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SANBORN, Iowa - Iowa farmland values continue to trend strongly upwards, with price records being broken on a regular basis. A good example of this would be a sale that took place recently near the Sioux County town of Boyden. An 80-acre parcel sold at auction for a whopping $21,900 per acre.
"We still had four bidders in the running after the price passed $21,000 per acre," said Todd Hattermann, an auctioneer at Vander Werff and Associates, the Sanborn, Iowa, real estate firm that conducted the sale. "There was a lot of interest in that piece of land, mainly because it's high quality and is nearly 100 percent tillable."
According to Iowa State University, the average farmland value in the state surged by 32.5 percent in 2011, a record rate of annual increase. Iowa land prices are on track to go up another 20 percent or more in 2012.
Sioux County, located in the northwest corner of the Hawkeye State, is at the epicenter of this land price boom. Several factors are powering this heady upward spiral in farmland values.
"Sioux County has the highest incidence of livestock operations in the state," said Melissa O'Rourke, Farm and Agribusiness Management Specialist at the Sioux County Extension Service. "Our livestock operators need a place to put their manure, or what I call black gold. If you don't own enough land to handle your manure, you need to have signed manure agreements with landowners. And those landowners could sell their land or rent it to someone else. Owning land enables the livestock operator to eliminate that risk."
Several other factors have helped propel land prices skywards.
"We have seen very strong farm income over the past few years," said O'Rourke. "Even this year, with our unusually dry conditions, the Federal Reserve estimates that we will have the second highest year on record for farm income. Commodity prices are strong and yields in this area were better than anyone expected. With their bins full of grain, farmers are looking for some place to put their money and land looks like a pretty good bet."
Low interest rates are also playing a role.
"Almost all of these recent land sales are for cash," O'Rourke said. "There's very little financing involved. But if money does need to be borrowed, it's at a very reasonable interest rate.
Demographics are another issue.
"The average age of our farmers is currently 58. There are a lot of baby boomers who are looking for a good place to put their money and receive retirement income, so they are turning to farmland. The farmers in this area tend to have a Northern European culture of hard work and large families and they want to help their farming operations remain viable for the next generation. All of these factors add to the upward pressure on land prices."
There is also the perception that only so much top quality land will ever become available.
Said O'Rourke, "You may have looked at a neighboring piece of land for the last 40, 50, 60 years and now it's finally up for sale. You have to ask, when will you see this opportunity again? When land comes up for sale, today is the day."
These lofty prices beg a couple of questions: Where is the top? And will this boom someday go bust?
"I don't think we've seen the top yet, but we could be getting close," said Mike Duffy, Professor of Economics at Iowa State University. "We're still in a position where we will continue to see land values go up."
Duffy also pointed to the strong farm economy as a major driving factor behind soaring Iowa land prices.
"This rise in farmland prices is backed by income," he said. "We see hardly any new debt being taken on as the result of these sales. As a result, even if land prices were to drop, it would be a long time before we saw any negative effects. Besides, when interest rates are this low and you have that sort of money, where else are you going to put it?"
Duffy points out that the biggest prices tend to grab the biggest headlines.
"You don't hear much about the lesser quality land that sells for the lower prices," he said. "We should also bear in mind that only about 10 percent of land sales are conducted by public auction. The rest is sold by private treaty."
"People talk a lot about these current land prices and think that they are outrageously high," O'Rourke said. "Some think that we might be headed for a bust like we saw in the mid-1980s. But there are some big differences compared to back then. For one thing, high interest rates aren't eating away at farm profits. For another, these sales are largely backed by cash instead of borrowed money."
O'Rourke provided some facts that helped put things in perspective.
"When you adjust for inflation, we didn't equal the mid-1980s peak in land prices until the year 2010," she said.
Hattermann agrees that we haven't yet seen the peak in Iowa farmland prices. He also mentioned that non-farm investors are continuing to exert an influence on the land market.
"We have some land that's coming up for auction soon and we're seeing a tremendous amount of interest from both farmers and non-farm investors," he said. "There's always a demand by the investor community for high quality farmland. Investors may not be the last bidder, but they are almost always in there bidding."
Despite this, most of the Iowa farmland that has been sold lately has remained in the hands of locals.
"The vast majority of the land that has changed hands recently has been purchased by the farmers who are going to farm it," O'Rourke said.[[In-content Ad]]

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