WEST LAFAYETTE, Ind. — The value of farmland in Indiana saw a double-digit increase over the past year, but the rate of growth could be headed for a slowdown, according to Craig Dobbins, an agricultural economist at Purdue University.

The June 2012 Purdue Farmland Value Survey found values rose 18.1 percent over the previous 12 months for top-quality acreage in the state. For average quality, the increase was 16.3 percent, and for poor quality, 14.3 percent.

Top-quality land averaged $7,704 an acre, with average-quality land at $6,359 and poor quality at $5,013. The survey was released last month.

Cash rents, meanwhile, also showed an increase from last year’s survey. Average cash rents for top-quality land increased $35 an acre, to $265. They increased $26 an acre for average-quality land, to $208, and were up $18 an acre, to $159, for poor-quality land.

Dobbins said he sees three key reasons for the large increase in farmland values: continued strong returns for Midwestern crop production, continued low long-term interest rates and continued confidence about returns on investment in agriculture.

“There’s a lot of optimism about the profit potential that exists in production agriculture,” he noted. “That’s an important part of the land market. They’re making purchases on what they think will happen.”

Farmland values in Indiana’s west-central region were the highest in the state, according to the survey. The average per acre was $8,949 for top-quality land, $7,475 for average quality and $6,121 for poor quality. The southeast region had the lowest values, with averages of $4,465 for top quality, $3,854 for average quality and $3,160 for poor quality.

Officials with Schrader Real Estate & Auction Co., Inc., based in Columbia City, have seen increases of 10-20 percent in the value of land they’ve auctioned over the last 12 months, said R.D. Schrader, company president.

“It’s so competitive out there right now,” he noted. “There’s a tendency for those highest prices to circulate the fastest, and everyone hears about it. It doesn’t mean everyone will get those prices, though.”

Some sellers – and buyers – are surprised at where farmland values are in the state, said Pat Karst, vice president of Halderman Real Estate Services in Wabash.

“We’ve had a mix of reactions,” he noted. “When we explained to one of our clients what the numbers were, she about fainted. We eventually sold her land for over $12,500 an acre.”

Karst sees several factors contributing to the continued increase in land values. “Buyers are buying because they have made money the past four or five years and they’re investing in their future,” he explained. “Debts levels are still low and interest rates continue to be low.”

The drought didn’t seem to affect the farmland values presented in the survey, though it was completed before the full impact of the summer’s hot, dry weather will be known, Karst said. It’s possible there will be more variations in values based on location and on how badly an area was impacted by the drought, he added.

The exuberance and aggressiveness people have for purchasing farmland isn’t as high in areas severely affected by the drought, Schrader said. “In general, things are stronger than what I would have expected and we don’t know what’s going to happen in those areas,” he stated. “Overall, there’s definitely an excitement and energy to want to own your own land.”

The survey is good or bad news, depending on if a person is looking to sell or buy, Dobbins explained. “If you’re an owner of the asset, rising values are good news, but if you want to make a purchase it’s not good news,” he said. “It just makes the purchase of this capital asset more difficult.”

He doesn’t foresee the large increases in farmland values continuing. “My expectation is that yields are going to be better next year than this year, and we’ll see a stronger supply than we’re seeing this year,” he noted.

“Prices will come down and margins associated with agriculture production will be smaller. Movement in the direction of smaller margins will have an influence on farmland values. There will probably be a smaller increase (seen in the next survey), but it’s difficult to know.”

Land values are projected to increase 0.6 percent from June to December for top-quality land, to $7,748 an acre, the survey found. An increase of 1.4 percent, to $6,448, is anticipated for average quality, and for poor quality, an increase of 0.2 percent, to $5,025, is projected.

The survey also compiled information on transitional (farmland being moved out of agriculture) and recreational lands. The average value of transitional land was $8,505 an acre, up 7.2 percent from June 2011. For recreational land, the average value was $3,489, up 3.9 percent.

Purdue surveys industry professionals such as farm managers, appraisers and loan officers for its report, which is conducted every June. For this year’s survey, 276 such professionals participated.