Hot Topic: Iowa Land Value Survey

Hot Topic: Iowa Land Value Survey

Fueled by strong grain prices and low interest rates, land values are soaring. On Dec. 14 ISU will release results of its 2011 annual survey of Iowa land values.

A news conference to announce the results of the 2011 Iowa Land Value Survey conducted by Iowa State University is scheduled for 10 a.m. Wednesday, Dec. 14 on the ISU campus at Ames. Michael Duffy, ISU Extension economist who directs the survey, will explain the 2011 findings at the news conference.

Duffy will provide background material, along with a printed news release containing data from all 99 counties and state maps. The handout materials will be available on the Web at 10 a.m., linked from http://www.extension.iastate.edu/topic/landvalue. The news conference will be recorded and made available late afternoon Dec. 14. Land value survey information from the 1994 to 2010 news conferences and yearly data back to 1950 also will be available on the ISU land value website.

A news release on the 2011 survey results and a table with data for all 99 Iowa counties will be released to the media at 10 a.m. Dec. 14, 2011.

Fundamentals are driving red hot farmland market skyward

Iowa set a new record price for farmland on December 7, 2011 when a 74-acre tract near Hull in Sioux County in the northwest part of the state sold at auction for $20,000 per acre. The land was purchased by a neighboring farmer. The previous farmland record for Iowa was set in early October, also in northwest Iowa, when a 120 acre parcel near Sioux Center sold for $16,750 per acre.

The price of farmland in Iowa and other Midwest states has rocketed upward in 2011, and it still has room to rise thanks to extremely strong commodity prices and extremely low interest rates. That's what economists and lenders said at a mid-November conference in Chicago that examined trends in agricultural land prices. The conference was sponsored by the Federal Reserve Bank of Chicago.

Despite the rapid surge in prices, the economists and lenders who spoke at the conference said there still are no signs of a bubble forming in farmland prices, like the one that led to the farm financial crisis of the 1980s.

ISU's Mike Duffy, one of the speakers at the conference, said that with grain prices as high as they are today, the fundamentals of supply and demand for land indicate there is still room for farmland prices to go higher. It's hard to argue that the fundamentals could get any better for land prices than they are right now, but they could stay this strong for a long time.

Today's land prices are a clear reflection of farm income gains and tight supplies of land coming onto the market, said Kim Greenland of Great Western Bank, based in Mt. Ayr in southern Iowa. "Right now, farm prosperity is driving strong demand for land and there's not land much being offered for sale."

Even so, risks of slowdown in land market are foreseen

Even so, farm lenders and economists at the Chicago conference warned that significant financial risks for farmers and landowners remain in the current bull market for farmland. Some of those risks are continued increases in cost of fuel, fertilizer and other inputs. Also, commodity prices are volatile and there is uncertainty in interest rate trends and current global financial instability.

Other things to watch for are changes in the USDA farm program and a weakening of the federal Renewable Fuel Standard, which mandates a certain percentage of ethanol in the nation's motor fuel supply. Right now, corn demand for ethanol does not appear to be going away. Duffy and others who spoke at the conference think the big increase we saw in corn demand from ethanol is over, but they also believe the market for corn will hold on to what it has.

The financial risks farmers face have been heightened by the soaring prices of land, which means that more cash is changing hands with each transaction, said Leland Strom, chairman and CEO of the Farm Credit Administration. "The risk is certainly there, not just for the person who is buying the land, but it's also there for the person who is farming it and having to pay higher rent."

Cropland prices in Iowa and entire Midwest are soaring

The latest evidence of a very hot farmland market arrived in November with the release of the results of the Chicago Fed's survey of agricultural bankers. It showed that Iowa farmland prices shot up 31% in the third quarter of 2011 compared to a year earlier. That was the biggest gain of any state in the Chicago Fed district, which also includes parts of Illinois, Indiana, Michigan and Wisconsin. The land price increase for the entire Chicago Fed district in the third quarter was 25%, which was the largest in three decades, the survey showed.

The trends in Iowa farmland shown in the Chicago Fed's survey are similar to those of other surveys this year by the farm real estate brokers in Iowa. Iowa State University's annual survey results for 2011 will be released December 14.

This fall in Iowa there have been a number of land sales that have exceeded $10,000 per acre, notes Strom. In addition, prices at half of the land auctions in the state have averaged above $7,500 an acre so far this year. But the sharp rise in land values has, so far, not prompted a surge in land coming on to the market, notes ISU's Mike Duffy. "We'll see what happens if the price of land gets much higher, but we haven't seen a lot of selling yet. By and large, the buyers of farmland have been farmers who plan to hold on to it."

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