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Northwest Iowa land values continue to rise

December 16, 2011
From ISU?Extension , Estherville Daily News

It's no surprise to the locals in northwest Iowa. Farmland values are on the rise.

But ISU Extension Farm & Agribusiness Management Specialist Melissa O'Rourke is happy to have the research in hand to back up the coffee shop talk.

"We've heard about some fairly phenomenal sales recently in our northwest Iowa counties," says O'Rourke. "But I constantly respond to inquiries asking 'what's my land worth' by warning folks that these high dollar sales do not reflect the average farmland values in our region."

Article Photos

County estimates of average dollar value per acre for Iowa farmland based on U.S. Census of Agriculture estimates and the Nov. 1, 2011, Iowa Land Value Survey conducted by ISU Extension and Outreach. The top figure is the estimated Nov. 1, 2011, value; the bottom figure is the estimated Nov. 1, 2010 value.

O'Rourke notes that in the 70 years of conducting the survey, "these results show the highest percentage value increase, and the highest land value, even when adjusted for inflation."

O'Rourke focuses her analysis on the northwest Iowa region that she covers. "Of course I have particular interest in the land values that we're seeing in west and northwest Iowa."

Most of the counties where O'Rourke travels are in the Northwest, North Central, and West Central crop reporting districts. These districts saw average land values increase by 31.2 percent, 28.0 percent, and 35.7 percent, respectively, for an overall average 31.6 percent increase.

But even more noteworthy, says O'Rourke, is that "the two counties with the highest farmland values in Iowa are right in the center of my area of responsibility Sioux and O'Brien county.

O'Brien County leads the survey for the second consecutive year with an average of $9,513 per acre a 33.1 percent increase from 2010. Sioux County is right behind with an average farmland value of $9,419 per acre a 33.64 percent increase.

O'Rourke says that she is asked multiple times each week what's driving these farmland values?

"And the next question is always is this a bubble that is going to burst?"

O'Rourke agrees with other experts on several factors that have been driving these strong sales and higher land values.

"There's no dispute that farm income is up" says O'Rourke. "We've had strong commodity prices along with increases in both net and gross farm income in recent years."

"Think about it corn averaged $1.94 per bushel in 2005, and soybeans were $5.54. The November 2011 estimated price was $6.05 for corn and $11.40 for beans. I'm not a commodities expert, but projections for farm income continue to be strong."

O'Rourke says that increased farm income has made more cash available for land purchases.

"As farm incomes have increased, one of the first things farmers do is update what's in the machine shed, and we've had record farm machinery sales in recent years. After that, a current farmland owner or operator looks to increase the land base, if that's possible" O'Rourke states.

In northwest Iowa, notes O'Rourke, "our high inventory of livestock feeding operations is definitely driving land prices. Livestock owners need control of acres to spread manure, and that factor comes into play when land is available."

O'Rourke notes that there have been warnings that this is a speculative bubble and that a situation similar to the 1980s is on the horizon.

"We constantly warn people to watch their debt levels. However, the data available does not show a significant increase in debt related to land purchases" O'Rourke notes. "In fact, many of the sales during the past year have been cash sales."

That is a significant difference from the situation in the 1980s where farmers were taking on a high level of debt to finance land purchases.

"And another factor related to that is our current low interest rates," says O'Rourke. "Interest rates in the 1980s were skyrocketing compared to what we have now some of the lowest interest rates since 1974.

The ISU survey also shows that more farmland sales are being conducted by public auction. This is considered to have an impact on increasing prices.

"When people don't know the value of a product in a volatile market, an auction is the way they go," says O'Rourke. "The auction sale price is the dollar value arrived at by willing buyers all interested in the land being offered by the seller on that day."

"And I do emphasize just because you hear of a high sale price in a given county on a given day, don't assume that a similar piece of land down the road will go for the same price later that week."

The other question O'Rourke gets asked is, "Will the prices go higher?"

"We know they can go higher, but they can also go lower," says O'Rourke. "I'll just have to get my crystal ball shined up before I can answer that question."



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