By DOUG SCHMITZ
Iowa Correspondent

AMES, Iowa — The average value of an acre of Iowa farmland increased 15.9 percent in 2010, showing a substantial increase in land values from last year’s plunge, according to an annual year-end survey conducted by Iowa State University.

The statewide average farmland value as of Nov. 1 was $5,064 an acre, up $693 from 2009, which had declined by 2.2 percent, or $97, from the 2008 figure of $4,468.

“We need to watch the land values and be prudent, but I don’t think we need to be overly pessimistic there will be a crash in values anytime soon,” said Mike Duffy, the ISU extension agricultural economist who conducts the survey. “The rate of increase in 2010 appears high, but it is half the yearly increases in 1973, 1974 and 1975.”

Before 2009, the last time the statewide average dropped was in 1999, when the survey reported the average was $1,781 an acre, or $20 less than in 1998, Duffy said. In the decade since 1999, owners of Iowa farmland have watched their holdings increase in value by 145 percent on average.

Conducted annually since 1941 and sponsored by ISU’s Iowa Agriculture and Home Economics Experiment Station, about 1,100 copies of the survey are mailed each year to licensed real estate brokers, agricultural lenders and others knowledgeable of Iowa land values. Only the state average and the district averages are based directly on ISU survey data.

Survey respondents are asked to report farmland values as of Nov. 1. This year, 479 usable surveys provided 627 individual county estimates of Iowa’s 99 counties, which are then derived using a procedure that combines the ISU survey results with data from the U.S. Census of Agriculture.

Of the nine crop reporting districts in the state, the ISU survey found the highest land values were reported for northwestern Iowa, at $6,356 per acre; the lowest were reported for south-central Iowa, at $2,690 per acre.
The highest county average in the state was O’Brien County, at $7,148 per acre, up 16.2 percent from 2009. Decatur County had the lowest average at $2,085, and the lowest dollar increase at $128 per acre. Duffy said the greatest dollar increase was $1,152 in Wright County; the highest percentage increase was in Kossuth County, at 21.9 percent.

Land values were up 22 percent in 2007, which were down 2.2 percent in 2009 and up 15.9 percent in 2010, he said, adding that since 2004, Iowa land values are up 93 percent.

“In addition to the volatility in prices and costs, there has been a substantial shift in the fundamental supply and demand situation for farmland,” he said. “Over 60 percent of the 2009 respondents indicated there were fewer sales in 2009 compared to 2008.

“This was the largest drop in sales reported in the Iowa State survey. In 2010, almost three-fourths of the respondents said sales were either the same or less than 2009. This shows the slump in sales is either continuing, or in some cases worsening, throughout the state.”

According to a recent survey of bankers by the Federal Reserve Bank of Chicago (FRBC), Iowa farmland rose in value by 13 percent in the year ending Oct. 1, 2010, stimulated by rising corn and soybean prices. The FRBC survey said Iowa farmland values rose by 6 percent in the period from July to October, as corn prices went from $3.50 to more than $5 per bushel, and soybeans peaked from $9 to $13.

In September, a bi-yearly land trends and values survey by the Iowa Farm and Land Chapter #2 REALTORS Land Institute in Mount Vernon said Iowa farmland values rose 8.5 percent from September 2009 to a statewide average of $4,518 per acre.

Citing the ISU survey, a Dec. 18 Cedar Rapids Gazette article claimed another 1980s farm crisis-type bubble was just around the corner because of rising farmland prices. But Troy Louwagie, an accredited land consultant and real estate broker at Hertz Farm Management in Mount Vernon, said that’s just not the case.

“What we’re seeing is better quality of land,” said Louwagie, who conducts the Institute’s survey every March and September. “It’s been selling strong in the last 60 to 90 days. I don’t think we’re in a bubble.”

Moreover, he said, Iowa farmers and Realtors are still seeing the rise of land that’s bought with cash – along with strong buyers.

“The bubble in the 1980s was caused by debt,” he said. “By no means are we seeing what happened (then). I don’t see that happening because there is so little debt out there. Owners are in it for the long haul.”

Overall, when evaluating survey results, Duffy said it’s important to remember the time span. “This has been especially true the past few years when corn and soybean prices have varied considerably,” he said.

“Monthly prices for corn averaged 37 percent higher July to November this year, compared to average monthly prices from January through June. Soybean prices are 21 percent higher over the same time span.”

He said land values should remain strong – at least for the next several months.
“Beyond that, there is a fair degree of uncertainty with respect to whether land values can maintain their current levels,” he said. “The volatility in corn and soybean prices and production costs lead to tremendous uncertainty and volatility in the land market, as historically reflected in the Iowa State survey.”