Mike Duffy, ISU Extension: “We’ve been on a straight upward trend with a few bumps. Since 2006, we’ve been almost straight up.”
Iowa State University Extension this week released its annual land value survey. Started in 1941, the study provides information on general land value trends, geographical land price relationships and factors influencing the Iowa land market. Mike Duffy, ISU extension farm management specialist and professor of economics, is in charge of the survey.
Mike Duffy, ISU Extension: “We saw a 32.5 percent increase in land values from last year. This was the highest on record. The last time we saw numbers near this was in 1973 when there was a 31 percent increase.”
Earlier this month, a 74-acre tract of land in northwest Iowa sold for $20,000 an acre. The previous record was set in October when a 120-acre parcel went for $16,750 per acre. Analysts cite strong prices for hogs and cattle in livestock-heavy northwest Iowa as one of the reasons for surging values in that part of the state.
Mike Duffy, ISU Extension: “It was a tremendous sale. The big thing to remember is behind every sale like that, emotions will take over. A good quote I heard was “Economics gets people to the auction and then emotions set the price.”
Land values are soaring throughout the Midwest, with double-digit percentage increases last year in Illinois, Indiana, Kansas, and Minnesota. Nebraska economists reported a 40 percent increase. Experts say rural land values began to rise a few years ago in response to demand for corn. Now increasing prices for wheat, soybeans and other crops are supporting the upward trend.
The dismal performance of the stock market is attracting people to buy farmland. One Iowa farmer recently quipped he’d rather own farmland right now than gold. The ISU survey reports farmers make up the majority of buyers of Iowa land. It revealed 74 percent of farmland purchases were by current producers, 22 percent were by investors and three percent were by new farmers.
Mike Duffy, ISU Extension: “If I pay 70, 80, 90 percent down, it will cash flow. Is it a good investment? That’s a difficult question. It’s particularly hard for young people. There is a song that says, “We want it all and we want it now.” Well, it isn’t going to happen with land…You have to make decisions based on your own circumstances. Don’t get wrapped up in the moment. If it means you have to delay, then delay. You have to make sure you will make a profit with buying land. Young people have to build up capital.”
USDA says it is not seeing a substantial increase in the amount of debt being used to finance land purchases. It forecasts national farm real estate debt will increase two percent in 2011. Since 2007, USDA estimates show a 17 percent increase in real estate debt. Real estate debt as a portion of total debt or in relation to the value of total assets has remained essentially unchanged since 2007.
While times appear to be good, the rapid rise in agricultural land prices has some worried. Plus input costs have more than doubled in recent years and commodity prices can be extremely volatile, reminding some of the disastrous economic conditions endured during the 1980s farm crisis. During that time, overextended farmers lost their land, butbankers say most farmers today are much lessdebt-ridden than they were thenbecause of higher crop prices. Still, some remain concerned.
Mike Duffy, ISU Extension: “I think we need to be watchful. We can be paralyzed pessimists, foolish optimists or positive realists. I think we need to be positive realists. A lot of the increase in land values is fundamentals and it’s fundamentally sound right now. We are seeing record low interest rates, despite some bumps, we are seeing strong commodity prices and exports are strong. These are good fundamentals and the demand is there. There just aren’t a lot of people who want to sell the land they have and a lot of people who want to buy it.”