The average value of Iowa farmland is estimated at $6,708 per acre for 2011, an increase of 32.5% from 2010. This is the highest percentage increase ever recorded in the annual statewide survey by Iowa State University. Results of the 2011 Iowa Land Value Survey were released in December. It was conducted in November.
The increase matches results of other recent surveys of Iowa farmland — such as the Chicago Federal Reserve Bank’s estimated 31% increase in Iowa land values. The Iowa Chapter of the Realtors Land Institute conducts a survey every six months statewide, and it shows a similar rise for 2011. The 2011 values are historical peaks.
• Record set in 2011 for average value of farmland in Iowa.
• Farmland values are highly linked to gross farm income.
• Prices should be strong near term; longer term is uncertain.
“The 2011 ISU survey covers one of the most remarkable years in Iowa land value history,” says Mike Duffy, Iowa State University Extension farm management economist who runs the survey. “This is the highest percentage increase ever recorded by our survey, and the average land value of $6,708 per acre, when adjusted for inflation, is at an all-time high.” The previous inflation-adjusted high was in 1979.
While the statewide average price is $6,708 per acre, some individual sale prices for farmland recently have been eye-popping, including a record $20,000 per acre for 74 acres in Sioux County.
Strong demand for land
Duffy says most sales do not involve auctions, but when economics and emotion collide in a land sale, sometimes the bidding gets very strong.
“There is currently a strong demand in Iowa for farmland,” notes Duffy. He says the increase in land values this year has been fueled by sound fundamental factors, including low interest rates and an increase in global demand for commodities. The ISU survey shows 74% of the land buyers in 2011 were farmers.
Scott County in eastern Iowa, with an estimated $9,223 average value for all farmland, saw the highest percentage increase and highest increase in value, 37.7% and $2,524, respectively, of Iowa’s 99 counties. However, O’Brien County farmland at $9,513 is the highest average county value recorded by the survey. Looking at the state by crop reporting district, the Northwest Crop Reporting District, which includes O’Brien County, has the highest land values at $8,338 per acre, a rise of $1,983, or 31.2%, from 2010.
“This rate of increase in 2011 has led to concerns that farmland may be the next speculative bubble,” says Duffy. “Some people feel farmers are setting themselves up for a fall similar to the 1980s. Without a doubt, it’s an interesting time and something to watch, but it isn’t a time to panic.”
Driver: commodity prices
Farmland values are highly correlated with gross farm income, he notes. As gross farm income rises, so will land values. In 2005, corn prices averaged $1.94 per bushel in Iowa. The estimated price for November 2011 is $6.05. Soybean prices changed from $5.54 to $11.40 over the same period.
There has been considerable variation in commodity prices over the past few years, but net farm income has increased substantially and is projected to rise even more for 2011. This increase in income has been the primary cause for the rise in farmland values, but not the only one.
“There are other causes for the rise in farmland values in 2011,” Duffy says. “Interest rates are at the lowest level in recent memory. Farmland purchased by investors went from 18% in 1989 to 39% of purchases in 2005, but investor purchases decreased this year to 22%.”
Where else to invest?
Another factor is the relatively dismal performance of the stock market. People want to buy farmland, or they’re not selling it because they don’t know where else to put their money. The increase in farm income, changes in investor demand and changes in investment alternatives have all led to a volatile market.
One area of volatility is in the number of sales. Land value survey respondents have shown considerable variation over the past few years when queried about the number of sales.
Sales decreased considerably in 2009 and improved somewhat in 2010. Based on survey results reported in 2011, most people are seeing more sales or at least a similar number of sales in 2011, relative to 2010.
One difference is in the use of auctions; survey respondents noted what appears to be a rapid increase in the use of auction sales. Preliminary analysis of 2011 sales data shows an increase in price by using an auction. As one said, “Economics may get the person to the auction, but emotion often leads to the purchase.”
Duffy believes farmland values should remain strong for the next several months at least. Beyond that, there’s a fair degree of uncertainty with respect to whether land values can maintain their current levels. There are several key things to watch:
• the amount of debt incurred with land acquisition
• government policies, especially policies related to energy
• what happens to input costs — land being the residual claimant to any excess profits in agriculture
• performance of the overall economy, especially with respect to income
• governmental monetary policies as they relate to inflation and interest rates
• performance of U.S. and world economies, which impact commodity prices that, in turn, impact land values
• weather-related problems here and around the world
Maps showing 2011 land values, percentage changes and comparisons to 2010, along with additional information from Duffy, are available at www.extension.iastate.edu/topic/