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Iowa farmland values up 10% in last year, study shows

For the fourth consecutive year, Iowa farmland values climbed at a record pace in 2006, but the driving factors in this year's rise are different from years past.

Iowa State University Extension farm economist Mike Duffy shared these conclusions as he released the results of the 2006 Iowa farmland value survey Tuesday.

Average Iowa farmland values by region/percent increase:

  • Northwest: $3,478 per acre/11.5%
  • North central: $3,478 per acre/7.9%
  • Northeast: $3,187 per acre/7.6%
  • West central: $3,410 per acre/11.9%
  • Central: $3,716 per acre/8.8%
  • East central: $3,725 per acre/9.7%
  • Southwest: $2.580 per acre/9.8%
  • South central: $1,927 per acre/7.5%
  • Southeast: $2,849 per acre/14.7%

Statewide: $3,204 per acre/10%

Land in seven counties for the first time exceeded $4,000 per acre, while farmland Scott County, in eastern Iowa, surpassed the $5,000-per-acre level, with an average value of $5,073, the highest in the state.

The Iowa average of $3,204 per acre -- a figure that encompasses low-, medium- and high-grade farmland -- is well above the $2,390-per-acre national cropland average, according to the USDA Economic Research Service. Specific to the Corn Belt, ERS projects farmland values rose 12% in the last year.

Even though Iowa land gained an average of 10% in value during the year, the climb is nowhere near the upswing of the mid-1970s when, for three years, farmland values increased at levels almost three times greater than in recent years.

"The increases we saw in 1973-1975 were 30% a year each year, and we haven't even come close to that level," Duffy said. Adjusted for inflation, Duffy added 1981 Iowa land prices were actually higher -- at around $2,100 per acre -- than values reached in the current run-up in its fourth year.

"The previous peak was well over $5,000 per acre," he said. "We're not anywhere near what we were seeing in the late 1970s. We're about where we were in 1974 and 1975 in adjusted-inflation dollars."

The factors playing into more recent land value gains changed in 2006 from previous years.

"This year, grain prices were far and away the most positive response [influencing land values]," said Duffy of the responses gleaned from the farmland values survey. "Last year, prices weren't even mentioned, and now they account for 42%."

Other factors playing into the valuation of Iowa farmland in 2006, according to Duffy, are renewable fuels, interest rates, IRS 1031 exchanges and government payments. On the national level, nonagricultural influences remain prominent in the valuation of farmland.

"The increase in farm real estate values continues to be driven by a combination of mostly nonagricultural factors, including relative low interest rates and strong demand for nonagricultural land uses," according to USDA-ERS, which concluded a survey of national land values earlier this year. "Demand for farm real estate as an investment continues to be a strong market influence.

Another noticeable difference in the results of the 2006 land value survey is a shift in who bought land during the year in Iowa. For the first time in several years, Duffy said, the number of existing farmers buying land was greater than the number of investors.

"Existing farmers have always been primary purchasers, but this category had really been dropping," said Duffy, who's in his 21st year in conducting the Iowa farmland values survey. "We've seen a reversal of that trend this year. The level of activity [among active farmers] seems to be holding fairly steady."

Moving ahead, Duffy said Tuesday he sees few signs the current price climb will subside. But, the factors chipping in to the increase may. Just what will be most responsible for 2007 farmland values is difficult to project at this point.

"Is this increase permanent? Are we going to be willing to accept a roughly 3.5% rate of return on land? How are livestock and export markets going to react to what we've seen with this rise in the market? What's it mean to have corn prices tied to oil prices? What are the possible environmental consequences of increasing corn acreage like we're doing?" Duffy said. "I'm very concerned about beginning farmers when we look at this level of increase. I'm always asked if they're going to be able to keep up. I don't know.

"There's just a great deal of uncertainty. In all of the years I've been doing the land values survey, this is probably the most uncertain time we've seen."

For the fourth consecutive year, Iowa farmland values climbed at a record pace in 2006, but the driving factors in this year's rise are different from years past.

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