Indiana farmland values saw substantial increase from 2009
WEST LAFAYETTE, Ind. - Farmland values have risen higher than expected throughout the state over the past year, according to a new Purdue University report.
The 2010 "Indiana Farmland Value and Cash Rent Survey" showed that land values increased between 4.5 percent and 6.3 percent statewide. Top-quality farmland values averaged $5,310 per acre, while average-quality farmland was valued at $4,419 per acre and poor-quality land averaged $3,501 per acre.
"What we found in the report this year is that land values increased sharply when compared with what had occurred the prior year," said Craig Dobbins, Purdue Extension agricultural economist. "In 2009 we had a bit of a downward correction in our survey numbers."
One factor affecting land values is soil productivity, which is measured using long-term corn yield estimates. Dividing the farmland value by the expected long-term corn yield resulted in a value of $28.41 per bushel for top-quality land, with average-quality land at $28.56 per bushel and poor-quality land at $28.93 per bushel - a surprisingly narrow range, Dobbins said.
Dobbins also said there was a grain price recovery earlier this year and farmers planted crops earlier, which led to renewed optimism about crop margins. There also were reduced input costs, mainly in fertilizer, contributing to better crop margins.
"Those two things together have provided some increased optimism in the land market," Dobbins said. "Land also continues to be a good investment on the part of people looking to invest money. The stock market is still jumping all over and no one knows what direction it is likely to go. The land market has been more stable. And with this renewed optimism I think people have come back into the market."
To explore differences in farmland values across the state, survey responses were divided into five regions: North, Northeast, West Central, Central, Southwest and Southeast. The strongest increases were in the West Central and Northeast regions, ranging from 3.6 percent to 8 percent. In the North, the survey indicated that changes for top-, average- and poor-quality land were less than 1 percent. In the Southeast, top-quality land value increased, but poor-quality land value decreased.
Higher values are good news for farmers who own land because it provides increased equity. A business that demonstrates steady increases in business equity likely will have an easier time renewing loans at the bank. But for those looking to buy land, the value increases may mean more difficulty in doing so. Continued declines in long-term interest rates might make investing in land a little bit easier, Dobbins said.
For the remainder of 2010, survey respondents indicated they did not expect much change in land values, and over the next five years most of the increases were expected to be modest.
"We've had some strong increases in farmland values over the past few years, and we asked respondents to project what might be happening in the future," Dobbins said. "What we discovered is that respondents are not expecting much change in land values the last half of this year. When we looked at what might happen five years down the road, we found that most people thought the values were going to be higher, but the rate of increase is not likely to be what it has been."
The survey also looked at cash rents, which increased 2 percent to 2.5 percent statewide.
For the first time, cash rent for top-quality land was above $200 per acre at $202, Dobbins said. Cash rent for average-quality land was $161 per acre and $124 per acre for poor-quality land. This was $3 to $4 more per acre than in 2009.
As with farmland values, productivity is important in determining cash rent. When the state cash rent is divided by the expected long-term corn yield, rent per bushel across land quality groups varies only from $1.02 to $1.08. The highest cash rents continue to be in the West Central and Central regions of the state. Average cash rent for top-quality land in these two regions was $206 to $225 per acre. Average-quality land was $184 and $169, while poor-quality land was $147 and $135.
The lowest cash rents are in the Southeast region.
Purdue's "Indiana Farmland Value and Cash Rent Survey" is completed annually by the Department of Agricultural Economics. Individuals surveyed include rural appraisers, agricultural loan officers, Farm Service Agency personnel, farm managers and farmers. The results provide information about the general level and trend in farmland values.
The full report is available online at https://www.agecon.purdue.edu/extension/pubs/paer/2010/august/dobbins.asp
Writer: Jennifer Stewart, 765-494-6682, jsstewar@purdue.edu
Source: Craig Dobbins, 765-494-9041, cdobbins@purdue.edu
Ag Communications: (765) 494-2722;
Keith Robinson, robins89@purdue.edu
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