s in Iowa land value history," notes Duffy. "This is the highest state value recorded by the survey, and the first time county averages have reached levels over $10,000. While this is an interesting time, there is considerable uncertainty surrounding future land values."
There are several reasons why Iowa farmland values are continuing to increase
Duffy says understanding some of the causes for the current increase in farmland values is helpful in assessing the situation. Farmland values are highly correlated with farm income. As farm income increases, so will land values. In 2005, corn prices averaged $1.94 per bushel in Iowa. The preliminary estimated price for November 2012 is $6.80 per bushel. Soybean prices changed from $5.54 to $13.70 over the same period. Coming into 2012 there was a general sentiment that prices would decline from their peaks. But, the drought changed that scenario and grain prices remained at high levels in 2012. How long the high prices will last is unknown.
There has been considerable variation in commodity prices over the past few years, but farm income has increased substantially. The ISU economist goes on to say, the increase in income has been the primary cause for the increase in farmland values, but not the only one.
"There are other causes for the increase," Duffy explains. "Interest rates are at the lowest level in recent memory. The amount of the farmland purchased by investors went from 18% in 1989 to 39% of purchases in 2005, but investor purchases are back to the 1989 level of 18% this year after decreasing for the third year in a row."
Keep in mind the factors that influence farmland values, be watchful of these drivers
Another key component is the costs of production. In the past, costs have risen in response to higher commodity prices. This is especially true for rents. ISU economists estimated costs of crop production have shown a 61% increase in the cost per bushel since 2005. Without land, the increase has been 87%.