August 15, 2002
'Green' acres: Purdue survey says Indiana farmland values higher
WEST LAFAYETTE, Ind. A bare acre of Indiana farmland is worth more today than it was a year ago, a Purdue University survey indicates.
Average quality Hoosier cropland was valued at $2,382 per acre this past June, up $118 from June 2001. Cash rents the amount farmers pay landowners to grow crops on their property rose $3 in the period, to $116 an acre for average land.
The findings are part of the annual Purdue Land Values Survey. The survey examines land and rental prices, the movement of acres out of agricultural production and factors behind land value trends.
The survey gauges opinions of market professionals from across the state, said Craig Dobbins, a Purdue Cooperative Extension Service farm management specialist. This year's survey received responses from 325 appraisers, loan officers, land brokers, farm managers and farmers.
Survey respondents reported a robust land market, especially in rural areas near large cities, Dobbins said. Indiana farmland values have trended upward since 1988, after falling sharply between 1981 and 1987.
"One important factor is that we continue to see a fairly strong demand for land, both from people in agriculture and from those outside of agriculture and maybe the stronger one is from outside agriculture," Dobbins said.
"There's a strong demand for development land around many of the towns and cities in the state. That frequently causes people to want to reinvest the money that they had in real estate in other parts of Indiana. So that money moves out from areas like Indianapolis, Lafayette, Fort Wayne and Evansville, to areas around the state."
Purdue's survey compared land values and cash rents of three classes of untilled agricultural land: top quality the most fertile with a corn yield rating of 162 bushels per acre; average quality, with a per-acre corn yield rating of 132 bushels; and poor quality, rated at 102 bushels per acre for corn.
Top quality land was worth the most, averaging $2,892 an acre statewide, up $90 in the year ended June 1. Poor quality land had the largest average increase in value, up $136 to $1,869 per acre.
By region, farmland in central Indiana counties was valued highest, averaging from $3,174 for top quality land to $2,226 for poor quality land. West-central Indiana farmland was next highest in value, averaging $2,964 for top quality land to $1,929 for poor quality land.
Southwest Indiana was the only region to report a decrease in a land value. Poor quality land there declined 3.2 percent.
Market demands, land availability and government policies contributed to the rising price of farmland, Dobbins said.
"The supply of land available for sale remains fairly small," he said. "So if you're going to make a purchase, you're going to have to convince the people that hold this land that it is time to let go. One has to be aggressive in terms of the prices to get that to happen.
"Another factor is that while farm prices for corn and soybeans have been low, the federal government has provided pretty good income support payments, and many of those have gotten capitalized into land values and cash rents."
Cash rents spiked higher in most regions, to as much as a 7.9 percent increase for poor quality land in southwest Indiana, the survey revealed. The jump in rental rates was unexpected, Dobbins said.
"That was a bit of a surprise, given that crop prices have remained so low," he said. "Evidently, the good yields that we've had for the last several years, coupled with the government program and the desire by farmers to expand the size of their businesses, has caused them to bid aggressively in the cash rental market. So this year we found a larger increase in cash rents than we've found the last several years."
The survey also found:
Values for "transitional" land acres shifting out of agricultural production and often into development declined. The average value of transitional land was $6,447 per acre in June 2002, down $180 from the previous year. It marked the first decline in transitional land values in three years.
"I wouldn't read too much into it, because there's a wide variation in the numbers from year to year," Dobbins said. "You'll have sales of $6,000 an acre, all the way up to $30,000 an acre."
Nearly 80 percent of the respondents expect farmland values to keep going up in the years ahead. Overall, they project values to be 7.6 percent higher in five years.
Cash rents aren't likely to drop, even if crop yields are below normal this year. Currently, Indiana farmers are on pace to harvest an average of 124 bushels per acre of corn and 41 bushels per acre of soybeans. Both yield estimates are well off the 2001 averages of 156 bushels for corn and 49 bushels for soybeans.
"I suspect if we get somewhat normal yields then we probably won't see much, if any, decline in cash rents, or they may not go up as much as they did this last year," Dobbins said. "If we have bad yields, then it wouldn't surprise me to see some potential decline in cash rents. But these rents are really sticky, in terms of being able to move down. Generally what happens is when uncertainty increases, they only tend to stop rising."
The complete Purdue Land Values Survey report, which includes data on each Indiana region, appears in the August issue of the Purdue Agricultural Economics Report. The report can be downloaded online at http://www.agecon.purdue.edu/extensio/paer/2002/paer0802.pdf.
Writer: Steve Leer, (765) 494-8415, firstname.lastname@example.org
Source: Craig Dobbins, (765) 494-9041, email@example.com
Ag Communications: (765) 494-2722; Beth Forbes, firstname.lastname@example.org; http://www.agriculture.purdue.edu/AgComm/public/agnews/
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Purdue News Service: (765) 494-2096; email@example.com