DES MOINES, Iowa (AP) — The value of Iowa farmland increased by an average of more than 30 percent in the last year, pushed in part by high prices for corn and soybeans and low interest rates, according to a survey of real estate agents.
An acre of medium quality farmland had a value of $6,477, the Iowa Farm and Land Chapter No. 2 Realtors Land Institute said. That's an increase of 34.7 percent in the 12 months that ended Sept. 1. It's the most that land values have risen in any year since the group began tracking values in 1978, The Des Moines Register reported Thursday.
Several factors are driving up the value, said Steve Bruere, president of the Land Institute, and Kyle Hansen of Nevada-based Hertz Farm Management, who led the survey committee.
In addition to near record crop prices and historically low interest rates, there is a limited amount of farmland that comes up for sale, a lack of alternative investments that pay decent returns and inflation fears, which is reflected in the rapid rise in gold prices as well as land.
The new average farmland value of $6,477 tops the previous inflation-adjusted peak value of $5,917 for Iowa farmland in 1979. The previous record for a one-year increase was in 2007, when values went rose an average of 21.4 percent.
The latest one-year gain is reminiscent of the double-digit gains in farmland values during the booming farm years of the 1970s, and that has some people concerned.
"I'm always concerned when there are major moves in farmland values, up or down," said Neil Harl, Iowa State University professor emeritus and an expert on the farm crisis of the 1980s.
The high land values are easily justified by current crop prices, Harl said. But, he asked, how long will crop prices stay at their near-record levels?
The two big factors driving those prices are the biofuels phenomenon and increased food consumption in the developing world, he said.
"The future of biofuels is extremely uncertain," he said, citing political opposition to subsidies and government mandates.
One major difference between today and the early 1980s, when farmland values collapsed, is that farm operators do not carry nearly as much debt as they did 30 years ago, and the cost of borrowing money isn't as much as it was then, said Hansen.
The interest rate on a farmland loan today is as low as 5 percent in some areas. In the 1980s, it was 12 to 15 percent.
Another difference is who is buying the land, said Bruere, president of Peoples Co., a West Des Moines real estate business that specializes in the farmland sale.
During the late 1970s and early 1980s, there was a lot of consolidation going on, and most of the buyers were farmers. Today, many Iowa farmers are at the point where they want to sell because no one in the next generation wants to take over the farm. The buyers are increasingly investor groups.
Copyright 2011 The Associated Press.