Purdue Agricultural Economics Report

PURDUE AGRICULTURAL ECONOMICS REPORT AUGUST 2006 Indiana Farmland Values Continue to Increase Craig L. Dobbins, Professor and Kim Cook, Research Associate Statewide Land Values respectively for poor, average, and the location of the tract. The median top land. The value per bushel for value for rural recreational land in different land qualities was very June was $2,775 per acre. fter several years of similar, ranging from $22.14 to A increasing values, some $23.27 per bushel. On a per bushel Statewide Rents people wonder if farmland basis, the most expensive land is the On a state wide basis, cash rents values may have reached their top. poor land with a value of $23.27 per increased $1 per acre (Table 2). The They point to several factors sharp bushel. Top quality land was the estimated cash rent was $155 per acre increases in energy and fertilizer least expensive at $22.14 per bushel. on top land, $127 per acre on average prices used in crop production, The average value of transitional land, and $100 per acre on poor land. continued low crop prices, the high land, land moving out of agriculture, This was an increase in rental rates value to cash rent multiple, and more increased 11% this year. The average of 1% for poor land, 0.8% for average recently, increasing long-term value of transitional land in June land, and 0.6% for top quality land. interest rates. Yet, the June 2006 2006 was $9,113 per acre. However, The increase from 2005 to 2006 Purdue Land Value Survey found that there is a very wide range of values continued the upward trend in cash in most cases farmland values across for transitional land from twice its rent values but it is the smallest the state continued to march higher. agricultural value to more than ten percentage increase reported for the On a state-wide basis, bare Indiana times its agricultural value. These past six years. Statewide, rent per cropland ranged in value from $2,509 values are strongly influenced by bushel of estimated corn yield ranged per acre for poor land to $3,770 per what the land is transitioning into from $0.91 to $0.93 per bushel. acre for top land (Table 1). Average and its location. Due to the wide Cash rent as a percentage of value bare Indiana cropland had an esti- variation in estimates for transitional continued to decline. For top quality mated value of $3,162 per acre. For land, the median value* may give a farmland, cash rent as a percentage the 12-month period ending in June more meaningful picture than the of farmland value was 4.1%. For 2006, this was an increase of 6%, arithmetic average. The median value average and poor quality farmland, 7.4%, and 6%, respectively for poor, of transitional land in June 2006 was cash rent as a percentage of farmland average, and top land. $7,750 per acre. In 2005, the median value was 4.0%. Over the 32-year Part of the difference in land value for transition land was $7,000. history of the survey, rent as a values reflects productivity differ- This year for the first time we percentage of farmland value has ences. As a measure of productivity, asked survey respondents to indicate survey respondents provide an the value of rural recreational land. estimate of long-term corn yields. Rural recreational land is used for The average reported yield was 108, hunting and other recreational uses. In This Issue 139, and 170 bushels per acre, On a state wide basis, the average value of rural recreational land was Indiana Farmland Values $3,059, almost equal to the value Continue to Increase . 1 Economic Importance of the * The median is the middle of average quality farmland. But as with transitional land, there is a wide Indiana Poultry Industry . 8 observation in data that have been Economic Importance of the range of values for rural recreational arranged in ascending or descending Indiana Dairy Industry . 15 numerical order. land and its value is very sensitive to 2 AUGUST 2006 7DEOH$YHUDJHHVWLPDWHG,QGLDQDODQGYDOXHSHUDFUH WLOODEOHEDUHODQG DQGSHUEXVKHORIFRUQ\LHOGSHUFHQWDJHFKDQJHE\ JHRJUDSKLFDODUHDDQGODQGFODVVVHOHFWHGWLPHSHULRGV3XUGXH/DQG9DOXHV6XUYH\-XQH /DQG9DOXH /DQG9DOXH%X 3URMHFWHG/DQG9DOXH 'ROODUV3HU$FUH +&KDQJH +&KDQJH +&KDQJH -XQH 'HF -XQH .$PRXQW .$PRXQW /DQG &RUQ 'HF $UHD &ODVV EX$ .$ .$ .