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ISU: Iowa farmland values hit historic $8,296 high per acre
Iowa Correspondent

AMES, Iowa — Average Iowa farmland value reached another historic milestone last year when it was estimated at $8,296 per acre – an increase of 23.7 percent from 2011, according to Iowa State University’s annual year-end Iowa Land Value Survey.

“The 2012 land value survey covers one of the most remarkable years in Iowa land value history,” said Mike Duffy, ISU extension farm management specialist and professor of agricultural economics, who conducts the survey. “This is the highest state value recorded by the survey, and the first time county averages have reached levels over $10,000.”

Established in 1941, the survey is based on reports by licensed real estate brokers and selected individuals considered knowledgeable about land market conditions. Conducted last November, the 2012 survey is based on 486 usable responses providing 663 county land value estimates.

The survey indicated 2012 was the third year in a row that values have increased more than 15 percent. Duffy said the increase is somewhat higher than results of other recent Iowa farmland value surveys: the Chicago Federal Reserve Bank estimated an 18 percent increase from October 2011 to October 2012, a decline from a 24 percent increase in the second quarter.

Moreover, the Iowa Farm & Land Chapter #2 Realtors Land Institute estimated a 7.7 percent increase from March to September 2012; in 2011, the value of Iowa farmland soared 32.5 percent, to an average $6,708 per acre during a comparable 12-month period.
Last October, an 80-acre swath of prime farmland in northwestern Iowa sold for a record-breaking $21,900 per acre.

This not only shattered a previous sales record, but also became one of the nation’s top rural real estate hotspots, Iowa farm auction experts said.

“The difference in survey estimates could be due to values increasing more rapidly in the past few months than earlier in the year,” Duffy said. “Better-than-expected crop yields and the level of land sale activity due to the proposed changes in land-related taxes contributed to the increasing values.

“The Iowa State survey samples different populations and uses different wording than the other surveys. This could also lead to different results, especially in times of uncertainty. Even within the Iowa State survey, there was considerable variation in the estimates.”

Of Iowa’s 99 counties, O’Brien County in northwestern Iowa had an estimated $12,862 average value, the highest in the state. O’Brien also had the highest percentage increase and highest dollar increase in value, 35.2 percent and $3,348, respectively.
Decatur County in south-central Iowa on the Missouri border remained the lowest reported land value, at $3,242 per acre, and the lowest dollar increase, at $521.

Duffy said another reason for the increases is farmland values are highly correlated with farm income. “As farm income increases,” he added, “so will land values. In 2005, corn prices averaged $1.94 per bushel in Iowa.”

The survey stated the preliminary estimated price for November 2012 was $6.80. Soybean prices changed from $5.54 to $13.70 over the same period.

“Coming into 2012, there was a general sentiment that prices would decline from their peaks,” Duffy said. “But the drought changed this and the prices remained at high levels. How long the high prices will last is unknown.”

Duffy said there has also been “considerable variation in commodity prices over the past few years, but farm income has increased substantially,” with the increase in income being the primary cause for increases in farmland values, “but not the only one.”

“There are other causes for the increase,” he noted. “Interest rates are at the lowest level in recent memory. Farmland purchased by investors went from 18 percent in 1989 to 39 percent of purchases in 2005. But investor purchases are back to the 1989 level of 18 percent this year, after decreasing for the third year in a row.”
Duffy said another key component is the cost of production, where, in the past, costs have risen in response to higher commodity prices.

“This is especially true for rents,” he said. “Iowa State University estimated costs of crop production have shown a 61 percent increase in the cost per bushel since 2005. Without land, the increase has been 87 percent.”

There are other factors influencing land values: weather-related problems, here and around the world; government policies, especially those related to estate and capital gains tax rates; the amount of debt incurred with land acquisition; and input costs – land being the residual claimant to any excess profits in agriculture.
In addition, government monetary policies relating to inflation and interest rates, as well as the performance of the U.S. economy and economies throughout the world, impact commodity prices – which, in turn, impact land values, Duffy said.

With 36 percent of bankers surveyed anticipating higher farmland values in the current quarter and only 1 percent expecting declining values, the drought didn’t seem to have affected bankers’ expectations of further increases, he said.

But “while this is an interesting time, there is considerable uncertainty surrounding future land values.”