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Indiana Farmland Values & Cash Rents Continue
to Increase
Dr. Craig L. Dobbins and Kim
A. Cook
The June 2003 Purdue Land Values Survey found that on a statewide basis bare
Indiana cropland ranged in value from $1,966 to $3,035. These values are based
on 323 surveys received from professionals that are knowledgeable of Indiana's
farmland market. Poor land had an estimated value of $1,966 per acre, average
land had an estimated value of $2,509 per acre, and top land had an estimated
value of $3,035 per acre (Table 1). For the 12month period ending in June
2003, this was an increase of 5.2%, 5.3% and 4.9%, respectively for poor,
average, and top land.
Part the difference in land values reflects productivity differences. As a
measure of productivity, survey respondents were asked to estimate longterm corn yields. The average reported yield was 103,
134, and 163 bushels per acre, respectively for poor, average, and top quality
land. The value per bushel for different land qualities was very similar. Poor
land was the most expensive at $19.07 per bushel. Top land had the lowest value
at $18.59 per bushel and average land was $18.79 per bushel.
The average value of transition land* increased this year, reversing
the decline that occurred in last year's survey. The average value of
transition land in June 2003 was $6,936 per acre, an increase of 7.6% from June
2002. Due to the wide variation in estimates for transitional land, the median
value** may give a more meaningful picture than the arithmetic average. The
median value of transitional land in June 2003 was $5,500 per acre.
Statewide Rents
Cash rents increased statewide from 2002 to 2003 by $2 to $4 per acre
(Table 2). The estimated cash rent was $147 per acre on top land, $120 per
acre on average land, and $93 per acre on poor land. This was an increase in
rental rates of 2.2% for poor land, 3.4% for average land, and 2.8% for top
land. Rent per bushel of estimated corn yield was $0.90 per bushel for all land
classes. Cash rent as a percentage of value continued to decline. For top and
average farmland, cash rent as a percentage of farmland value was 4.8%. For
poor farmland, cash rent as a percentage of farmland was 4.7%. These values are
the lowest achieved in 27 year history of the Purdue Land Value Survey.
Area Land
Values
Changes in the value of farmland in the six different geographic areas of Indiana
(Figure 1) for December 2002 to June 2003 ranged from a 2.1%
increase for poor land in the Central region to a 4.5% increase
for average land in the Southwest region (Table 1). All regions
of the state reported strong increases in farmland values for
this sixmonth period. The strongest
region was the Southwest with increases ranging from 3.4% to 4.5%.
Figure 1.
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Table 1. Average estimated Indiana land
value per acre (tillable, bare land) and per bushel of
corn yield, percentage change by geographical area and
land class, selected time periods, Purdue Land Values
Survey, June 20031
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North
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Top
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162
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2,784
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2,921
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3,037
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9.1%
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4.0%
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17.44
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18.79
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7.7%
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3,096
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1.9%
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Average
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130
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2,243
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2,337
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2,419
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7.8%
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3.5%
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17.51
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18.59
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6.2%
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2,464
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1.9%
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Poor
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100
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1,707
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1,836
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1,873
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9.7%
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2.0%
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17.40
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18.71
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7.5%
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1,888
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0.8%
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Northeast
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Top
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160
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2,766
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2,781
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2,888
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4.4%
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3.8%
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17.13
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18.04
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5.3%
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2,908
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0.7%
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Average
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128
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2,211
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2,289
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2,343
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6.0%
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2.4%
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17.14
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18.27
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6.6%
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2,361
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0.8%
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Poor
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97
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1,769
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1,770
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1,830
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3.4%
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3.4%
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17.85
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18.81
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5.4%
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1,839
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0.5%
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W. Central
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Top
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166
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2,964
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2,967
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3,053
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3.0%
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2.9%
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18.46
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18.44
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-0.1%
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3,112
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1.9%
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Average
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138
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2,500
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2,503
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2,589
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3.6%
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3.4%
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18.65
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18.75
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0.5%
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2,619
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1.2%
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Poor
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108
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1,929
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1,978
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2,025
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5.0%
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2.4%
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18.16
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18.80
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3.5%
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2,069
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2.2%
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Central
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Top
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167
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3,174
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3,240
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3,336
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5.1%
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3.0%
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19.10
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20.01
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4.8%
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3,372
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1.1%
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Average
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138
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2,683
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2,763
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2,828
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5.4%
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2.4%
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19.35
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20.42
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5.5%
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2,866
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1.3%
