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Iowa farmland up 24%; is it a bubble?

Jeff Caldwell 12/11/2012 @ 10:32am Multimedia Editor for Agriculture.com and Successful Farming magazine.

Iowa farmland is worth, on average, just shy of $1,600 an acre more than it was a year ago.

The 23.7% increase, up to $8,296 an acre on average statewide, is the key finding in the 2012 Iowa Land Value Survey, led by Iowa State University (ISU) Extension ag economist and land values specialist Mike Duffy, who released the results of this year's survey on Tuesday in Ames, Iowa.

Land netted the highest average sale price in the northwest part of the state, where values tipped in at $11,404 an acre. On the other side of the spectrum, the lowest land values came in south-central Iowa at $4,308 per acre. The former value is a jump of almost 37%, the greatest year-over-year climb among the state's nine crop reporting districts.

"This is the third year in a row where values have increased more than 15%. This also marked the eighth time in the past nine years where values increased by double digits per year," Duffy said Tuesday. "Iowa land values have increased more than two and a half times since 2003. The values have increased an average of 15.1% a year for the past decade. Obviously, these increases raise concerns there will be a major correction in land values."

So what's been behind the last year's rise? High grain prices make up the largest driver, with more than 3/4 of those responding to the survey citing them as a major bullish factor.

"The second most frequently mentioned factor was low interest rates, mentioned by 63% of the respondents. Other frequently mentioned positive factors included cash/credit availability, good return to land, lack of other investments, and land availability," Duffy said.

Among the factors that survey respondents, a group comprising licensed real estate brokers and "individuals considered to be knowledgeable of land market conditions," there were some that were seen as negative to the land market and its future movement. Among those are bad crop weather, a feeling land values are already too high, an unsteady ag policy arena, and high crop input costs.

One noteworthy finding in this year's survey is the rise in the amount of land going onto the market. High prices are the main reason, but a lot of anxiety about tax hikes down the road have some sellers more motivated than in the past, Duffy said.

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