$ + + . + . + 1RUWK 7RS $YHUDJH 3RRU 1RUWKHDVW 7RS $YHUDJH 3RRU :&HQWUDO 7RS $YHUDJH 3RRU &HQWUDO 7RS $YHUDJH 3RRU 6RXWKZHVW 7RS $YHUDJH 3RRU 6RXWKHDVW 7RS $YHUDJH 3RRU ,QGLDQD 7RS $YHUDJH 3RRU 7UDQVLWLRQ 5XUDO 5HFUHDWLRQ Ã 7KHODQGYDOXHVFRQWDLQHGLQWKLVVXPPDU\UHSUHVHQWDYHUDJHVRYHUVHYHUDOGLIIHUHQWORFDWLRQVDQGVRLOW\SHV,IDSUHFLVHYDOXHLVQHHGHGIRUDVSHFLILFSURSHUW\ WKLVYDOXHFDQEHGHWHUPLQHGE\DSURIHVVLRQDODSSUDLVHU 7UDQVLWLRQODQGLVODQGPRYLQJRXWRISURGXFWLRQDJULFXOWXUH 5XUDOUHFUHDWLRQODQGLVODQGORFDWHGLQUXUDODUHDVXVHGIRUKXQWLQJDQGRWKHUUHFUHDWLRQDOXVHV averaged 6.0%. The values in 2006 started. It is important to remember ownership expenses such as real are the lowest reported since the that the rent used in this calculation estate taxes, maintenance, manage- Purdue Land Value Survey was is the gross rent. Subtracting ment, etc. will make the net rate of return even lower. Area Land Values Purdue Agricultural Economics Report is a quarterly report published Survey responses were organized into by the Department of Agricultural Economics, Purdue University. six geographic regions of Indiana Editor Circulation Manager (Figure 1). As in past years, there Gerald A. Harrison Linda Klotz Purdue University Agricultural Economics Department are geographic differences in land Department of Agricultural Economics www.agecon.purdue.edu value changes. This year Southwest, 403 W State Street PAER World Wide Web West Lafayette, IN 47907-2056 www.agecon.purdue.edu/extension/pubs/paer/ West Central, and Southeast Indiana E mail: [email protected] Cooperative Extension Service Publications reported the strongest percentage Phone: 765 494 4216 or www.ces.purdue.edu/extmedia/ toll free 1 888 398 4636 Ext. 44216 Subscription to PAER increases in land value. Bare farmland Editorial Board Paper copies of the PAER are $12 per year in these areas was estimated to have W. Alan Miller (payable to Purdue University). Electronic Christopher A. Hurt subscriptions are free and one may subscribe increased by 8.3% to 18.3% (Table 1). Philip L. Paarlberg at: www.agecon.purdue.edu/contact/contact.asp The increase in estimated values in Layout and Design Cathy Malady the other regions were more modest. The survey indicated a slight decline Purdue University Cooperative Extension Service, West Lafayette, IN in value for poor quality land in the Purdue University is an Equal Opportunity/Affirmative Action employer. Central region. PURDUE AGRICULTURAL ECONOMICS REPORT 3 Bare farmland values have 7DEOH$YHUDJHHVWLPDWHG,QGLDQDFDVKUHQWSHUDFUH WLOODEOHEDUHODQG DQG consistently been the highest in 3XUGXH/DQG9DOXH6XUYH\-XQH the Central region. This year, values 5HQWEX 5HQWDV*RI-XQH in West Central and Central Indiana 5HQW$FUH &KDQJH RI&RUQ /DQG9DOXH are very similar. While the Central /DQG &RUQ Indiana top and poor quality farm- $UHD &ODVV EX$ +$ +$ * +EX +EX * * land values are slightly higher 1RUWK 7RS than those in West Central Indiana, $YHUDJH average quality land values are 3RRU slightly larger in West Central 1RUWKHDVW 7RS Indiana than in Central Indiana. $YHUDJH Land value per bushel of estimated 3RRU long-term corn yield (land value :&HQWUDO 7RS divided by bushels) is the highest $YHUDJH in the Central and West Central 3RRU region, ranging from $23.41 to &HQWUDO 7RS $YHUDJH $25.03 per bushel. This was followed 3RRU by the North and Northeast with 6RXWKZHVW 7RS values ranging from $21.12 to $22.69. $YHUDJH The Southwest and Southeast had 3RRU land values per bushel ranging from 6RXWKHDVW 7RS $18.78 to $22.29 per bushel. $YHUDJH 3RRU Area Cash Rents ,QGLDQD 7RS All areas of the state except Central $YHUDJH Indiana reported an increase in cash 3RRU rent for at least some land qualities Ã (Table 2). In Central Indiana, cash rents were reported to have declined by 1.4% to 1.8%. Across the three land qualities the strongest percent- ranged from $5,000 to $10,000 per the same, or less land was on the age increase was in the North region. acre (Table 3). Estimated per acre market than one year ago. Only Increases in this region were 2.4% median values of the larger tracts 18.6% of the 2006 respondents to 4.1%. (10 acres) ranged from $6,000 to indicated more land was on the Cash rents are the highest in $10,000 per acre. market now compared to year-ago the West Central region, followed levels (Figure 2). The remaining by the Central region. Cash rent Farmland Supply & Demand 81.4% of the respondents indicated per bushel in West Central Indiana To assess the supply of land on the the amount of land on the market ranges in value from $0.98 to $1.05. market, respondents

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