The average value of farmland in Iowa is estimated to be $6,708 per acre this year, an increase of 32.5% from 2010. This is the highest percentage increase ever recorded by the annual statewide survey conducted by Iowa State University.
Results of the 2011 Iowa Land Value Survey, which was conducted in November, were released December 14 at a press conference at ISU in Ames. The increase matches results of other recent surveys of Iowa farmland – such as the Chicago Federal Reserve Bank's estimated 31% increase in Iowa land values which was released in November. The Iowa Chapter of the Realtors Land Institute conducts a survey every six months statewide and it shows a similar increase for 2011. The 2011 values are historical peaks.
"The 2011 ISU land value survey covers one of the most remarkable years in Iowa land value history," says Mike Duffy, Iowa State University economics professor and Extension farm management economist who conducts the survey. "This is the highest percentage increase recorded by the survey, and the average land value of $6,708 per acre, when adjusted for inflation, is at an all-time high." The previous inflation adjusted high was in 1979.
A new record has been set for the average value of farmland in Iowa
While the statewide average price per acre is $6,708 for 2011, some individual sale prices for farmland recently have been eye-popping, including a record $20,000 per acre for 74 acres in Sioux County on December 7, which is in northwest Iowa.
Duffy says most sales do not involve auctions but when economics and emotion collide in a land sale, sometimes the bidding gets very strong. "There is currently a strong demand in Iowa for farmland," notes Duffy. He says the increase in land values this year has been fueled by sound fundamental factors, including low interest rates and an increase in global demand for commodities. His ISU survey shows 74% of the land buyers in 2011 were farmers.
Scott County, with an estimated $9,223 average value for all farmland, saw the highest percentage increase and highest increase in value, 37.7% and $2,524 respectively, of the 99 Iowa counties. However, O'Brien County farmland estimates of $9,513 were the highest average county values recorded by the Iowa Land Value Survey. The Northwest Crop Reporting District, which includes O'Brien County, reported the highest land values at $8,338 per acre, an increase of $1,983 or 31.2% from 2010.
"This rate of increase in 2011 has led to concerns that farmland may be the next speculative bubble," says Duffy. "Some people feel farmers are setting themselves up for a fall similar to the 1980s. Without a doubt, it's an interesting time and something to watch, but it isn't a time to panic."
Why Iowa farmland values are increasing—there are several reasons
Duffy says that examining some of the causes for the current increase in farmland values and the reactions is helpful in assessing the situation. Farmland values are highly correlated with gross farm income. As gross farm income increases, so will land values. In 2005, corn prices averaged $1.94 per bushel in Iowa. The preliminary estimated price for November 2011 is $6.05. Soybean prices changed from $5.54 to $11.40 over the same period.
There has been considerable variation in commodity prices over the past few years, but net farm income has increased substantially and is projected to increase even more for 2011. The ISU economist goes on to say, this increase in income has been the primary cause for the increase in farmland values, but not the only one.
"There are other causes for the increase in farmland values in 2011," Duffy says. "Interest rates are at the lowest level in recent memory. Farmland purchased by investors went from 18% in 1989 to 39% of purchases in 2005, but investor purchases decreased this year to 22%."
Lack of alternative places to put money to get good return on investment
Duffy points out another factor that should be considered, the relatively dismal performance of the stock market – people want to buy farmland or are not selling it because they don't know where else to put their money. The increase in farm income, the changes in investor demand and the changes in investment alternatives have all led to a volatile market. One area where the volatility is revealed is in the number of sales. Land value survey respondents have shown considerable variation over the past few years when queried about the number of sales. Sales decreased considerably in 2009. They improved somewhat in 2010 and based on the results reported in 2011, most people are seeing more sales or at least similar sales in 2011 relative to 2010.
One of the differences is in the use of auctions; respondents noted what appears to be a rapid increase in the use of this method of sale. Preliminary analysis of 2011 sales data shows an increase in price by using an auction. As one survey respondent said, economics may get the person to the auction but emotion often leads to the purchase.
Land values should remain strong near term, but beyond is very uncertain
Duffy believes farmland values should remain strong for the next several months at least. Beyond that there is a fair degree of uncertainty with respect to whether land values can maintain their current levels. The economist says there are several key components to watch:
- The amount of debt incurred with land acquisition
- Government policies – especially policies related to energy
- What happens to input costs – land being the residual claimant to any excess profits in agriculture
- The performance of the overall economy, especially with respect to income
- Government monetary policies as they relate to inflation and interest rates
- The performance of the U.S. economy and economies throughout the world – which impact commodity prices, which in turn impact land values
- Weather related problems – both here and around the world
Overview of 2011 Iowa land values, highest are reported in northwest Iowa
Looking at land values by county in the 2011 survey, the highest county land values were reported in O'Brien County in northwest Iowa. Decatur County in south central Iowa has the distinction for the second year in a row as having the lowest reported land value, at $2,721 per acre, and the lowest dollar increase, of $636 per acre. Washington County has the lowest percentage increase, 28.2%, with a reported $7,166 average value.
Low grade land in the state averaged $4,257 per acre and shows a 26.8% increase or $900 per acre for 2011, while medium grade land averaged $6,256 per acre; high grade land averaged $8,198 per acre. The lowest land value and smallest percentage increase were estimated in the south central crop reporting district, $3,407 and 26.7% respectively. The southwest crop reporting district reported a 36.5% increase, the highest district percentage reported. Maps showing 2011 values, percentage change and comparisons to 2010 data and additional information from Duffy are available at www.extension.iastate.edu/topic/landvalue.
The Iowa Land Value Survey was initiated in 1941 and is sponsored by the Iowa Agriculture and Home Economics Experiment Station at Iowa State University. Only the state average and the district averages are based directly on the ISU survey data. The county estimates are derived using a procedure that combines survey results with data from the U.S. Census of Agriculture.
The ISU survey is sent licensed real estate brokers and selected individuals considered knowledgeable of land market conditions. The 2011 survey is based on 487 usable responses providing 642 county land value estimates. The survey is intended to provide information on general land value trends, geographical land price relationships and factors influencing the Iowa land market. It is not intended to provide an estimate for any particular piece of property.