Indiana farmland values and cash rents took a sharp turn upward from last year, said a Purdue University expert.
The Purdue Land Values and Cash Rent Survey indicates an increase for land values of 17-19% across Indiana, and a 9-10% climb in cash rents from June 2006.
"One needs to go all the way back to 1977 to find an increase of this magnitude," said Craig Dobbins, Purdue Extension farmland economics specialist and survey coordinator.
The annual June survey found that on a statewide basis, the average value of bare Indiana cropland ranged from $2,991/acre for poor-quality land to $4,407/acre for top-quality land. Average-quality cropland had an average value of $3,688/acre. For the 12-month period ending in June 2007, this was an increase of 19.2%, 16.6% and 16.9%, respectively, for poor-, average- and top-quality land.
The average value of transitional land – land moving out of agriculture – increased 4.5% this year, at an average value of $9,520/acre.
However, there is a very wide range of values for transitional land and the median value may give a more meaningful picture, Dobbins said.
The median value of transitional land in June 2007 was $7,500/acre.
Like land values, cash rents also increased substantially, by $10-16/acre. The largest dollar increase in rent was for top-quality land and the smallest dollar increase in rent was for the poor-quality land. Estimated cash rents were $171/acre on top-quality land, $139 per acre on average-quality land and $110/acre on poor quality land. This was an increase in rental rates of 10% for poor-quality land, 9.4% for average-quality land and 10.3% for top-quality land.
The numbers indicate a limited supply of land for sale or rent and a strong demand from farmers, investors and people wanting to live in the country. The survey also shows that farmland values are likely to increase.
The increase is fueled by several things, most notably the substantial increase in the price of corn and soybeans, which is driven by the biofuels effort, Dobbins said.
"We now have much higher prices, but we also have more variability in those prices," Dobbins said. "One needs to exercise some caution in terms of bidding these higher returns into higher land values if buying farmland or higher cash rents.
"As one is thinking about making adjustments this fall as leases are renewed, it is important to do some budgeting, sharpening a pencil and gathering as much information as you can about what people think prices and costs are going to be next year and the year after that. It's important to ask some 'what if' questions about what might unfold and how you can protect the farming operation."
One of the challenges in this new environment is managing increased variability in prices of products and inputs.
Dobbins advises land owners, renters and potential owners and renters to:
- Review what the historical yields have been for a particular piece of land.
- Do some budgeting and number crunching.
- Make projections in regard to costs and yields down the road.
- Assess the kinds of risks being taken.
"What if the government dropped its incentive to blend ethanol and corn prices decreased sharply? How would that affect you and where you stand?" Dobbins said in giving an example of the type of questions one should be asking.
When buying land, give careful thought to how long prices may stay at these high levels, he said.
"Predictions may be right, but they could be wrong and land is something that is going to be paid for over the next several years," Dobbins said.
The Purdue Farmland Value and Cash Rent survey is available at