Iowa Farmer Today
12-23-06
Land values follow corn higher
By Gene Lucht, Iowa Farmer Today
AMES -- It didn’t take long for $3.50 corn to translate into an increase in Iowa
farmland prices.
Iowa State University Extension officials Tuesday reported the average value of
an acre of Iowa farmland jumped 10 percent to $3,204 this year.
That is a record for Iowa farmland prices, and it marks the fourth consecutive
year of increases.
“It’s just a really hot market that we’re in right now,” explains ISU economist
Mike Duffy, who conducts the annual survey of the state’s farmland values.
Duffy says much of the 10 percent jump came in the last two months after corn
prices skyrocketed. Other farmland measurements taken earlier in the fall by
organizations, such as the state’s ag land Realtors showed only a modest
increase in land values.
The ISU survey showed a much bigger jump, and Duffy says it even depended
on when the survey was completed. The later surveys showed bigger increases
in land values than did the earlier surveys.
The reason is high grain prices.
In many previous years, Duffy says government payments propped up the land
market. Low interest rates in 2003 and 2004 helped boost investor interest in
farmland, he notes.
Tax-exempt land exchanges were also a factor in those years.
But, this year, he says the most cited reason was high grain prices, and the
ethanol mar-ket.the biggest reason for those high prices.
High oil prices have helped lead to high ethanol demand, which in turn, has led to
high corn prices and then, higher land prices.
Take out the middle of that equation, and the bottom line is higher oil prices have
helped lead to higher land prices, Duffy says.
While it is possible the land market may have plugged in those higher corn prices
and could then level off, it’s hard to tell for sure, Duffy notes.
He says he doesn’t know what land prices will do in the next year. However, the
most likely scenario might be continued increases but at a bit slower pace.
More issues are connected to an ethanol-driven land market.
It means more buyers are farmers, instead of outside investors, Duffy adds.
However, there is still strong interest in buying land for recreational purposes.
Also, the timing of the late-year jump means some rental rates were set before
the Sept. 1 deadline for cancelling a rental agreement.
Some landlords are trying to renegotiate those rental rates or are telling renters
they may not get the land next year if they don’t re-negotiate.
Other renters may manage to avoid an increase until next year but could get
hammered then if corn prices are still high.
“I’m very concerned about beginning farmers,” Duffy says of those climbing rental
rates.
He adds one other cautionary
note. A great deal of the corn sold this past year was contracted this past winter
for $2 a bushel instead of the $3/bu. farmers are seeing now.
On the flip side, some bankers and landlords may be looking at the fact farmers
can lock in high futures prices for next year’s crop as a reason for boosting rental
rates.
Meanwhile, the numbers for this year’s survey are large.
The average state price for farmland rose $290/acre to reach $3,204.
All of the state’s 99 counties reported an increase. The highest total — as it has
been most years — is in Scott County, where this year’s average is $5,073/acre.
Duffy says while this year’s figure is a record, today’s situation is not the same as
it was in 1981, when farmland reached a peak before taking a nose dive.
He says once inflation is plugged into the equation, this is more comparable to
1973 or 1974, when land prices started jumping.
Also, from 1973 to 1975, he says prices jumped by more than 30 percent a year,
compared to this year’s 10 percent.
Other facts from this year’s survey include:
=The smallest percentage increase (2.9 percent) was in Jones County, and the
largest (17.2 percent) was in Audubon County.
=The average value increased for the seventh straight year after slight drops in
1998 and 1999.
=Low-grade land increased 11.9 percent, while medium-grade land rose 10
percent, and high-grade land climbed 9.2 percent.
=Land values in the state have jumped 73 percent since 2000, but that is far less
than the 125 percent they jumped from 1972 to 1975.
=The total value of the state’s 32.6 million acres of farmland is now about $105
billion.
The ISU survey was started in 1941 and is sponsored annually by the Iowa
Agriculture and Home Economics Experiment Station.
About 1,100 surveys are mailed each year, and normally about 500 to 600
completed surveys are returned.