Corn country is getting more expensive — fast, according to the results of a new study released Dec. 14.
With farmers and investors alike bidding up the cost of key acreage used for growing corn, soybeans and other crops, the average value for Iowa farmland has risen 32.5 per cent over the last year to $6,708 per acre — an all-time high, adjusted for inflation — according to results of the Iowa Land Value Survey, which was conducted in November.
The rate of gain marks the highest percentage increase ever recorded by the Iowa State University annual survey, and is in line with the findings of a recent Chicago Federal Reserve Bank estimate of a 31 per cent increase in Iowa land values.
Calling 2011 "one of the most remarkable years in Iowa land value history," Mike Duffy, Iowa State University economics professor who conducted the survey, said low interest rates and high prices for corn and soybeans are key drivers.
Poor performance in other investment areas, particularly the stock market, may also account for increased interest in buying farmland, Duffy said.
Iowa, as the largest U.S. corn-growing state, is a particular hot spot for expansion of farmland holdings as corn prices have risen to about $6 a bushel from just about $2 a bushel six years ago.
The rising corn prices, and similar striking price gains in soybeans, have driven farmland prices higher throughout the U.S. Midwest. Nebraska, Indiana, Illinois and Michigan are also seeing sharp spikes in farmland values, according to data from the Federal Reserve Bank of Chicago.
The spike has caused some analysts to warn of a potential bubble and market collapse at some point if crop prices fall and farmers and investors are left overleveraged.
Indeed, some investor groups say because prices are reaching such lofty levels they are moving to the sidelines. But others are racing to accumulate more land, saying the market is still on its way up.
Hot and still rising
The northwest part of Iowa is commanding the highest prices in the state, upwards of $9,500 per acre on average in O’Brien County and an average of $8,338 per acre for the northwest region of the state, according to the survey.
Indeed, one recently reported sale in that region brought $20,000 an acre.
"The state has been going very strong, but that northwest corner in particular has been extremely strong in prices," said David Miller, director of research for the Iowa Farm Bureau.
"The big question will be, are we going to go back to $3 corn or $2 corn?" he said.
The cheapest land was found along the south-central border of the state where Decatur County farmland averaged $2,721 an acre, according to the survey.
Farmers remain by far the largest group of buyers. With fat bank accounts following bountiful harvests and relatively low debt levels, farmers are expanding their holdings at a rapid clip.
Investor groups made up only about 22 per cent of the purchasers in 2011, the study found, down from 39 per cent of purchases in 2005.
The number of land sales remained relatively steady to slightly greater in 2011 as compared to 2010, after a slowdown in transactions in 2009.