Des Moines register
12-19-07
Farmland value's rise is greatest since 1976
By JERRY PERKINS • REGISTER FARM EDITOR
Iowa farmland prices set a record this year for the fifth year in a row, rising to an
average $3,908 an acre, according to a survey released Tuesday by Iowa State
University Extension.
The increase represented a 22 percent jump, or $704 an acre, the greatest oneyear increase since 1976, said Michael Duffy, an ISU Extension economist
who conducts the survey.
Survey respondents credited the boom in farmland prices to two factors: higher
corn and soybean prices because of demand for ethanol and for export, and low
interest rates.
Advertisement
"I don't think many people fully appreciate all the changes that have occurred in
agriculture," Duffy said. "The biofuels economy has had a tremendous impact. It's
like dropping a huge stone in a pond. The ripples are still going a year later, and
we don't know where they are going to stop."
The average price of farmland is an important economic indicator, Duffy said,
because it reflects the health of the farm economy and represents a significant
amount of net worth for Iowa landowners. About 2 out of 3 acres of Iowa
cropland are owned by Iowa residents, Duffy said.
"This survey shows that most Iowans' wealth has really gone up," Duffy said.
Respondents said more land sales are occurring than in previous years, Duffy
said, an indication that landowners think now is the time to cash in on high land
prices.
Negative factors in the land market are rising costs of farm production, land
prices that are too high and concerns about how long the bull market in farmland
will last, the survey said.
Since 2000, when the average price of Iowa farmland was $1,857 an acre, Iowa
land prices have more than doubled, Duffy said.
However, when land prices are adjusted for inflation, Duffy said, farmland prices
peaked in 1979 at $5,564 an acre.
In the 1973-75 period, farmland prices rose 33 percent a year, primarily because
of an increase in exports from large corn, wheat and soybean purchases by the
Soviet Union.
"We'll see a strong land market in Iowa for at least five years," Duffy said. "We
have seen a fundamental shift in demand for corn due to ethanol production. I
don't think this demand will diminish in the near future. I don't see anything that
can cause a downturn."
Turmoil over home foreclosures has sparked worries, he said, and the volatile oil
market could create uncertainty in the grain markets.
Those who lived through the farm crisis of the early 1980s remember that
farmland prices fell from $2,147 an acre in 1981 to $787 an acre in 1986, said
Tom Huston, who is in his 50th year at Columbus Junction State Bank.
Huston, 78, was superintendent of banking in Iowa during the farm crisis and
oversaw the closing of 12 state-chartered banks because of insolvency.
He said a recent sale of several parcels of Washington County farmland brought
as much as $7,950 an acre.
"That's the highest I've seen in my 50 years in banking," Huston said. "It's just
wild."
Land prices are reaching a point where they might not be justified by the revenue
the land can generate, he said, one of the reasons for the farm crisis.
"If the ethanol bubble doesn't last, then land prices could come back down,"
Huston said.
One big difference between now and then, Huston said, is that interest rates are
much lower now.
Only 25 percent of Iowa farmland carries any debt, Duffy said, so most Iowa
farmland would not be impacted by a rise in interest rates.
Farm income this year will hit a record $87.5 billion, Duffy said, quoting a recent
report from the U.S. Department of Agriculture. That's up 48 percent from a year
ago.
That means farmers have more money to spend on farmland, and the survey
reflected that fact, he said.
Sixty percent of farmland purchasers were farmers, about the same as last year,
Duffy said. Thirty-five percent of farmland buyers were investors, and the rest
were others or beginning farmers, also about the same as last year.
The Iowa State survey, which has been conducted since 1941, fell in line with
other farmland surveys released recently.
The Federal Reserve Bank of Chicago's most recent survey of agricultural
bankers showed that Iowa farmland prices rose 21 percent during the year ended
Oct. 1.
An association of Iowa farm real estate brokers that surveyed its members found
that Iowa farmland prices increased 20.7 percent in the year that ended Sept. 1.
Farm Editor Jerry Perkins can be reached at (515) 284-8456 or
jperkins@dmreg.com