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Serving: IA

Iowa Farmland Value Is Record High

Average value is $3,204 per acre; fourth year in a row it has notched a new record.

The average value of an acre of farmland in Iowa increased by $290 to an all-time high of $3,204 in 2006, according to the annual survey conducted by Iowa State University. This is the fourth year in a row that a new record high has been reached.

Survey results for 2006 were released December 19 at press conference at ISU in Ames. Mike Duffy, ISU Extension farm economist, and his associate, Darnell Smith, conduct the statewide survey each year and were on hand to explain the 2006 results and to answer questions. This year's results contain a number of "firsts" in the survey.

The 2006 average value topped the previous record of $2,914 reported last year, and it represents a 10% percent increase statewide over the 2005 average. This is the first time the average value of an acre of land in Iowa topped $3,000.

Seven counties top $4,000 an acre

Duffy explained that values increased in all 99 counties in Iowa, with seven counties topping $4,000 an acre, and one, Scott County on the Mississippi River in eastern Iowa topped out at $5,073 per acre, the highest ever recorded in the history of the survey.

The total value of the state's 32.6 million acres of farmland is about $105 billion. Duffy says the results of this year's survey are notable not just for the relative strength and record values reported. "The increases can be tied to the rapid increases in grain prices," he says. "Corn prices averaged $2.07 per bushel from January to October of this year, but current cash corn prices are well over $3.00 and using forward contracts and futures, it is possible to sell corn for the next couple of years for that price."

The change in demand for corn, partly attributed to its role in ethanol production, is having far reaching impacts on Iowa agriculture, says Duffy. Land values and rents are increasing. One difference noted in this year's survey is that the percentage of land sales to existing farmers increased this year for the first time in several years, after losing ground to investor purchases.

Are land prices poised for big crash?

Duffy says the double-digit percentage increases of the past three years raise the question of whether we are entering a time similar to the 1970s when land values increased rapidly, only to crash in the 1980s. "There are several important differences to keep in mind when pondering that question," he emphasizes. "For one thing, Iowa land values increased more than 30% per year for 1973, 1974 and 1975, but the current increases in values are no where near that level. The boom in the values in the early 1970s followed a period of relative stability in Iowa land values."

"The increases we are seeing today are coming at a time when Iowa land values have been increasing fairly steadily over the past several years. Since the year 2000, Iowa land values have increased $1,347 per acre on average or a 73% increase. This is a substantial increase, to be sure, but it is no where near the over 125% increase in values from 1972 to 1975," says Duffy.

There are other differences such as the level of inflation, the fact that the more land is held without debt and the fact that more land is being held by older people.

Land increased in every county in 2006

Values increased in all 99 Iowa counties this year and topped $1,400 an acre in every county for the first time since ISU began conducting the survey in 1941. The highest average values in the state were reported in the Northwest Iowa crop reporting district at $3,783 per acre. The South Central district had the lowest average values at $1,927, and that district also had the lowest percentage of increase at 7.5% on average. The highest percentage of increase was 14.7% in Southeast Iowa.

The survey of real estate brokers, farm lenders and others who work directly with the land markets, indicates nearly half of the counties (45) in the state showed increases of more than 10%. There were 59 counties with average values between $3,000 and $4,000 an acre. The smallest percentage increase was 2.9% in Jones County, and the largest increase was 17.2% in Audubon County. The average value increased for the seventh year in a row after slight declines in 1998 and 1999. The largest dollar increase was $495 per acre in Louisa County.

Grain prices and ethanol fuel land

Duffy says good grain prices were a major factor in land value increases this year and were mentioned by 42% of the people responding to the survey. Other positive factors are good crop yields, mentioned by 18% of the respondents; low interest rates, tax-free treatment of transactions involving land exchanges, and bio-fuel demand, each mentioned by 14%; and scarcity of listings, mentioned by 13%.

Negative factors that worked against greater increases this year included an uptrend in interest rates, mentioned by 16% of the respondents, high input and machinery costs, mentioned by 12% and land prices that are already too high, mentioned by 11%.

The survey indicated low grade land, which averaged $2,195 per acre in 2006, increased 11.9% over the previous year. Medium grade land averaged $3,011 per acre, a 10% increase, and high grade land averaged $3,835 per acre, an increase of 9.2%.

Existing farmers buy 60% of land

Of the survey respondents, 51% said the number of sales this year was about the same as last year, while 26% said there were more sales in 2006, and 23% said there were fewer sales. Existing farmers were the buyers in about 60% of the transactions this year, with investors accounting for about 35% of the sales, new farmers 3% and other purchasers 2%.

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 November 1. Average response is 500 to 600 completed surveys, with 490 usable surveys returned this year. Respondents provided 623 individual county estimates, including land values in nearby counties if they had knowledge of values in those counties.

Only the state average and the averages for the nine crop reporting districts are based directly on data collected in the survey. The county estimates are derived through a procedure that combines ISU survey results with data from the U.S. Census of Agriculture. The ISU survey is the only one of several conducted throughout the year that reports data for all 99 counties.

The survey is sponsored by the Iowa Agriculture and Home Economics Experiment Station at ISU, with results reported by ISU Extension. Duffy is assisted in the project each year by Darnell Smith, ISU extension program specialist in economics. More information on the 2006 survey is available at www.extension.iastate.edu/landvalue/

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