farmland land value farm income commodity prices

The Iowa Farmland Grab
crop production historical peak investor farm owner

Iowa land prices continue upward climb

Do land prices follow income or vice versa? And why do people cheer pricey, unaffordable land? Here we excerpt three 2012 articles on farmland values from: (1) The Independent, Dec 4, by R. Pore; (2) Le Mars Daily Sentinel, Dec 12, by J. Stevens; and (3) Bloomberg News, Dec 20, by A. Bjerga.

by Robert Pore, by Jolene Stevens, and by Alan Bjerga

High land values and concerns about possible tax changes going into 2013 have caused a rush of farm real estate auctions this fall.

Land values have been driven up by a dramatic increase in farm income from higher commodity prices during the last seven years. In 2005, corn was selling for less than $2 per bushel. It now sells for more than $7.50 per bushel. Soybeans — Nebraska’s second largest crop behind corn — are selling for more than $14 per bushel.

That also corresponds with a number of years of good weather with proper moisture during the growing season, which helped increase crop production along with the higher prices.

In August, the U.S. Department of Agriculture reported that Nebraska’s farm real estate value — a measurement of the value of all land and buildings on farms — rose from 2011, extending a trend that began in 1993. Farm real estate value for 2012 averaged $2,590 per acre. That’s up $650 per acre, or 34 percent, from last year’s revised level.

Cropland value increased 36 percent from last year to $4,480 per acre, with dryland acreage averaging $3,500 per acre and irrigated cropland at $6,000. Pastureland, at $660 per acre, increased $130 from a year ago.

Another factor is the taxes that will come into play next year, especially if capital gains rates increase. Also, under the Affordable Care Act, capital gains incur an additional 3.8 percent Medicare tax for single filers with incomes of more than $200,000 and married joint filers over $250,000. That pushes long-term capital gain rates from 15 percent to 23.8 percent, the highest rate since 1997.

Another consideration is the ongoing drought. With more than 95 percent of Nebraska farmland subsoil moisture levels rated at poor or very poor, grass production next year will depend very much on spring rains.

Also, if groundwater levels do not recharge to acceptable levels during the winter after a growing year of heavy irrigation use because of the drought, natural resources districts could implement groundwater control measures.

Another factor that may be influencing farmland sales is the increasing age of the average farm operator. The average Nebraska farmer’s age is 55.9 years old. Nationwide, the average age of farm operators was 57 in 2007 and that farmers who are 55 or older account for 62 percent of all farms.

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"Historical peaks" in the value of Iowa's farm land are evident in the 2012. Values increased more than 15 percent for the third year in a row. The increases put the average value of farm land at $8,296 per acre or a 23.7 increase over 2011 values.

Low-grade land in the state averaged $5,119 per acre and showed a 20.2 percent increase or $862 per acre, while medium grade land averaged $7,773 per acre; high grade land averaged $10,181 per acre.

As farm income increases, so will land values. In 2005, corn prices averaged $1.94 per bushel in Iowa. The preliminary estimated price for November 2012 is $6.80. Soybean prices changed from $5.54 to $13.70 over the same period.

Coming into 2012, there was a general sentiment that prices would decline from their peaks. But, the drought changed this and the prices remained at high levels.

While the increase in income has been the primary cause in the increased land values it is not the only one. Interest rates are at the lowest level in recent memory. Yet land is the residual "claimant" to any excess profits in agriculture.

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On Oct. 25, Iowa farmland set a record. In Sioux County, bidding hit $20,000 per acre. When bidding stopped at $21,900, there was applause.

With exports at a record high and rising global populations and wealth prompting more food demand, many investors view farmland as a path to steady long-term returns. You have the yearly income of the crops and the long-term appreciation of the property.

Still, what a farmer may spend for choice land near an existing spread is widening from what an investor might pay to speculate. The amount of Iowa farmland purchased by investors peaked at 39 percent in 2005, when the average price was less than half what it is now. In 2011 it was 22 percent. Meanwhile, farmer purchases in that period rose to 77 percent from 59 percent. Farmers may be able to justify the purchases because of their lack of debt, which is near 60-year lows, and their desire to acquire attractive nearby parcels that may become available only when a farmer dies or—rare in these times—leaves farming.

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JJS: People are willing to pay more for farmland but pay whom? Who created the land? Who created its value? All of us in general create its value so society in general should recover that value.

If community gathers and shares land value, then there’s none leftover for investors to speculate on. When they go, land becomes somewhat more affordable for farmers who actually want to farm. And as farmland prices fall, buyers need not indebt themselves to banks, so the pressure is off to farm for the heftiest short-term harvest and can more comfortably farm sustainably.

And if farmers still need an extra income, they, like the entire citizenry, could be paid a dividend from the recovered rental values for all lands and resources in the region. And, believe it not, not only would there be enough public revenue for paying a dividend, it’d also be possible to gather up that revenue without taxing one’s earnings, purchases, or buildings. How cool is that?


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Good Enough for Profit, Good Enough for Populace?

In 2011 Investors' Bids on US Land Up 128%

US land speculators see lucre in solar projects as ...

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