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Indiana farmland values up, but likely falling by January
Indiana Correspondent

WEST LAFAYETTE, Ind. — The average value of Hoosier farmland rose 14.7-19.1 percent, depending on its quality, over the past year, according to a recent Purdue University survey. Respondents project, however, that prices statewide for farmland will drop slightly by the end of the year.

The survey categorizes farmland as top, average or poor, depending on productivity, location and other factors. The Purdue Land Value and Cash Rent Survey was conducted in June for the preceding 12 months. It was released earlier this month.

The average value for top Indiana farmland was $9,177 an acre, up 19.1 percent from a year ago, according to the report. Average farmland was $7,446, a 17.1 percent increase. Poor farmland was $5,750, up 14.7 percent.

“I don’t think there were any major surprises,” said Craig Dobbins, an agricultural economist at Purdue. “Over the last three years, we’ve kind of developed a pretty consistent pattern. The same things that were active in the market before were still in play last year.”

Factors affecting land values include farm income, interest rates and supply and demand, he said. Farm income remained strong during the survey period and interest rates were favorable, he noted. “This strong demand and limited supply characteristic of the market continued. Farmland owned and rented just doesn’t change hands all that often. Principal buyers still remain farmers, as best as we can tell. Farmers’ intent is to only buy and generally not sell; they will if they’re forced to, but things would have to get awfully bad before they’d sell the farm.”

Buyers and sellers continue to be active in the state, said Pat Karst, vice president of Halderman Real Estate Services in Wabash, Ind. The company had one of its better springs this year, he said. “The desire to sell is still good, but there is more demand than supply,” he explained. “It’s still a seller’s market. Farmers and investors have both been buying but it’s probably about 70 to 75 percent farmers.”

Karst said buyers are mainly using cash when making land purchases.

There continues to be much competition for cropland, said R.D. Schrader, president of Schrader Real Estate & Auction Co., Inc., based in Columbia City, Ind. Like Karst, he is seeing a lot of cash used to purchase farmland.

“Overall, it’s conservative money going into farming,” Schrader said. “The purchases aren’t heavily debt-driven. They’re putting down a large amount of cash. But I haven’t seen people getting really silly about it. Farmland is still a good buy. Land values continue to increase and there continues to be a lot of competition, a lot of demand.”

Cash rents have also increased in the state, according to the survey. Rents for top-quality land were up 10.9 percent, to $294 an acre. For average quality, rents were $229, up 10.1 percent. Rents were up 9.4 percent, to $174, for poor-quality land.

The price of farmland in the state varied widely by region, the survey found. Farmland in all three categories was highest in the west-central part of Indiana – $10,948 for top quality, $8,955 for average and $7,206 for poor. Values were lowest for farmland in southeastern Indiana, with $4,873 for top quality, $3,904 for average and $3,065 for poor.

“The land in west-central Indiana is flat to gently rolling,” Dobbins said. “There’s a lots of large square fields with productive land. It has reasonably good topsoil.” Southeastern Indiana, with its hilly topography and more shallow topsoil, doesn’t have the same productivity, he noted.

“The land is just less well-suited to the production of corn and beans. It’s not necessarily the skills of the farmers, but the natural topography of the area.”

For the report, 261 professionals, including farm managers, appraisers and agricultural loan officers, were surveyed. The respondents foresee land values to drop slightly by the end of the year and that indicates a change is coming, Dobbins said.

“Things do not only go up; that’s not the way an economy works,” he pointed out. “If I look into my crystal ball, if we haven’t reached our peak (in land value), we may be getting pretty close to it.”
By the end of the year, the survey shows respondents expect the value for top land in the state to be $9,168, a slight drop over the June 2013 value. Average farmland is also projected to drop, to $7,430, as is poor farmland, to $5,742 per acre.

Even with the potential decrease in values, land is still worth more than it was six months ago, Schrader noted. “I don’t think there is anyone out there who expected them to continue (to increase) at that rate,” he said. “I’m not sure it was healthy to continue at that rate.”

Karst also expects to see a smaller growth rate over the next year. “They say the best cure for high prices is high prices,” he noted. “We’ve been supercharged and super hot for several years now. It needs to calm down a bit.”