How high will they go?

Wednesday, December 21, 2011

Last week, Iowa State University (ISU) released their annual report on farmland values in the state. Buoyed by high commodity prices and a strong export market, farmland values rebounded from last year, increasing an average of 32.5 percent to $6,708 an acre.

Recent land auctions in Plymouth and Sioux Counties have reaffirmed these trends. An auction of 73.4 acres of land near Hull in Sioux County earlier this month brought a winning bid of $20,000 an acre, which is believed to be a record.

Neil Harl, professor emeritus at Iowa State University, said the $20,000 per-acre price tag was the largest he's heard of that wasn't influenced by pressure from developers. He said it eclipses the $16,750 record set a few months ago in Sioux County, as well as a rumored $18,000-per acre private transaction in Sioux County about a month ago.

The ISU Iowa Land Value Survey for 2011 recorded the highest percentage increase in the survey's history. The average land value of $6,708 an acre, adjusted for inflation is at an all-time high, beating the previous inflation adjusted high, set in 1979.

Scott County's estimated $9,223 average value for all farmland, saw the highest percentage increase and highest increase in value at 37.7 percent and $2,524 an acre.

The highest average values were in neighboring O'Brien County at $9,512. The Northwest Crop Reporting District, which includes Plymouth, Cherokee, Buena Vista, Pocahontas, Palo Alto, Clay, O'Brien, Sioux, Lyon, Osceola, Dickinson and Emmet counties, reported the highest land vales at $8,338, and increase of $1,983 or 31.2 percent from 2010.

Plymouth County farmland's average value is $8,678 an acre, up 34.3 percent from last year.

The question on many people's mind is how high will prices go? Is there a bubble, or have we simply reached a new plateau?

Mike Duffy, the ISU economics professor who conducts the survey, admits that the rate of increase seen this year may echo the run-up before the farm crisis of the 1980s, but the fundamentals of the market are different this time.

There is evidence to support Duffy's theory, but as any farmer will tell you, what goes up sometimes really goes down.