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Farmland values jump 10.8% on commodity prices, buyers with cash

George C. Ford, CR Gazette –

As commodity prices remain strong and farmers have cash to buy additional land, Iowa farmland values continue to post double-digit gains.

The value of good quality Iowa farmland soared 10.8 percent to an average $9,480 per acre over the last six months, according to data released Thursday by the Iowa Farm and Land Chapter No. 2 of the Realtors Land Institute. Combined with a 12.8 percent increase between March 1, 2011, and Sept. 1, 2011, the average price of an acre of good Iowa farmland has soared 23.7 percent between March 1, 2011, and March 1, 2012.

The average value of good quality farmland in northwest Iowa rose 11.6 percent to $10,656 per acre between Sept. 1, 2011, and March 1, 2012. In east central Iowa, the value of an average acre of good farmland for corn production rose 9.4 percent to $9,480 over the last six months.

All nine Iowa crop reporting districts showed an increase. The districts varied from a 9 percent increase in northeast Iowa to a 12.9 percent gain in southwest Iowa for the six-month period.

Troy Louwagie of Hertz Farm Real Estate Services in Mount Vernon said a number of factors are responsible for the continuing run-up in farmland values.

“We’re seeing high commodity prices and low interest rates,” Louwagie said. “Farmers have their crops in the bin, they know what they have in inventory, and they’re more prepared to bid for land and push the prices up a bit. We have continued to see strong land sales over the last six months, so the survey results did not come as a surprise.”

Louwagie said last summer’s weather with strong winds that produced downed corn had some farmers wondering about their yields. Over the last six months, that uncertainty disappeared as the harvest went into storage bins.

“We’re seeing farmers as the primary buyers of farmland — 60 percent to 70 percent,” Louwagie said. “We’ve seen a fair amount of outside investors also buy land. I think it’s because money today is not worth a lot.

“If you have $500,000 sitting in the bank, it’s not going to be earning enough interest to keep up with inflation. Buyers are investing it in farmland where they can get a 3.5 percent to 4 percent return on their investment, plus they’re banking on appreciation.”

Louwagie said farmland brokers across the state are reporting that most of the sales they’ve closed in the last year involved buyers paying cash. He noted that banks continue to be somewhat stringent in their lending, requiring a 35 percent down payment since the farm crisis of the early 1980s.

Louwagie said a number of factors could affect Iowa farmland values in future months, including higher costs for seed and fertilizer, higher interest rates, larger amounts of land being offered for sale, lower commodity prices and continued uncertainty about the U.S. and world economy.

“If we get a bumper crop this year across the Midwest, we could see lower commodity prices and a slowdown in this market,” Louwagie said. “That’s not a bad thing because having a little slowdown could be good for the long term market.

“If the weather stays dry like it is right now, we likely will see lower yields and possibly higher commodity prices.”

Farmers National Co. of Omaha, with an office in Iowa City, has been seeing roughly the same pattern in farmland sales across the Midwest.

Sam Kain, area sales manager for Farmers National, said demand for quality land continues to be very strong in the north central region of the Midwest including Iowa, Missouri, Minnesota, South Dakota, and North Dakota. Recent Farmers National auctions involved farmland selling for $13,311 an acre in Macon County, Ill.; $12,10o an acre in Mitchell County, Iowa, and $10,300 an acre in Butler County, Neb.

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