A recent survey of farmland real estate brokers shows that the price of Iowa’s best farmland rose by an average of 12 percent from September 2007 through February 2008. This survey was conducted by the Iowa Farm and Land Chapter 2 Realtors Land Institute, as it has been done every March and September since 1978. The RLI is composed of real estate brokers who specialize in farm and land sales, farm management, and appraisals. The results were cited in an article in the Sunday Des Moines Register on March 20, 2008.
Troy Louwagie, the survey chairman as well as a real estate coordinator at Hertz Farm Management in Mount Vernon, had this to say about the results of the survey: “This was the highest dollar-per-acre number we’ve ever had, the second-highest six-month gain, and the third-highest annual increase over the 30 years since the survey began.”
Mr. Louwagie cited the following factors as contributors to the increase:
- increased corn and soybean prices
- ethanol industry expansion
- a limited amount of land available for purchase
- good crop yields during the last growing season
- a generally positive attitude about agriculture
- relatively low long-term interest rates
- higher cash rents for farmland
Some of the concerns mentioned by respondents to the survey were uncertainty about the outcome of the current debate in Congress about the government farm program, ever-increasing fuel and fertilizer costs, and the decreasing returns of the livestock industry.
For the survey, the state is divided into nine districts. Five of those districts had per-acre averages of more than $5,000 in this survey, compared to only one district with such an average in the September 2007 survey.
Even timberland, often purchased as recreational and hunting ground, showed the same 12% average rate of increase over the six-month period, averaging $2,045 per acre.
Please consider IOWA EQUITY EXCHANGE as your source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.
Ken Tharp
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Copyright © 2008 By Ken Tharp, All Rights Reserved. * Iowa Land Price Survey Shows 12% Rise in Six Months * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.
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Ken, I feel that farmland prices are on a bubble inflated by the ethanol demand. In the event that we recover our senses and stop "subsidizing" ethanol production and really wake up and stop "requiring" this as an automobile fuel. then corn demand will go back to "normal" levels with a subsequent reduction in price. This will pop the bubble. Land prices will fall.
The unintended consequences of using ethanol has created a major problem for food producers. Corn prices (and availability) has made everything more expensive, from soft drinks, beef, chicken, pork, to vegetable oil and mayonaise. Beer is more expensive because farmers have given up growing hops in favor of corn.
This is a situation that cannot last. The people will revolt.
Bill Roberts
Hi Bill - Thanks for your comments. I agree with all of your comments, but I think there is more to what's happening with farmland prices than just ethanol. China, India, and other parts of the world have created a greater demand for corn, beans, wheat, and so forth, and that enters into the equation. Whether that demand will compensate for the loss of the impact of ethanol and biodiesel when and/or if those occur remains to be seen.
The part I can't possibly argue with you about is that the people will revolt if the price of beer gets out of hand. Gasoline we can apparently handle, but beer? No way...
Ken Tharp, Iowa Equity Exchange
There is much more to land prices than ethanol, but it is certainly a key part of the puzzle. Yesterday did you hear the announcement that if the global food shortage persists some ethanol plants may have to be shut down, even if it requires government intervention.
I think one thing that is often overlooked is the safety of land investment as opposed to other markets thats are so volatile right now.
Jason