Land values catch fire on ethanol
Tillable land values in Iowa have rocketed upwards at the rate of 16.5% in the past year, fueled largely by ethanol and biodiesel.
That's the bottom line from a survey of land market experts by a rural real estate brokers group. The best farmland in the state, with a 160-bushel-an-acre corn yield potential, is worth an average of $4,313 an acre as of March 1, according to a survey taken every six months by the Iowa Farm & Land Chapter #2 of the Realtors Land Institute.
The main force driving land prices higher is the recent boom in commodity prices, said Troy Louwagie who manages the survey. The second reason is the boom in construction of new ethanol and biodiesel plants and "the euphoria from renewable fuels that has pushed the grain market," he said.
Other factors included a limited amount of land for sale -- less than in the previous survey -- good crop yields in 2006, and continuing Section 1031 land exchanges, which is less of a force in the market than six months ago.
Although the survey showed optimism that land prices will continue to be strong, some negative factors that could affect the market include uncertainty about the next farm bill, increasing fuel and fertilizer costs for farmers, and the chance that interest rates will rise slightly.
Louwagie said that farmers are becoming a bigger factor in the land market than investors who seem to be sitting on the sidelines.
"We've all heard stories about what cash rents are doing. By owning their own land, they can control that," Louwagie said.
The jump in land prices was one of the largest since the Institute began its surveys in 1978. The largest annual increase was a 20.2% annual increase in March of 1988, when land values were coming off of a farmland slump. The average value of top land that spring was $1,262 an acre.
Prices rose 15.2% in the year leading up to the September, 1979 survey. And they rose 16% in the year before September, 1996. "Keep in mind, we were coming off of 1995 and $5 corn," Louwagie said.
Real estate brokers said that most of the price increase this year has taken place in the past 60 to 90 days. Land prices jumped $13.6% statewide in the past six months. The North Central crop reporting district saw prices jump 20.1% in the past six months, to $4,499 an acre. All but one of the districtsâ€”South Centralâ€”had double digit increases.
Sam Kain of Farmers National Company's West Des Moines office said that he thinks the price increases are continuing.
"We've had some sales in the $5,000 range," he said. And he has heard reports of land selling for as much as $6,000 an acre.
"I think in today's market, if you're not selling your land at a public auction, you're probably leaving money on the table," he said.
The buyers have been other farmers, not investors. And they haven't been farmers starting out. "You've basically taken the beginning farmer out of the picture here," he said.