Des Moines Register
12-20-06
Ethanol demand fuels 10 percent price jump for farmland
Land values hit record highs, ISU survey says
By JERRY PERKINS
REGISTER FARM EDITOR
Ames, Ia. — Erupting demand for corn to make ethanol boosted the average
price of Iowa cropland to a record $3,204 an acre in 2006, according to Iowa
State University's annual farmland value survey released Tuesday.
This is the fourth year in a row that Iowa farmland prices have hit a record high,
said Michael Duffy, the Iowa State Extension economist who conducts the
survey. That's good news for landowners, many of whom depend on farm values
for their retirement income, but a barrier for young Iowans trying to start farming.
The average price of an acre of Iowa farmland increased $290, a 10 percent
increase from last year. For the first time since 1941, when Iowa State began the
survey, the average price of an acre of Iowa farmland topped $3,000.
"We've seen a tremendous spike in corn and soybean prices in the last six
weeks, and that has been translated into land prices," said Duffy, who has
compiled land survey results since 1986. "I can't remember when it jumped so
fast."
The higher price of corn and expectations that farmers will plant fewer soybean
acres next year led to the rapid run-up in corn and soybean prices during
harvest, an extremely unusual occurrence.
"This is a whole new world we are looking at," Duffy said. "We're moving from an
era of government farm program payments being the supporter of the land
market and moving into the era of ethanol being the supporter."
Loyd Brown, president of Hertz Farm Management Inc. in Nevada, said land
prices stalled from May through September.
"Then, we had the huge increase in corn and soybean prices, and that has
brought a new enthusiasm for farmland," Brown said.
Duffy said corn prices averaged $2.07 a bushel from January to October this
year.
Now, cash corn prices are more than $3 a bushel and it is possible to sell corn
several years ahead at that level by using the futures market.
One of the effects of the higher land values, Duffy said, is that land rental rates
also are increasing.
That will make it harder for beginning farmers, who tend to be less financially
able to pay higher rental rates.
"I'm very concerned about what we are seeing for rents," Duffy said. "Gaining
access to land is becoming even more difficult for beginning farmers."
The record price put the state's 32.6 million acres of farmland at a worth of about
$105 billion.
"That's important because it means the overall worth of Iowa farmland owners
has increased and their purchasing power has increased," Duffy said. "Iowa is an
agricultural state and we should recognize that changes in land values have an
impact on the state's economy."
Duffy said for the first time in years, the land survey showed the number of
existing farmers buying farmland increased and the number of nonfarmer
investors declined.
That's another indication that farmers are becoming more aggressive buyers
because of higher crop prices and expectations that ethanol has moved farming
into a new era, Duffy said.
Outside investors might have backed away from the farmland market because of
potentially higher returns from the stock market and a feeling farmland prices
have peaked as an investment, Duffy said.
"Farmers don't buy land as an investment," he said. "They buy land for its value
as an asset. There's a different motivation there."
Duffy said the survey showed that farmland prices increased in all of Iowa's 99
counties and exceeded $4,000 an acre in seven counties. Prices topped $1,400
an acre in every county for the first time since Iowa State began conducting the
survey in 1941.
Farm Editor Jerry Perkins can be reached at (515) 284-8456 or
jperkins@dmreg.com
How the survey was completed
About 1,100 copies of the Iowa State land survey are mailed each year to
licensed real estate brokers, agricultural lenders and others knowledgeable about
the Iowa land market. Respondents are asked to report on land prices as of Nov.
1. Average response is about 500-600. There were 490 usable surveys returned
this year.
Only the state average land price and crop district averages are based directly on
the survey. County estimates combine survey results with data from the U.S.
Census of Agriculture. Michael Duffy, the Iowa State Extension economist who
conducts the survey, was assisted by Darnell Smith, Extension program
specialist in economics.