Indiana farmland remains a good buy, and an even better asset. An annual Purdue University survey indicates all classes of Hoosier cropland were worth more in June than in the same month a year ago.

This marks the 16th straight year farmland values have gone up. The Purdue Land Values Survey found that an acre of bare land averaged between $2,131 and $3,278 in value, depending on its production potential. Poor quality, high quality and average quality land increased in value by 8.4 percent, 8 percent and 7.3 percent, respectively, during the 12-month period.

The jump in land values was the highest since 1996-97, when values soared 12 percent to 15 percent statewide, said Craig Dobbins, a Purdue Extension farm management specialist.  "This is one of the stronger increases we've seen in the last several years," Dobbins said. Purdue conducts its survey each June. Questionnaires are sent to farm managers, rural appraisers, land brokers, bankers, farmers, Purdue Extension educators and representatives of the Farm Credit System, Farm Service Agency and insurance companies. This year, 321 surveys were completed and returned.

In addition to land values questions, survey forms ask participants about farmland cash rent rates and the value of "transitional" land - acres shifting out of agricultural production and often into development. Dobbins cited higher commodity prices, robust land markets, investor confidence and the limited supply of farmland for sale as primary factors behind the leap in land values.  "A big reason land values are moving up could be attributed to a much more positive outlook, in terms of agricultural prices and expected incomes," Dobbins said. "When we did our survey in June, we had prices for corn and soybeans that were quite good relative to where they had been. However, since that time both corn and soybean prices have dropped sharply.

"Another reason values are higher is that there continues to be a strong demand for rural homesites, subdivisions and other developments. Certainly, low interest rates are an important factor. A third reason is that land is still a good investment. Owning farmland has had - and still provides - a good return. You're getting an asset that gives you 4 to 5 percent a year in operating returns. If a landowner gets another 4 to 5 percent growth in value each year, they've got an investment that's giving them an 8 to 10 percent return."

On a statewide basis, the value of top quality land - considered the most productive, with a long-term corn yield rating of 165 bushels per acre - was $3,278 an acre in June, up $243 from the previous year. Average quality land, with a corn yield rating of 135 bushels per acre, increased $184 in value, to $2,693 an acre. Poor quality land, with a corn yield rating of 105 bushels per acre, rose $165 in value, to $2,131 an acre.

By geographic area, central Indiana counties posted the highest per acre values for the three farmland classes: $3,551 for top quality, $3,007 for average quality and $2,517 for poor quality. The west-central region was close behind, at $3,351 for top quality, $2,816 for average quality and $2,217 for poor quality land.

Land values were lowest in southern Indiana. The southeast region reported the lowest top quality land value, at $2,874 per acre, while the southwest region recorded the lowest single value by class: $1,585 per acre for poor quality land.

Transitional land values were much greater, reflecting the premium price those acres command on the open market. An average acre of land shifting out of agriculture to another use was valued at $7,561, up 9 percent from June 2003 to June 2004. "There's a wide variation in the numbers that are reported for transitional land," Dobbins said. "You often hear the expression, 'It's all about location.' That's apropos for land moving out of agriculture. If you happen to be in the spot that some large corporation or retail chain decides that they want, they are willing to pay quite handsomely for your land. You can get $20,000 to $30,000 an acre, or more, in some cases."

Cash rents moved up incrementally. The survey showed average rental rates statewide were $150 per acre for top quality land and $96 an acre for poor quality land. "Compared to a year earlier, cash rents across the state were up $2 to $3 an acre," Dobbins said. "They are continuing the steady rise that they've had for the past several years. They aren't rising as rapidly as land values, but they are marching upward."

• Little change in the amount of farmland on the market since June 2003. Eight in 10 survey respondents said the same number of acres or fewer were for sale in their region this past June. However, 73 percent indicated an increase in the demand for rural residences.

• Median values of homesites five acres or less ranged from $5,000- $8,000 per acre, almost unchanged from one year earlier. The median values of homesites 10 acres or more for subdivisions also was mostly unchanged, at $5,000-$7,900 an acre.

• An overwhelming majority of respondents - 80 percent - believe farmland values will be higher five years from now. Those survey participants predicted an average increase of 9.5 percent. Conversely, 8 percent of those surveyed expect land values to decrease, at an average decline of 9.2 percent.

Dobbins said he'd be surprised if land values keep rising at their current rate. "Interest rates are climbing, which will have a dampening effect on the market," he said. "Also, income prospects are not as strong as they were earlier this summer. But I suspect a year from now we'll probably be talking about land values having increased."

The complete Purdue Land Values Survey report, which includes data for each Indiana region, appears in the August issue of the Purdue Agricultural Economics Report. The report is available online.