STORM LAKE - While Iowans may becomings accustomed to $20,000-per-acre farmland these record-high land prices aren't the norm outside of Iowa.
"What's going on with Iowa land values is not indicative of what's going on with land values nationwide," said Tom Olsen, a farm management field specialist with Iowa State University Extension, who spoke in Storm Lake during a Mega Trends in Agriculture seminar on Dec. 21.
On Dec. 14, ISU economist Mike Duffy reported one of the most remarkable years in Iowa land value history.
-Messenger photo by Darcy?Dougherty Maulsby
Tom Olsen, left, a farm management field specialist with Iowa State University Extension, discusses Iowa land values situation with a pair of Iowans who attended a Mega Trends in Agriculture presentation on Dec. 21 in?Storm Lake.
The 32.5 percentage increase in Iowa farmland values in 2011 was the highest ever recorded by the Iowa Land Value Survey.
The previous single-year growth of 31.7 percent was recorded in 1973. Duffy also noted a $6,708 state average in 2011 for all grades of land, which, when adjusted for inflation, is at an all-time high.
"No place in the United States even came close to Iowa's values," Olsen told his Storm Lake audience. The percent change in land values from 2010 to 2011 reached 17.1 percent in Nebraska, 16.3 percent in Illinois, 12 percent in Minnesota, 8 percent in Wisconsin, and 7.7 percent in Missouri.
The numbers were even lower in the western United States and southeastern United States. Georgia's percent change in land values from 2010 to 2011 was a negative 2.6, while the percent change in California land values was a negative 1.5.
Washington state fared a little better, with the percent change between 2010 and 2011 coming in at a positive 2 percent. In Oregon, the percent change reached 5.3 percent.
"The value of productive agricultural land in the northwest had been relatively flat from 2000 to 2004, and then it increased fairly rapidly through mid-2008 until the financial crisis hit," Olsen said.
"Then land prices declined; although land prices have rebounded somewhat."
Iowa was sheltered from this 2008 hit, largely due to the growth of the ethanol industry, he said."Land values in Iowa have been going up ever since ethanol came on the scene around 2006 and began driving corn consumption," Olsen said.
It's not out of hand
In recent years, other factors that have helped drive strong demand for Iowa farmland have included low interest rates, strong commodity demand, higher farm incomes and lack of alternative investments due to the lackluster general economy.
While outside investors continue to buy Iowa farmland, farmers are buying a higher percentage of the land today, Olsen said.
"Outside investors only make up about 20 percent of the farmland buyers, down from 40 percent five or six years ago."
Although the latest increase in Iowa farmland values is historic and record-setting, it's not a repeat of the events that preceded the 1980s farm crisis.
A key difference is debt, said Olsen, who noted that more land today is being bought with cash than was the case in the 1970s.
"Since buyers aren't borrowing nearly as much money this time around, leverage is not out of hand. This is not a 1980s re-do."
In making decisions about land values, it's wise to remember the importance of maintaining liquidity and working capital.
Despite record net farm incomes, profit margins can get squeezed, said Olsen, who pointed out that net farm income at 2011 levels is probably not sustainable, but operating costs may be.
Will there be a land value bubble? It's possible, said Olsen, who cited Dr. Robert Shiller, a noted real estate and housing analyst who helped develop the widely-followed Case Shiller Housing Index.
"Shiller has stated that farmland is his dark-horse bubble candidate for the next decade."
For now, however, Iowa farmland continues to command high sale prices.
As he looks to the future, Duffy sees the agricultural economy remaining strong and predicts that farm values will continue to rise, although perhaps not at rates of 32 percent.
"Iowa is currently the center of the universe when it comes to land prices," Olsen added. "This is where the action is."
You can contact Darcy Dougherty Maulsby by email email@example.com.