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Poor
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109
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2,226
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2,307
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2,355
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5.8%
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2.1%
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20.30
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21.64
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6.6%
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2,386
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1.3%
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Southwest
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Top
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167
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2,860
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2,700
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2,811
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-1.7%
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4.1%
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16.98
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16.87
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-0.6%
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2,833
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0.8%
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Average
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132
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2,206
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2,018
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2,108
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-4.4%
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4.5%
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16.74
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15.97
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-4.6%
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2,137
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1.4%
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Poor
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96
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1,425
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1,263
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1,306
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-8.4%
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3.4%
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14.46
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13.55
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-6.3%
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1,323
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1.3%
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Southeast
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Top
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153
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2,518
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2,652
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2,710
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7.6%
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2.2%
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16.48
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17.75
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7.7%
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2,695
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-0.6%
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Average
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124
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2,107
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2,281
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2,354
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11.7%
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3.2%
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17.50
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18.94
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8.2%
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2,351
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-0.1%
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Poor
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96
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1,702
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1,831
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1,894
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11.3%
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3.4%
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18.79
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19.67
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4.7%
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1,892
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-0.1%
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Indiana
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Top
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163
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2,892
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2,938
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3,035
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4.9%
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3.3%
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17.85
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18.59
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4.1%
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3,075
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1.3%
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Average
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134
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2,382
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2,434
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2,509
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5.3%
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3.1%
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18.06
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18.79
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4.0%
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2,539
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1.2%
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Poor
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103
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1,869
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1,918
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1,966
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5.2%
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2.5%
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18.25
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19.07
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4.5%
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1,990
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1.2%
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Trans.2
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6,447
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6,658
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6,936
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7.6%
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4.2%
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7,088
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2.2%
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For the year ending June 2003, the change in land values ranged from a
decline of 8.4% for poor land in the Southwest region to an increase of 11.7%
for average land in the Southeast region. In the Southwest region, the increase
in value during the six month period from December 2002 to June 2003 was not
sufficient to offset earlier reductions. All classes of land in this region
declined for the year ending June 2003. The strongest increases for the year
were in the Southeast region, ranging from 7.6% to 11.7%. This was followed by
the North region with increases ranging from 7.8% to 9.7%.
The highest valued topquality land was in the
Central area, $3,336 per acre. This region was followed by West Central
($3,053), North ($3,037), Northeast ($2,888), Southwest ($2,811), and Southeast
($2,710).
Land value per bushel of estimated average corn yield (land value divided by
bushels) is the highest in the Central region, ranging from $20.01 to $21.64
per bushel. This was followed by the North, Northeast and West Central with
values ranging from $18.04 to $18.81. The Southwest had the lowest land value
per bushel, ranging from $13.55 to $16.87. This region also had the widest
range of values.
Respondents were asked to estimate the value of rural home sites with no accessible
gas line or city utilities and located on a black top or wellmaintained gravel road. The median*** value for fiveacre home sites ranged from $5,000 to $8,500 per acre
(Table 3). Estimated per acre median values of the larger
tracts (10 acres) ranged from $4,750 to $7,500 per acre.
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Table 3. Median value of five-acre
home sites and home sites of ten acres or more
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5 Acres or less for home site
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10 Acres & over for subdivision
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North |
5,000 |
5,250 |
6,000 |
6,000 |
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5,000 |
5,000 |
5,000 |
5,000 |
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Northeast |
5,000 |
5,000 |
5,000 |
6,000 |
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4,500 |
4,500 |
4,500 |
5,000 |
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West Central |
5,000 |
5,000 |
5,800 |
6,000 |
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5,000 |
5,000 |
5,000 |
5,000 |
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Central |
6,000 |
6,250 |
7,000 |
8,500 |
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5,500 |
5,000 |
5,750 |
7,500 |
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Southwest |
5,000 |
6,000 |
5,000 |
5,000 |
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5,000 |
6,000 |
5,000 |
5,000 |
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Southeast |
5,000 |
5,000 |
5,500 |
6,000 |
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4,000 |
4,000 |
5,000 |
4,750 |
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Area Cash Rents
All areas of the state reported increases in cash rent (Table 2). Only
the Central and Southwest region reported a decline in cash rent. In both
regions, the cash rent for poor land declined. The strongest increase in cash
rent occurred in the Southeast region.
