Fueled by big increases in livestock and crop prices, the value of Iowa farmland has risen by a whopping 25.4% since March of 2010. That's the biggest annual increase in more than three decades. That's how long this survey has been conducted, say officials of the Iowa Farm and Land Chapter No. 2 of the Realtors Land Institute. The institute has been running the survey since 1978.
This latest poll of farm realtors was March 1, 2011 and the results were compiled and released March 22. "It shows the average value of all tillable cropland in the state as of the beginning of this month was $5,708 an acre," says Troy Louwagie, a realtor who heads the committee conducting the survey. That price comes close to Iowa's all-time, inflation-adjusted high of $5,711 per acre, set in 1979.
The Iowa chapter runs the survey twice a year. The March 2011 survey shows the average value of farmland for the state has increased 19.7% since last September. The price of corn has doubled and livestock prices are up about 25% since last fall. Farmland values are an indicator of agriculture's health and are a basis for farmers when using land as collateral for borrowing money. Farmland represents a significant amount of net worth for Iowa landowners.
Iowa farmland has more than doubled in value in past decade
Participants in the survey are realtors who specialize in farm and land sales, farm management and appraisal. They are asked for their opinions about the current status of the Iowa farmland market. "The participants in our latest survey were asked to estimate the average value of farmland as of March 2011," says Louwagie. "These estimates are for bare, unimproved land with a sale price on a cash basis. Pasture and timberland values are also requested as supplemental information."
The results of the survey show a statewide average increase in cropland values of 19.7% for the September 2010 to March 2011 period. Combining this 19.7% rise with the 5.7% increase reported in September 2010 indicates a statewide average increase of 25.4% for the year from March 1, 2010 to March 1, 2011.
All nine Iowa crop reporting districts showed an increase, notes Louwagie, who works for Hertz Farm Management and is based at Mt. Vernon, Iowa. The districts varied from a 15.9% increase in central Iowa to a 26% increase in west central Iowa for the September 2010 to March 2011 period.
Some economists fear that this rise in land values is a bubble
Iowa farmland has more than doubled in value in the past decade and that rise reflects some strong profit years for farmers, especially since the ethanol boom that began in 2005. But the rapid increases also raise concerns that this land value jump may be a bubble, and that bubble could burst. The president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, says low interest rates have had a greater effect on the land market than high commodity prices have had on the land market. Hoenig, has been a critic of what he calls the Fed's "too accommodative" monetary policy.
Hoenig says, "We have to be wary of a dangerous set of circumstances that could happen in agriculture if interest rates rise and commodity prices fall at the same time." He notes there are several things that could happen beyond farmers' control, such as better crops produced this year in Asia, a decline in soybean imports by China or the ending of the ethanol tax credit by Congress. Those possibilities could dampen the commodity picture. "The loss of the ethanol tax credit could be serious for farmers," he adds.
Unlike past land booms and busts, farmers owe less debt on their land now, notes Hoenig, who grew up on a Lee County farm in southeast Iowa and is a graduate of Iowa State University. The Great Depression in the 1930s and the farm financial crisis of the 1980s pared the number of farmers down in Iowa from almost 300,000 in the 1920s to around 90,000 today.
Banks report decreased loan demand, as farmers are paying cash
One difference between farmers' financial situation today and that of the mid-1980s is farmers today aren't borrowing much money to buy things. Iowa banks are reporting generally flat demand for ag loans as farmers have cash from the high crop and livestock prices they are receiving to write checks to pay for land and equipment rather than taking out loans.
"A lot of bankers and lenders are knocking on doors, trying to generate business because farmers are paying with cash instead of borrowing money," observes farm realtor Jon Hjelm of the Acre Company at Spencer, in northwest Iowa. The latest Iowa farm realtors survey shows that livestock-heavy west central Iowa and northwest Iowa are having the greatest gains in the value of farmland, with both areas having prime farmland averaging more than $8,100 per acre.
Those western Iowa counties have benefited from the surge in cattle and hog prices during the past year. "The irony is that with higher corn prices, you'd expect livestock to suffer, but that hasn't happened," says Hjelm. "Livestock prices have gone up right along with corn prices, and counties in northwest Iowa have had some really strong land sales recently." Hog and cattle producers saw their first profitable year in 2010 after three consecutive years of losses.
Not a lot of land being offered for sale, which also boosts values
While high crop and livestock prices are driving the market, so is the fact that there is a shortage of land being offered for sale, says Sam Kain, a broker with Farmers National Company in West Des Moines. The March 2011 realtor survey shows more than 70% of farmland sales in Iowa are being made to neighboring farmers. The majority are for estate sales or the passage of land from one generation to the next.
Agriculture has caught a break this time, thanks to low interest rates, the realtors point out. That's in contrast to the mid-1980s when many Iowa farmers were snagged because they borrowed money to expand during the good times of the 1970s. However, a land price boom like the current one will eventually generate more borrowing, cautions Hoenig. He warns that state banking regulators have to be alert and farmers themselves need to be cautious about incurring too much debt. "Bad loans are always made in good times," says Hoenig.