Dobbins said.

More information on Indiana farmland values is available in "2005 Outlook for Indiana Farmland Values and Cash Rent," by Dobbins. The paper can be downloaded online by logging onto http://www.agecon.purdue.edu/extension/prices/index.asp and then clicking on "Land Values & Cash Rents" under "Topics."

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Craig Dobbins, (765) 494-9041, cdobbins@purdue.edu</P>

Ag Communications: (765) 494-2722; Beth Forbes, forbes@purdue.edu
Agriculture News Page

Purdue University Department of Agricultural Economics

To the News Service home page