August 9, 2005
Purdue survey: Indiana farmland values still sizzling
WEST LAFAYETTE, Ind. - Indiana farmland values are as hot as the Hoosier summer, according to an annual Purdue University survey.
The Purdue Land Values Survey found that during the year ended in June, Indiana cropland values rose for all types of land - poor, average and top quality.
Poor quality land averaged $2,367 per acre, average quality land averaged $2,945 an acre and top quality land averaged $3,556 per acre. Those values represented increases of 11.1 percent, 9.4 percent and 8.5 percent, respectively, from the 2004 survey. The land value increases were the highest since 1996-1997, when the survey reported a statewide increase of 12 percent to 15 percent.
Land quality is based on average long-term corn yield: 108 bushels per acre for poor quality land, 139 bushels an acre for average quality land and 169 bushels per acre for top quality land. Value per bushel for different land qualities is similar, ranging from $21.08 per bushel to $22.01 per bushel.
Land values across the state increased uniformly except in southeast Indiana, where increases were not as large, said Craig Dobbins, Purdue agricultural economist and survey coordinator.
"This year, nearly every region reported strong increases in farmland values," Dobbins said. "The one exception was Indiana's southeastern region. The increases there were less than 3.5 percent."
The highest valued land continued to be in Indiana's central region, with values ranging from $2,806 per acre to $3,938 per acre. The region includes the counties of Clinton, Boone, Hendricks, Johnson, Bartholomew, Decatur, Franklin, Union, Wayne, Henry, Madison and Howard. The west-central region recorded the second-highest average land values, followed by the north, northeast, southwest and southeast regions.
The central region also posted the highest land value per bushel of estimated long-term corn yield, at $22.96 per bushel to $24.85 per bushel. Per-bushel land values ranged from $20.88 to $22.58 in the west-central, north and northeast regions, and from $17.49 to $19.50 in the southwest and southeast regions.
Other highlights of the land values survey included:
The average value of transitional land - land moving out of agriculture - increased 8.5 percent in the past year, at an average value of about $8,207 per acre.
Cash rents increased statewide $3-$4 per acre, to $99 for poor quality land, $126 for average quality land and $154 for top quality land. Cash rent as a percentage of farmland value declined 4.3 percent.
"There are two sources of return from an investment in farmland," Dobbins said. "One is the annual return, represented by cash rent, and the other is the increase in land value. In the 31-year history of the Purdue Land Values Survey, these values are the lowest reported. This indicates that the current market is depending more than usual on expected increases in value to provide a competitive overall rate of return."
Only 16 percent of survey respondents indicated that more land was on the market now compared to the same time period in the 2004 survey. The remaining 84 percent of respondents said the amount of land on the market was the same or less than in the previous year. Seventy-two percent of respondents also indicated that the demand for rural residences increased from 2004.
The survey also asked respondents to predict future farmland values. Respondents said they expect farmland values to increase 1.4 percent to 1.6 percent by December. Seventy-four percent said they expect farmland values to be higher in five years.
"With farmland values this high and the importance of future increases to current values, it is important to ask what might slow the rate of increase or cause a reduction," Dobbins said.
One factor that could affect results in the 2006 survey is this summer's continued hot, dry weather. Conditions could lead to reduced crop yields and less income for farmers. Farm income would be expected to decline from last year's record levels, although a drastically lower income could have a dampening effect on the farmland market, Dobbins said.
"Time will tell if this year's hot and dry weather will reduce yields enough to potentially impact next year's land values," he said.
Other factors that could affect land values in the year ahead are the rate of inflation and long-term interest rates, as well as the debate about the next farm bill and agriculture budget, Dobbins said.
The Purdue Land Values Survey is conducted each June. Questionnaires are sent to farm managers, rural appraisers, land brokers, bankers, farmers, Purdue Extension educators, and representatives of the Farm Credit System, Farm Service Agency and insurance companies. This year 332 people, representing all but six Indiana counties, completed questionnaires.
To read the entire survey report, log onto the Agricultural Economicspage and click on Purdue Agricultural Economics Report.
Writer: Jennifer Culy, (765) 494-8402, email@example.com
Source: Craig Dobbins, (765) 494-9041, firstname.lastname@example.org
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