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Table 2. Average estimated Indiana
cash rent per acre, (tillable, bare land) 2002 and 2003, Purdue
Land Value Survey, June 2003
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Change
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Rent as % of
June Land Value
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North
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Top
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162
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141
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143
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1.4%
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0.88
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0.88
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5.3
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4.7
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Average
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130
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113
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115
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1.8%
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0.88
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0.88
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5.2
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4.8
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Poor
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100
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88
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91
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3.4%
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0.90
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0.91
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5.3
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4.9
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Northeast
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Top
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160
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132
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138
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4.5%
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0.82
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0.86
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4.9
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4.8
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Average
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128
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104
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106
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1.9%
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0.81
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0.83
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4.9
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4.5
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Poor
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97
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81
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82
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1.2%
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0.82
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0.84
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4.9
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4.5
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W. Central
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Top
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166
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154
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158
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2.6%
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0.96
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0.95
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5.3
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5.2
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Average
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138
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131
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134
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2.3%
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0.98
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0.97
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5.5
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5.2
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Poor
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108
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103
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106
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2.9%
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0.97
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0.98
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5.6
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5.2
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Central
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Top
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167
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156
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158
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1.3%
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0.94
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0.95
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4.9
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4.7
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Average
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138
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128
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129
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0.8%
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0.92
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0.93
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4.8
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4.6
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Poor
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109
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103
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102
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-1.0%
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0.94
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0.94
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4.7
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4.3
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Southwest
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Top
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167
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145
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147
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1.4%
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0.86
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0.88
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5.0
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5.2
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Average
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132
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112
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115
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2.7%
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0.85
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0.87
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5.0
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5.5
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Poor
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96
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82
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79
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-3.7%
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0.83
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0.82
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5.2
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6.0
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Southeast
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Top
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153
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111
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114
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2.7%
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0.73
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0.75
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4.5
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4.2
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Average
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124
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88
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93
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5.7%
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0.73
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0.75
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4.3
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4.0
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Poor
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96
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66
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71
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7.6%
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0.73
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0.74
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4.2
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3.7
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Indiana
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Top
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163
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143
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147
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2.8%
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0.88
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0.90
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5.0
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4.8
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Average
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134
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116
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120
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3.4%
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0.88
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0.90
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5.0
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4.8
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Poor
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103
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91
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93
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2.2%
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0.89
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0.90
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5.0
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4.7
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Cash rents are the highest in the Central and West Central regions. The cash
rent for top land in both regions was $158 per acre. Cash rents per bushel for
the West Central and Central regions ranged from $0.93 to $0.98 per bushel.
These per bushel rents are the highest in the state. The next highest perbushel rent was in the North, ranging from $0.88 to
$0.91 per bushel. Per bushel rents in the Northeast and Southwest ranged from
$0.82 to $0.88. The lowest per bushel cash rents were $0.74 to $0.75, reported
for the Southeast.
Important Factors in the Land Market
Several factors influence farmland prices. The supply of land on the market,
the number of buyers interested in making a farmland purchase, and expectations
about grain prices, interest rates, and the rate of inflation are just a few
examples. To assess the supply of land on the market, respondents were asked to
provide their opinion about the amount of farmland on the market now compared
to a year earlier. The respondents were asked to indicate if there was more,
less, or the same amount of land on the market now compared to a year earlier. Eightsix percent of the respondents indicated that the
amount of land on the market at the current time was the same or less. These
results are nearly the same as past years (Figure 2). Only 15% of the
respondents indicated there was more farmland on the market. These results
indicate the supply of land for sale remains limited.
Figure 2. Ammount of land on market compared to one year ago
To assess the amount of market activity, respondents were asked to provide
their opinion of the number of farmland transfers in the past six months
compared to a year earlier. The respondents could indicate that the number of
transfers was up, down, or the same as a year earlier. Again, the largest
number of respondents indicated the number of farmland transfers was the same
as a year ago (Figure 3). However in this case, there has been a steady
rise in the number of respondents indicating an increase in the number of
transfers and a steady decline in the number of respondents indicating a
decline. These changes indicate that there has been some increase in the number
of farmland transfers.
Figure3. Percent of respondents indicating an increase, the same, or decrease
in land transfers
Respondents were asked to provide their perceptions of changes in the buyers
of farmland by indicating if purchases by farmers, rural residents, nonfarm investors, or pension funds had increased,
decreased, for remained the same when compared to a year earlier. Demand from
farmers and nonfarm investors have shown the largest
changes. This year, just over 43% of the respondents indicated that there was
an increased demand from farmers (Figure 4). This continues an upward
trend in the number of respondents indicating increased farmer interest in farmland
purchases. Figure 4. Percent of respondents indicating an increase, same or decrease in farmer demand
The demand for rural residents continues to be strong, 76% of the
respondents indicated an increase in demand for rural residences. Twentyfour percent indicated that demand for rural
residences remained the same. One percent of the respondents indicated a
decline in the demand for rural residents. These responses are similar to those
of past years.
