Iowa Public Television

 

Farmland Values Increase by Double Digits

posted on November 2, 2007


Schafer would inherit an ambitious agenda at the Agriculture Department. The Bush administration adamantly opposes efforts to extend current farm programs, including billions of dollars in subsidies to America's farmers.

President Bush already has threatened to veto the House version of the Farm Bill which was approved last July. And late this week, the president vetoed the Water Resources Development Act, which would have allowed for improvements on seven locks on the Upper Mississippi and Illinois Rivers -- two important grain shipment waterways.

The Senate is scheduled to debate its $288 billion version of the Farm Bill next week. While much of the fine print is yet to be determined, Congress likely will preserve the so-called, "safety net" for America's farmers.

But strong demand for grain and oilseeds has producers depending less on government support. And the favorable markets also are yielding rapidly appreciating farmland.

Farmland Values Increase by Double Digits

USDA reported this week the average value of cropland has risen 13 percent this year ... to $27-hundred dollars per acre. That's up from $2,390 last year.

Around the Midwest, land appreciation varied from a 10.4 percent gain in Indiana to the largest increase of 17.4 percent in Iowa.

The Agriculture Department says there are several reasons for the higher cost of land. USDA says the appreciation of cropland is being fueled by higher prices received for wheat, soybeans and corn. Wheat and beans are bringing a higher dollar due to the competition from corn as farmers grow more to "fuel" the ethanol market.

But a seasoned economist from Iowa State University, Neil Harl, cautioned in a recent essay -- to accept this market but don't let history repeat itself.

TIJ 103 -Neil Harl, ISU economist: "The recent run-up in commodity prices for corn, wheat and soybeans has resulted in almost unbelievable increases in cash rents and in land values. While not exactly unprecedented it is certainly unusual. The sales in 1972 of the very same commodities to the Soviet Union touched off a decade-long boom in the agricultural sector that ended with the farm debt crisis of the 1980s."

So what does this all mean for farmers, landowners (who stand to be the major beneficiaries of the economic benefits of ethanol) and for the country? Enjoy the boom, don't spend it all. And avoid making decisions that could not be sustained if commodity prices drop back to near historic levels.

Another force behind higher land values is developers gnawing away at farmland near urban areas. With existing tax incentives and farm subsidies, cropland has become an attractive investment for both farmers and non-farmers.

However, some think cropland prices might see a slow down in the future as the slumping housing market could ease residential development on prime farmland.

 


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