Ground swell: Purdue survey finds farmland values up again

A Purdue University survey of farm lenders, appraisers, land brokers and farm managers found that Hoosier cropland posted strong gains in value during the year that ended in June. The survey also revealed that cash rents rose in the same period but by a much smaller percentage.

Purdue's Department of Agricultural Economics conducts the survey each June.

Indiana farmland values have trended higher for about 20 consecutive years, said Craig Dobbins, a Purdue agricultural economist and survey coordinator.

"This was another year where Indiana farmland values were up fairly strong," Dobbins said. "On a statewide basis we're talking about an average increase of 6 percent to 7.5 percent in farmland values from June 2005 to June 2006. In spite of rising farm input costs for energy and fertilizer, and market prices for corn and soybeans that farmers just don't think are all that great, there still seems to be a very strong demand for farmland."

Those surveyed were asked to estimate the value of bare farmland and its long-term corn yield potential, Dobbins said. Land considered top quality can consistently produce 170 bushels of corn per acre. Average-quality land has an average long-term corn yield of 139 bushels per acre, while poor-quality land is capable of averaging 106 bushels per acre.

"We found that for top-quality land the estimated average value was $3,770 per acre in June 2006," Dobbins said. "Average-quality land was valued at $3,162 and poor-quality land averaged $2,509 an acre." Those values represented increases of $217 per acre for average-quality land, $214 per acre for top-quality land, and $142 per acre for poor-quality land.

By region, land values in central and west-central Indiana counties were highest, at more than $3,400 an acre for average-quality land. Land values in southwest Indiana counties posted the highest overall average increases from 2005, at 14.3 percent. Only one land category lost value in the 12-month survey period — poor-quality land in the central Indiana region, which fell 0.4 percent.

"One of the reasons that real estate markets have been strong has been low long-term interest rates," Dobbins said. "Even though rates have gone up they are still quite low relative to historical long-term rates.

"Another influencing factor is that farmland is a pretty competitive investment. Putting money into CDs and those sorts of things does not provide a big return, so competing investments haven't been so strong. Also, there continues to be quite a strong demand for development land. So we still have this phenomenon in the market where people sell off tracts of land around towns and cities for several thousands of dollars an acre, and then look for ways to reinvest that back into farmland to avoid the capital gains taxes they might have to pay."

The survey indicated that cash rents — the amount farmers pay to rent land on which to grow crops — were up slightly across the state.

"Like land values, cash rents also have been increasing over the last several years but the rate of increase for cash rents has been much, much slower than land value increases," Dobbins said. "This past year across the state as a whole, we added a dollar to the average cash rents. So now for average farmland in Indiana we've got an estimated cash rent of about $127 an acre."

The survey also found that:

• Poor-quality land is more expensive than top-quality land on a per-bushel crop basis. Poor land was valued at $23.27 per bushel. Conversely, top land is valued at $22.14 per bushel.

• Land moving out of agriculture and into such uses as development is worth 11 percent more, on average, than one year ago. The average per-acre value of this "transitional land" is $9,113.

• Many survey respondents believe that farmland values will continue to increase. Seventy percent said they expect farmland values to be higher in five years, with land supply and cash liquidity exerting the most influence on the market.

Purdue Land Values and Cash Rent Survey questionnaires were sent to farmland professionals in all 92 Indiana counties and completed by 313 people.

A survey report, "Indiana Farmland Values Continue to Increase," appears in the August issue of the Purdue Agricultural Economics Report. The report is available online.

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

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

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

Note to Journalists: Other farm-related story ideas are available at Purdue Agriculture's Farming 2006 Web site.

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