With the decline in the rates of return for competing investments such as
the stock market, one might expect there to be increased demand for farmland by
nonfarm investors. The number of survey respondents
reporting increased interest on the part of nonfarm
investors was just over 58% (Figure 5). This is a sharp increase over last
year's value. The number of respondents indicating the same or less interest on
the part of nonfarm investors declined. Figure 5. Respondents indicating an increase, same, or decrease in demand from nonfarm investors
Respondents also indicated an increase in interest by pension funds and
other types of combined farmland investors. While 63% of the respondents
indicated that interest from these investors was the same as last year, this year
21% of the respondents indicated increased interest from these investors and
17% indicated decreased interest. Last year 14% of the respondents indicated
increased interest and 24% of the respondents indicated decreased interest.
While these investors are not expected to become big buyers of farmland, these
data indicate more interest in farmland investments.
Expected Corn and Soybean Prices, Interest Rate, and Inflation
Expectations regarding crop prices over the next few years have a strong
influence on farmland values because they affect expected revenues from the
purchase or rental of farmland. In order to gain insight into price
expectations, respondents were asked to estimate the annual average onfarm price of corn and soybeans for the period 2003 to
2007. Respondents have been asked to make these fiveyear
projections since 1984.
This year saw an increase in the expected fiveyear
average price of corn and soybeans (Table 4). This ended the sixyear decline in expectations for corn and the fiveyear decline in expectations for soybeans. These price
expectations indicate a more positive revenue outlook.
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Table 4. Projected five-year average corn and soybean
prices, mortgage interest and inflation
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1984
|
$3.13
|
$7.35
|
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13.3%
|
6.5%
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1985
|
2.70
|
6.13
|
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12.3%
|
5.1%
|
|
|
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1986
|
2.32
|
5.43
|
|
11.0%
|
4.2%
|
|
|
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1987
|
2.16
|
5.62
|
|
10.7%
|
4.5%
|
|
|
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1988
|
2.50
|
6.82
|
|
10.9%
|
4.6%
|
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1989
|
2.48
|
6.55
|
|
11.0%
|
4.7%
|
|
|
|
1990
|
2.61
|
6.22
|
|
11.0%
|
4.6%
|
|
|
|
1991
|
2.47
|
6.07
|
|
10.4%
|
4.2%
|
|
|
|
1992
|
2.52
|
6.04
|
|
9.5%
|
3.8%
|
|
|
|
1993
|
2.35
|
5.96
|
|
8.7%
|
3.8%
|
|
|
|
1994
|
2.48
|
6.18
|
|
8.9%
|
3.8%
|
|
|
|
1995
|
2.50
|
6.02
|
|
9.2%
|
3.9%
|
|
|
|
1996
|
3.01
|
6.63
|
|
9.1%
|
3.7%
|
|
|
|
1997
|
2.72
|
6.81
|
|
9.0%
|
3.4%
|
|
|
|
1998
|
2.54
|
6.34
|
|
8.6%
|
3.1%
|
|
|
|
1999
|
2.31
|
5.57
|
|
8.4%
|
2.9%
|
|
|
|
2000
|
2.28
|
5.56
|
|
9.1%
|
3.2%
|
|
|
|
2001
|
2.12
|
5.07
|
|
8.1%
|
2.9%
|
|
|
|
2002
|
2.10
|
4.97
|
|
7.6%
|
2.7%
|
|
|
|
2003
|
2.27
|
5.42
|
|
6.5%
|
2.3%
|
|
|
|
Average
|
$2.48
|
$6.04
|
|
9.7%
|
3.9%
|
|
|
|
|
|
Other important expectations associated with a land purchase include the
expected farm mortgage interest rate and the rate of inflation. The estimated fiveyear average interest rate declined again this year;
indicating that survey respondents expect interest
rates to remain low. This is the lowest expected interest rate in the series.
The expected fiveyear average rate of inflation also
continues to drift lower.
