Indiana farmland value, cash rents increase by double digits
Farmland value and cash rents for the Hoosier state have increased sharply, said a Purdue University agriculture economist.
Indiana farmland value increased 13.5 percent to 15 percent from this time last year, while cash rents increased 12 percent to 13.5 percent, according to a recent survey conducted by Purdue agricultural economists.
"This probably comes as no surprise given grain prices that farmland value was up fairly sharply," said Craig Dobbins, the Purdue Extension ag economist who conducted the survey. "This was the second year in a row that we've had double digit increases in farmland values in the state of Indiana."
Dobbins reported that for the state as a whole, the value for top-quality farmland is $5,003 an acre, average-quality farmland is $4,240 an acre and poor-quality farmland is $3,408 an acre.
"As far as cash rents, this is the strongest increase we've had since the early 1970s when we had the demand shock of exports booming and prices going up," he said.
The cash rent per bushel of long-term corn yield were:
* $1.07 per bushel for poor-quality farmland.
* $1.06 per bushel for average-quality farmland.
* $1.09 per bushel for top-quality farmland.
There is not much variation in the price received per bushel, but the variation is in how many bushels per acre the land produces. Survey respondents indicated that top-quality land averaged 179 bushels per acre, average-quality land averaged 148 bushels and poor-quality land averaged 115 bushels.
"Cash rent averaged $194 an acre for top-quality land, $157 an acre for average-quality land and $123 an acre for poor-quality land," Dobbins said.
The main reason for the strong increases in farmland values and cash rents is because of the expectation about the returns from grain crop production, he said. Above-average returns are being received, and many people expect this to be the case for a few years.
These improved returns and positive expectations are being bid into land, Dobbins said. While a better income is probably the dominant factor in the market today, there also are other important factors.
"Interest rates are still quite moderate relative to their historical levels, and so if one has to borrow money to make a land purchase, that can be done fairly inexpensively now," Dobbins said. "Another important factor is the supply of farmland that's available for sale.
"There is just not an abundance of farmland on the market at this point in time, and if you are going to make a purchase, you've got to convince somebody else to let go and that takes a fairly high price."
If one is looking to make a farmland purchase and plans to borrow money for that purchase, Dobbins recommends considering a fixed rate loan rather than a variable rate loan given the uncertainty regarding inflation.
"Given where interest rates are and the inflation outlook, it seems more likely that interest rates will increase rather than decrease," he said. "By using a fixed rate loan, you can lock in an interest rate at a fairly low level now."
In the future, Dobbins expects farmland values to continue upward, but not at the same rate as it has for the past two years.
"While we've had somewhat of a downward turn in corn and soybean prices, we are still substantially above where we were a few years ago," he said. "The return side still looks fairly strong and interest rates look like they are going to be quite favorable, which means things seem to be in place for positive upward movement in farmland value in the future."
Dobbins said when survey respondents were asked where they thought farmland values would be five years from now, 72 percent thought values would continue to increase.
To read the full Indiana Farmland Values and Cash Rents Survey, go online to http://www.agecon.purdue.edu/extension/pubs/paer/2008/august/dobbins.asp . For questions and more information about Indiana's farmland values and cash rents, contact Dobbins at (765) 494-9041.