Troy Louwagie coordinates the twice yearly land value survey for the Iowa Farm and Land Chapter #2 Realtors Land Institute. Their latest report was released September 22 and it shows that land values are up in Iowa. The statewide average increase for cropland values is up 5.7% during the March 2010 to September 2010 period, which is the last six months.
If you combine this 5.7% rise with the 2.8% increase that occurred the previous six months, the statewide average increase is 8.5% for the year—the 12 month period from September 2009 to September 2010.
Was this surprising to the realtors who participate in this survey? "Not really," says Louwagie. "Ever since about July when commodity prices started increasing, we've seen farms selling and some of them have sold for prices about as high as we've ever seen. There is a strong demand for quality land."
Northwest Iowa is showing the most strength in land values
The hotspot in the state seems to be northwest Iowa for land value increases during the past six months. "That is a strong area. If you look back to the previous six month period, land prices in northwest Iowa weren't up quite as much as some of the other districts in Iowa. The northwest Iowa land values were kind of just starting to gain some strength back then," he says.
On the whole there have been strong sales of land all across Iowa in the past six months. The southern tier of the state is probably a little more level or maybe up only slightly due to the excessive rainfall that part of the state has had this year.
The participants polled in this survey are farmland brokers and realtors from across the state. "Everyday they sell, list, help with auctions and help buyers buy land," says Louwagie. "So they track what the land market is doing. So on a percentage basis, they have a very good reading on whether land values are going up or down and how much."
Statewide average for high quality cropland is $5,841 per acre
The survey also reports average prices for each district. The high in northwest Iowa as of September 1, 2010 for high quality cropland is $6,048 an acre. East central Iowa is averaging $6,064, northeast Iowa is $6,219 and west central is $6,263. South central Iowa is averaging $4,602. The statewide average is $5, 841 an acre for high quality cropland, according to the survey.
What about the availability of land for sale today? Are you seeing more or less land being offered for sale now that crop and livestock prices have improved since mid-summer? "In the summer and into fall, we've probably seen the least amount of farms for sale as we've seen in a long, long time," says Louwagie. "I think it has to do right now with the owners renting the farm out and it is bringing in a very good income. There is a lack of other places to put your money today where it can earn a good income. So people keep the farm rather than sell it and put the money in other investments that aren't doing as well."
Poor return on alternative investments creates interest in land
Interest rates on certificates of deposit are very low. And even on the loan side, if you buy a farm and leverage it, the loan rates are low. What about the relationship between rent and sales? "People look at farmland as an investment—what is the return on investment? As commodity prices have increased, rents have increased and that reflects right back in the rise in a value of the land per acre," he says.
As a general rule, after taxes, land is providing somewhere around at 3.5% to 4.5% return on your money. That's based on either the crop income or the rent income, depending on whether you have a crop share lease or a cash rent lease. Plus, you hope you get some appreciation in the land value too, notes Louwagie.
The survey released September 22 shows an increase for land values in the last six months in south central Iowa of 2.5% and just under 10% or actually 9.8% in northwest Iowa. That's kind of a wide range, but finding a range in values from area to area is typical in Iowa when the land value surveys are conducted every six months. "We usually try to look at the results longer term -- over the entire year or over an 18 month period," says Louwagie. "That gives you a little bit more of an indication of what land values are doing over a period of time.
"Traditionally, eastern Iowa used to have the highest land values of all the districts in the state. We had the highest grain prices in eastern Iowa. But over the last 10 years we've seen a lot of ethanol plants built in northwest Iowa and also a lot of hog buildings and livestock buildings constructed across that part of the state. That demand for corn has narrowed the basis in grain prices, so now we have a more level playing field across the state."