Factors Influencing Current Farmland Values
To obtain a more comprehensive assessment of the relative strength that
various influences are currently exerting on farmland values, survey
respondents were asked to assess the influence of 11 different items on
farmland values. These items included:
1. Current net farm income,
2. Expected growth in returns,
3. Crop prices & outlook,
4. Livestock prices & outlook, 5. Current & expected interest
rates,
6. Returns on competing investments, 7. U.S.
agricultural export sales,
8. U.S.inflation/deflation rate, 9. Current inventory of land for sale,
10. Current cash liquidity of buyers, and 11. Current U.S.
agricultural policy.
Respondents were asked to use a scale from 5 to +5 to indicate the effect
each item has on current farmland values. If the item had a major negative
influence, it would be given a minus 5. If the item had a small negative
influence, it would be given a minus 1. Positive influences were assessed in
the same way, except positive weights were used. A weighted average for each
item was calculated, and the results are presented in Figure 6. The
numbers on the horizontal axis of the chart indicate the number of the
influence in the above list. Figure 6. Factors Influencing Current Farmland Values
Those items with the largest negative influences included current net farm
income (1) and current livestock price level and outlook (4). The crop price
level and outlook (3) and export sales (7) also have negative influences, but
these are less important than in previous years. Those with the largest
positive influences include current and expected interest rates (5), returns on
competing investments (6), the current inventory of land for sale (9), the
current cash liquidity of buyers (10), and the inflation/deflation rate (8).
What about the Future?
The limited supply of land for sale combined with strong demand for country
residences and nonfarm development, the strong
liquidity of buyers, renewed interest by farmers and nonfarm
investors in farmland purchases, and low longterm
interest rates continues to provide strength to Indiana's
farmland market. When the long awaited economic recovery of the U.S.
economy begins, interest rates and the attractiveness of alternative
investments are likely to improve. However, even with some increase in interest
rates, the other factors supporting Indiana's
farmland market are likely to remain in place. When asked to project farmland
values for December 2003, respondents expected farmland values in all areas
except the Southeast to increase (Table 1). In the Southeast, respondents
expected a small decline in farmland values. On a statewide basis, survey
respondents expect farmland values to increase 1.2% to 1.3% between June 2003
and December 2003.
Respondents were also asked to project farmland values five years from now. Seventynine percent of the respondents expected farmland
values to be higher, 14% of the respondents expected farmland values to be the
same, and 7% expected farmland values to be lower. Overall, respondents expect
land values to be 7.1% higher in five years.
Some people have wondered if the real estate market might be the next market
bubble to burst. What could derail a continued increase in farmland values? One
possibility is a sharp rise in inflation and interest rates because of the
large federal budget deficit. A sharp rise in longterm
interest rates would slow development demand, provide more attractive
alternative investments, as well as increase the cost of borrowed money.
Another possibility could be a sharp drop in commodity prices do to a surge in
world production. While this would reduce market revenues, the current farm
program would offset lower market prices with increased counter cyclical
payments. Still another possibility is a sharp rise in production costs. The tight
supply of natural gas resulted in higher nitrogen prices this past spring.
Natural gas supplies continue to be tight and may increase propane prices this
fall. If these and other input costs rise, margins from crop production are
likely to narrow, reducing the income capitalized into farmland values.
While the likelihood of these events or their impact may seem low, it is
important to remember that a farmland investment is a longterm
investment. Prudent planning requires investigating if there is a sufficient
cushion to allow the business to withstand unexpected events that reduce net
revenue. It is also important to remember that farmland is an illiquid
investment. Selling a tract that should not have been purchased can often take longer
than anticipated. If a farmland sale is planned, the data reported here
provides general guidelines regarding farmland values. To obtain a more precise
value for an individual tract, contact a professional rural appraiser.
**********
The land values survey was made possible by through the cooperation of
numerous professionals that are knowledgeable about Indiana's
farmland market. These professionals include farm managers, appraisers, land
brokers, bankers, Purdue Extension educators, farmers, and persons representing
the Farm Credit System, the Farm Service Agency (FSA) county offices, and
insurance companies. Their daily work requires that they stay well informed
about land values and cash rents in Indiana.
The authors express sincere thanks to these friends of Purdue and of Indiana
agriculture. They provided 323 responses representing all but one Indiana
County. We also
express appreciation to Carolyn Hunst of the Department of Agricultural
Economics for her help in conducting the survey.
Craig L. Dobbins (L) is a Professor and Kim Cook (R) is a Research Associate
in the Department of Agricultural Economics at Purdue
University.
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