Farmland values skyrocket 25 percent

Farmland values in Iowa have reached near record highs. That was the finding of a survey from the Realtors Land Institute released this week. The value of farmland jumped 25 percent since last March. The survey revealed the value of tillable cropland in the state is $5,708 per acre, just a few dollars shy of the inflation-adjusted high of $5,711 set in 1979. Iowa farmland is now more than twice as valuable as it was a decade ago.

The two main drivers of the increase in value are livestock and corn prices. Livestock prices are up 25 percent from last fall while the price of corn has doubled.  

Of the nine districts in Iowa, the northwest district has the highest land value at about $6,550. West central Iowa, another district that is flush with livestock, is second at $6,500. West central Iowa?s values increased 26 percent in just the last six months. Southeast Iowa, which includes Washington County, ranks seventh among the nine districts with land values at about $5,230. South central Iowa has the lowest property values at $4,300.

The survey indicated that the value of Iowa?s best farmground has also risen markedly. The price of ?high quality? farmland in the state was $3,450 in 2005. Six years later, the value had more than doubled, climbing to almost $7,400.  

In the 1970s, U.S. grain exports soared, as did commodity prices. Low interest rates spurred farmers to borrow heavily in the hopes of recouping their investment through high grain prices. In the 1980s, commodity prices collapsed, and many farmers couldn?t pay off their debts.

Iowa State University Farm Management Specialist Jim Jensen does not expect a repeat of the farm crisis of the 1980s. Jensen said farmers in the 1980s financed land and equipment purchases through loans. Now farmers are putting more money down on those loans or forsaking loans altogether, opting to write checks instead.

?I think we?ve got a stronger situation now than we did back then,? said Jensen. ?In the last bubble, a lot of people borrowed on contract. Their down payment came from land they already owned. But later the land they borrowed against wasn?t worth as much, and things got crazy. We?re in a much more secure position now. Inflation is not anywhere near where it was before.?

Low interest rates have helped the farmers, said Jensen, but noted that interest rates have been quite low for a long time. He said the increase in land value has more to do with the increasing price of commodities. Why is the price increasing? Jensen said the high demand for grain is responsible for pushing up its price, particularly the demand from China.

?We can?t produce enough soybeans in Iowa to satisfy China?s importing needs,? said Jensen. ?China is also buying cropland in other countries. They have a lot of people to feed.?

Livestock prices are also up, although Jensen said that does not mean that livestock profits are, too.

?The problem is that the price of feed has gone up, so their profit margin is squeezed,? said Jensen. ?Some of them (ranchers) may have locked in lower feed costs before, but their rising input costs will eventually catch up with them.?

Jensen said he?s worried farmers will get carried away and expand too much. He said current commodity prices are not at sustainable levels. He said they will have to come down eventually.

?I think we need corrections periodically,? said Jensen. ?Prices continue to rise, and that?s not what we?ve been used to. Demand has been so high worldwide, and that explains why the prices are so high.?