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Average value of Iowa farmland tops $3,900 an acre in 2007 survey

AgDM Newsletter
January 2008

The average value of an acre of farmland in Iowa increased by just over $700 during the past year, to an all-time high of $3,908, according to an annual survey conducted by Iowa State University (ISU) Extension. The land boom is being driven by the developing biofuel economy.

The 22 percent increase recorded this year is the greatest one-year increase since 1976, and marks a new record for the fifth year in a row. Since the year 2000, Iowa land values have increased an average of $2,051 per acre, more than a 100 percent increase over the 2000 average value of $1,857.

The increases in values were reported statewide, with the survey recording averages above $5,000 an acre in five counties, and between $4,000 and $5,000 an acre in 51 counties. Nineteen counties reported increases of more than 25 percent, and 59 counties had increases between 20 and 25 percent.

Some of the smaller percentage increases occurred in the counties and crop reporting districts along Iowa’s eastern and western borders. This reflects the impact of local demand for corn from ethanol plants. Counties along the border rivers previously received the best prices for crops due to low transportation costs to gulf port markets, but now those crops are being used locally by the ethanol plants, which is driving up prices in interior counties.

I am frequently asked whether the land market will crash, and how high it might go before it tops out. I am also questioned about the impact of the weakening dollar, the new farm bill, and the current subprime mortgage crisis. My general feeling is that the land market will remain strong for at least the next five years. We have seen a fundamental shift in demand for corn due to ethanol production. I don’t think this demand will diminish in the near future.

The world of agriculture as we know it here in Iowa has changed. Where the changes will settle out and when is not known.

Of the nine crop reporting districts in the state, northwest Iowa reported the highest average value at $4,699 per acre. The lowest average in the state was in south central Iowa at $2,325 per acre. north central Iowa was the leader in percentage increase at 25.3 percent, while east central Iowa had the lowest percentage increase at 14.7 percent.

The highest county average in the state was Scott County at $5,699 per acre, while Decatur County was lowest at $1,828 per acre. Sioux County led the state with the largest dollar increase at $1,142 per acre, while Floyd County had the largest percentage increase at 30.3 percent.

Low grade land in the state averaged $2,655 per acre, an increase of $460 or 21 percent over the 2006 survey. Medium grade land averaged $3,666 per acre, a $655 increase or 21.8 percent. High grade land averaged $4,686 per acre, an increase of $851 or 22.2 percent.

Survey participants were asked to indicate positive and negative factors that affected land prices during 2007. Good grain prices was by far the most frequently mentioned positive factor, listed by 35 percent of the respondents. Another 10 percent mentioned low interest rates as a major factor.

Three negative factors impacting land values were listed by more than 10 percent of the respondents. They included high costs for the inputs needed to grow crops, listed by 25 percent; high land prices in general, listed by 12 percent; and a concern over how long the market would remain at high levels, listed by 11 percent.

Thirty-seven percent of the respondents to this year’s survey reported more land sales in 2007 than in the previous year. That was the highest percentage since 1988. Buyers were existing farmers in 60 percent of the sales, and investors in 34 percent of the sales, essentially unchanged from the previous year, but down considerably from a decade ago when existing farmers represented nearly 75 percent of the buyers.

Data on farmland sales has been collected by Iowa State University annually since 1941. About 1,100 copies of the survey are mailed each year to licensed real estate brokers, ag lenders, and others knowledgeable of Iowa land values. Respondents are asked to report values as of Nov. 1. Average response is 500 to 600 completed surveys, with 499 usable surveys returned this year. Respondents provided 668 individual county estimates, including land values in nearby counties if they had knowledge of values in those counties.

2007 values by crop reporting district and county, 2006 values, dollar change from 2006 to 2007, and percentage change from 2006 to 2007.

 

Michael D. Duffy, retired economist. Questions?