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Indiana Farmland Prices Soar Despite Drought

  • farm with corn field

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    Photo: Gretchen Frazee/WFIU-WTIU News

    Farmland prices have risen about 20 percent annually for the past several years.

  • gerry heshelman

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    Photo: Bill Shaw/WFIU-WTIU News

    Gerry Heshelman talks about the different quality of the farmland he has bought throughout Indiana.

Looking out over his hay fields and cow pastures, Gerry Heshelman lists the qualities of good farmland, mostly flat ground and rich soil—things he says this property in Greene County is somewhat lacking.

“It does flood and that water comes down there pretty strong, which erodes the soil out pretty fast,” Heshelman says.

But this is only a small part of the land Heshelman has owns. The rest is spread across the state where he rents it out to farmers.

Heshelman does want to buy more land. The state is buying some of his property for Interstate 69, so he says he is looking to reinvest. In 2010, he bought land in Northern Indiana that his nephew found for him. At that time, it cost about $4,500 an acre.

“I asked him this spring anticipating money off of this ground here if there’s any more in Newton County that’s for sale,” Heshelman says. “He said yeah, it’s about $6,500 to $7,500 an acre now.

Rising Prices Across The Midwest

That trend is being seen across the region. From 2010 to 2011, farmland prices jumped more than 23 percent in the Midwest. So far this year, land prices in Indiana have increased between 14 and 18 percent, with little evidence of slowing down.

Purdue University agriculture professor Craig Dobbins says several factors have contributed to the increase, including a rise in corn and soybean prices.

“Farmland derives its value on what you can produce on that land, so as the returns on crop production increase, that causes farmland value to go up,” he says.

Prices vary widely across the state. Property in some parts of northern Indiana where Heshelman bought his land can sell for more than $10,000 an acre. In areas less suited for farming, land sells for as low as $3,000 an acre.

And while many people expected the drought to lower land prices, that has not been the case.

“I think people are still optimistic, but they’re going to be a bit more cautious because certainly one of the impacts of the drought is it has probably lowered the cash reserves that farmer have,” Dobbins says.

Farmer’s Still Positive After Difficult Year

A Purdue report released during the middle of the drought showed that same thing. Farmers are cautiously optimistic. More than half of farmers surveyed for the study said they think the farmland market is in a bubble, meaning they believe land is overvalued and its price could fall dramatically if potential buyers decide farmland is too costly.

Farmers are betting that will not happen. Just under three-fourths of the farmers also said they planned to buy additional land in the next five years. That could be because they do not think the bubble will burst, or they think prices will drop within the next few years, and they will be able to buy land for a much lower cost.

Either way, as another Greene County farmer Steve Crowe says, land is an investment, and right now there does not seem to be any better place to invest than in farmland.

“It’s a better place for investors to put their money than the stock market as far as rate of return at this time and as long as that continues, we’re going to see farmland prices fairly high,” Crowe says. “I mean, let’s face it. There’s no more of it being produced.”

That last part is key. The amount of available land is always shrinking as more of it keeps getting bought up or developed for business districts, housing or, as in Heshelman’s case, an interstate.

So it comes down to the rules of supply and demand. The supply is shrinking, and as long as demand stays high, so will land prices.

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