Des Moines Register

03-21-07

Iowa farmland prices go up 13.6%

Rising corn, soybean values fuel six-month jump

By JERRY PERKINS

Riding higher corn and soybean prices, Iowa farmland prices rose 13.6 percent in the past six months, according to a survey released Tuesday by farm real estate brokers and appraisers.

Respondents to the survey, which is conducted every six months by the Iowa Farm and Land Chapter No. 2 Realtors Land Institute, said that increased commodity prices tied to escalating demand for corn and soybeans from ethanol and biodiesel plants are fueling the farmland price increase.

The annual rate of increase for the state's best farmland - that which produces more than 160 bushels of corn an acre - was 16.8 percent, compared with farmland prices a year ago.

The six-month rate of increase for the best farmland was 14 percent, reflecting the rapid increases in commodity prices during and after the 2006 harvest.

Troy Louwagie of Hertz Real Estate Services in Mount Vernon, who leads the survey for the Iowa Farm and Land Chapter, said farmers seeking to expand their operations have been most the aggressive in bidding up the price of farmland.

"Investors tend to sit on the sidelines when land gets this high," Louwagie said.

Louwagie said the annual rate of increase for the best Iowa farmland is the second-highest in 20 years.

In March 1988, he said, the best Iowa farmland rose 20 percent in one year. In September 1996, it rose 16 percent for the year.

Farmland is an important component of the investment portfolios of many Iowans, including the heirs of farmers and other landowners.

Half of Iowa's farmland is expected to change ownership in the next 10 to 15 years, according to an Iowa State University study of landownership, as Iowa's farmers grow older and their heirs decide to sell the land.

Rod Larson, a farmland broker for Farmers National Co. in Webster City, said most of the farmland sales that he sees are being made by heirs and estates.

The latest run-up in farmland prices might present those heirs with a good opportunity to sell, he said.

"Good business judgment would put some farms on the market," Larson said. "This is the most optimism I've seen in 25 years."

Larson said that today's farmland market is different because it is being driven by demand for corn and soybeans, not by speculation.

Despite the widespread optimism sparked by the renewable-fuels boom in Iowa, Louwagie said there were negative market factors mentioned by survey respondents.

Uncertainty over the next farm bill and rising costs of fuel and fertilizer were mentioned the most by survey respondents, he said.

Land prices follow commodity prices, Louwagie said, and a decline could occur if corn and soybean prices drop, if interest rates rise, or if government farm programs are less generous than they have been.

Sam Kain, a farm broker with Farmers National in West Des Moines, said farmland prices have increased rapidly in the past two months.

"Ethanol has really fueled the increase," Kain said. "If you aren't selling your land at a public auction, you're leaving money on the table."

Michael Duffy, an ISU economist who conducts the university's annual land value survey released in December, said the increase was in line with his expectations.

"Since September, this market has taken off," Duffy said.

A farmland survey of agricultural bankers conducted by the Federal Reserve Bank of Chicago showed a 13 percent increase in Iowa farmland prices in the year ended Jan. 1.

Farmland prices rose 7 percent in the fourth quarter of 2006, the Chicago Fed's survey said.

Farm Editor Jerry Perkins can be reached at (515) 284-8456 or