Can you believe $20,000 per acre?

A new record was set for Iowa farmland when a 74-acre tract near Hull in Sioux County sold at auction Dec. 7 for $20,000 per acre. The buyer was a neighboring farmer, Leland Kaster. The seller, Clinton Shinkle, lives in the state of Washington.

“Farmland is very valuable in northwest Iowa,” says auctioneer Pete Pollema of Hull, who called the sale. “We have good commodity prices now and a strong livestock industry in this area.” He started the bidding at $15,500, after talking with people beforehand to find cropland is in demand. Before bidding, one offer of $15,500 an acre was made for the 74 acres.

The total sale figures out to $1.48 million. At $20,000 an acre, if they could have sold another acre, it would have been an even $1.5 million.

Key Points

These are truly historic times for farmland prices, as they keep increasing.

Rise in farm income, strong commodity prices are driving up Iowa land values.

Unless crop prices collapse, land values should continue to maintain strength.

The previous Iowa land price record was set earlier in October, when a 120-acre farm near Sioux Center, also in northwest Iowa, sold for $16,750 per acre. In late September, an 80-acre tract at Sully in central Iowa went for $16,200 an acre. In setting the new record, four farmers were bidding on the land that eventually sold for $20,000 per acre. Two dropped out, and the second high bidder ran it up to $20,000 before dropping out.

Loren Flaugh of Primghar in O’Brien County, which adjoins Sioux County, attended a land auction the next day (Dec. 8) at Primghar. “Listening to the farmers at the auction at Primghar, the big buzz was the land sale the day before in Sioux County for $20,000 per acre,” says Flaugh. “Everyone in northwest Iowa had heard about it, and most of them probably still didn’t believe it.”

About 50 people attended the Primghar auction where a 60-acre piece sold. The auctioneer started the bidding at $12,000 per acre but quickly dropped to $7,000. The bidding got back up and the 60 acres finally sold at $11,300 an acre.

Fundamentals are strong

Iowa State University’s annual land value survey released in December shows a 32.5% increase in the statewide average for 2011 versus a year earlier. Solid fundamentals will likely keep farmland prices strong for the foreseeable future, says Mike Duffy, ISU Extension economist, who has coordinated the survey since 1986. “With a land market like this,” he says, “inertia is going to keep it strong. I don’t think we’re going to keep seeing 30% increases, but I don’t see a collapse coming either.”

What’s his reaction to the $20,000-per-acre sale? “We’ve seen some spikes, but the highest prices aren’t the average for an area. Sometimes there are unusual circumstances locally,” notes Duffy. “You get situations where land for sale is next to yours, and you want to add onto and expand your farming operation. Or maybe you need the land as a place to apply manure from your livestock enterprise. Or two or three people nearby for years have desired owning a particular piece of land and are determined to outbid each other to get it.”

Farm income is higher now compared to recent years; that’s driving land prices higher. With strong grain and livestock prices, expected earnings from land are higher over the long term now than we’ve seen in the recent past. Another factor is the low interest rate. Where can farmers invest their money to get a better return? Certainly not in certificates of deposit.

Also, the debt load of farmers isn’t as big today, thanks to high farm income. Many land sales are cash-based, financed with a low amount of debt. Down payments are high; lenders are requiring 50% down. In some cases the entire purchase price of land is paid with cash. “There’s little or no land debt being incurred in many cases,” says Duffy. Although people have predicted a coming crash in land prices similar to the decline in the 1980s, Duffy is less sure of an impending collapse.

This article published in the January, 2012 edition of WALLACES FARMER.

All rights reserved. Copyright Farm Progress Cos. 2012.