Boom in farmland values slows down in Iowa
Prices for undeveloped agricultural land in Iowa are still rising, but at just over half the rate they were a year ago, the Iowa Farm and Land Chapter #2 of the Realtors Land Institute reported Thursday.
Prices rose an average of 2.4% in the six months from September 2005 to March 2006. Adding that increase to the 5.5% rise in the previous six months brings the annual change to an average of 7.9%. The previous year, prices rose an estimated 13.9%, according to the Rural Land Institute's twice-yearly survey of members who are active in the rural real estate market.
"I think the double digit increases are done for a while," said Troy Louwagie, of Hertz Real Estate Services in Mt. Vernon, Iowa. Louwagie, who chairs the survey, said that about 180 respondents listed several factors keeping land prices rising. They include its limited supply, farm expansion, investors diversifying, still low interest rates, and good crop yields in most of the state. Real estate brokers also listed Section 1031 tax-deferred exchanges of land, but Louwagie said "it did seem like there were fewer comments about 1031 exchanges" this year than in recent years.
A new force is also supporting land prices -- investment in ethanol and biodiesel plants, Louwagie said. Where new plants are boosting local cash prices for corn and soybeans, land values seem to be rising.
There are negative forces pulling at farmland prices, too.
"Uncertainty of future government programs was the biggest response," Louwagie said.
Higher fuel and fertilizer prices, lower commodity prices and slight increases in interest rates also weighed on the rates of increases.
The main buyers remain farmers, both active and retired, followed by investors. Sellers are most often estates but "we're starting to see investors sell their land," he said.
The survey divides the Iowa land market into the state's nine crop reporting districts and estimates prices for top, medium and lower productivity land as well as pasture and timber.
The new statewide average for top corn ground with 160 bushel-per-acre yield potential is $3,694 per acre, according to the survey. East central Iowa has the highest priced top quality land, averaging $4,058 an acre. That area was also hit by drought last year and the price increase there for all tillable cropland rose only 1.2% in the past six months. South central Iowa had the highest percentage increase, up 4.3% with top land averaging $3,060 an acre. One factor mentioned at Thursday's release of the survey was a high amount of land in the area that's coming out of the Conservation Reserve Program, with the potential to be rented for about $110 an acre. CRP payments on that land had been about $65 an acre.
Louwagie said many respondents to the survey expect a stable market with more variability in prices and he believes future price increases are likely to be in the historical range of 2% to 5% per year.