Farmland values soar during worst drought in decades

WEST LAFAYETTE, Ind. (WLFI) - In the middle of the worst drought in decades, Indiana’s farmland values and cash rents have still climbed this year.

In June, Purdue University conducted a Farmland Value Survey. It showed a statewide increase from 2011 in farmland value ranging from 14.3 percent to 18.1 percent, depending on land quality.

Cash rents were on the rise between 12.8 percent and 15.2 percent.

Purdue Extension agricultural economist Craig Dobbins says a lot of factors contributed to the increase.

"Robust net farm incomes, favorable interest rates, strong farmland demand and a limited supply of farmland for sale kept Indiana farmland values and cash rents moving higher," Dobbins said.

The average value of bare Indiana cropland ranged from $5,013 per acre for poor-quality land all the way to $7,704 per acre for top-quality land.

In order to figure out farmland productivity, survey respondents estimated long-term corn yields for all qualities of land.

For the state, the average long-term corn yields for poor, average and top were 126, 159 and 192 bushels per acre, respectively.

The value increases are great news for landowners, but Dobbins says it’s a bit of a different story for some prospective buyers.

"For the landowners, the increase is generally a good thing," he said. "It makes the asset that much more valuable and if they are thinking about selling it, they can sell it for a good price.

He also adds, “If you're someone who is trying to start out or get into farming, this news isn't all that good. It just makes it more difficult to make a farmland purchase.”

Dobbins said this year was the year many thought crop production margins and farmland values would even out or even decrease.

But the season-long drought pushed grain prices. And, the prospects of higher 2013 and perhaps 2014 grain prices is linked to higher farmland values.

The survey also examined the value of rural recreational land, which includes land used for hunting and other activities.

The average value of an acre of recreational land was $3,489, an increase of 3.9 percent from 2011.

"As with transitional land, there is a wide range of values for rural recreational land, again making the median value a more meaningful indicator than arithmetic average," Dobbins said.

This year's survey includes responses from 276 farm managers, appraisers, land brokers, agricultural loan officers, Purdue Extension educators, farmers and professionals representing the Farm Credit System, the Farm Service Agency county offices and insurance companies.

Respondents represented six Indiana regions and all but four Indiana counties.

A full assessment of the survey results and more information about respondents and data gathering methods can be found in the August 2012 edition of the Purdue Agricultural Economics Report .