The value of Iowa farmland has increased at its fastest rate on record, jumping by an average of more than 30% during the past 12 months, according to a new survey by Iowa farm real estate agents.
The survey conducted by the Iowa Farm and Land Chapter #2 of the Realtors Land Institute shows an increase in farmland values of 32.6% for the year from September 1, 2010 to September 1, 2011. The survey results were released September 13 by the institute.
The value of an acre of medium quality cropland is a record $6,477 as of September 2011. In March 2011 the survey showed a statewide average of $5,711 for this classification of land.
"Twice per year we survey our members who specialize in farm and land sales, farm management and appraisal," explains Kyle Hansen, who led the survey committee and works for Hertz Farm Management at Nevada, Iowa. "We conduct the survey as of March 1 and September 1 each year. We ask our survey participants for their opinions about the current status of the Iowa farmland market."
All nine Iowa crop reporting districts show an increase
Results of the September 1, 2011 survey show a statewide average increase in cropland values of 12.9% for the March 2011 to September 2011 period. Combining this 12.9% increase with the 19.7% increase reported in March 2011 indicates a statewide average increase of 32.6% for the year from September 1, 2010 to September 1, 2011.
All nine Iowa crop reporting districts showed an increase. The districts varied from an 8.5% increase in southeast Iowa to a 17.0% increase in northeast Iowa for the March 2011 to September 2011 period.
Participants in the survey were asked to estimate the average value of farmland as of September 1, 2011. These estimates are for bare, unimproved land with a sale price that was made on a cash basis. Pasture and timberland values were also gathered in the survey.
For complete results of the survey go online to http://www.hfmgt.com/links/Sept%202011%20Land%20Trends%20and%20Values.pdf. The online information shows land values for each crop reporting district and by land classification for corn production (high, medium and low quality cropland) along with pasture and timberland values.
Strong commodity prices and low interest spark the rise
Factors contributing to the increase in farmland values include strong commodity prices, favorable long-term interest rates, and limited amount of land offered for sale. Other factors include lack of alternative investments, higher livestock prices, and fear of inflation. Concerns that could affect farmland values in the future include higher input costs, increase in interest rates, larger amounts of land being offered for sale and continued uncertainty about the U.S. and world economies.
The Iowa Farm & Land Realtors farmland value survey has been conducted in March and September each year since 1978.
Boom in values is resulting in more land offered for sale
The current boom in land prices has led to an increase in land being offered for sale. Most farmland sales occur between September and March, and this year many farm real realtors say they are planning to handle two to three times as many sales as they did last year, says Steve Bruere, president of Peoples Company, a West Des Moines real estate firm that specializes in handling farmland sales.
The new average cropland value of $6,477 tops the previous inflation-adjusted peak value of $5,917 for Iowa farmland in 1979. The rapid climb in values during the past year is the most that land values have risen in any year since the farm real estate group began tracking land values in 1978. The previous record for a one-year increase was in 2007, when farmland values rose an average of 21.4%.
The latest one-year gain is reminiscent of the 20% to 30% annual gains in the U.S. stock market during the late 1990s or the double-digit gains in farmland values during the booming farm income years of the late 1970s, and that has some people concerned.
Are crop prices and land values being set up for a bust?
"I'm always concerned when there are major moves in farmland values, up or down," says Neil Harl, Iowa State University ag law and economics professor emeritus, and an expert on the farm financial crisis of the 1980s. The high current land values are easily justified by current crop prices, he says. But, he asks, how long will crop prices stay at their near-record levels?
The two big factors driving crop prices today are the increased demand for ethanol and biodiesel and increased food consumption in developing countries of the world. "The future of biofuels is extremely uncertain," says Harl, citing the political opposition to subsidies and government mandates for biofuel use. The growing demand for food in developing countries is sufficient to keep prices high on its own, he believes, but it is unclear whether that demand will continue to grow or will it soften in a politically unstable world?
Next generation of farm owners will include more investors, and fewer owner-operators
One big difference between today and when farmland values collapsed in the early to mid-1980s is farmers today don't have nearly as much debt as they did 30 years ago, nor is the cost to borrow money near as much as it was then. The interest rate on a farmland loan today is as low as 5% in some areas, says Hansen, compared to rates of 12% to 15% in the mid-1980s.
Another difference is who is buying the land. In the late 1970s and early 1980s, there was a lot of consolidation of farms happening and most of the buyers of farmland were farmers. Today, many Iowa farmers are at the point where they want to sell out because no one in the next generation of their family wants to take over the farm. Buyers are increasingly investor groups.
Bruere attended a three-day global ag investment conference in New York City in May of this year that attracted 575 attendees. The next generation of farm owners will include more investors who lease the land to farmers, he says. There will be fewer owner-operators.