Investors like rising farmland market

By Gene Lucht
Iowa Farmer Today
Story posted 3/26/04 

CLIVE –– Farmland values continue to rise in Iowa. Averages have climbed 7 percent in the past six months and 10.5 percent in the past year, according to a real estate survey.

High crop prices, low interest rates, a low number of farms listed, an increase in land exchanges, and more farm expansion were cited as reasons for the increase.

The survey is conducted every six months by the Iowa Farm & Land Chapter #2 Realtors Land Institute.

The survey indicates today’s Iowa farmland values have climbed past the previous highs set in 1981.

The statewide average land value for high-yielding land (at least 160 bushels per acre) is $3,019/acre, up from $2,840 last September. The average for medium land (110-159 bu./acre) is $2,520 and the average for poor row crop ground (85-109 bu./acre) is $1,917. Non-tillable pasture averages $995 while timber averages $953.

The bottom line is farmland is a good investment, said Troy Louwagie of Hertz Real Estate Services in Mount Vernon.

The stock market has not done well in recent years, he noted, and certificates of deposit at banks earn very low interest. Land is appreciating in value and offers an annual return on investment.

Louwagie also said while land values have climbed past 1981 levels, bankers and farmers aren’t concerned about a repeat of the 1980s collapse.

“It seems like our land is held by stronger buyers today,” he says, adding many more buyers are paying more down and fixing low-interest rates. Some are even cashing in large CDs and paying for land up front.

Most realtors at last week’s meeting of the organization say they don’t expect a major drop in land prices in the next several years, even if the stock market shoots back up. The reason is many farm buyers either don’t trust the stock market or have been burned once investing there.

“People are willing to take a lower return because it’s safe,” said Sam Kain with Farmers National Co. in West Des Moines. Farmland is a long-term investment that appreciates and offers a return, plus it offers recreational value in some cases, he added.

Of course, there is also the matter of 1031 land exchanges (named after a clause in the tax code). These exchanges essentially allow a farmer to sell one piece of land and buy another for roughly equal value within a specific time.

Many farmers have used it in recent years, particularly those close to a metropolitan area who are feeling the pinch of urban sprawl.

Dick Wardell with Blair Real Estate in Blair, Neb., says most of those exchanges involve land but not complete operations.

It is more complicated when a client wants to completely move an operation and needs a home, farm buildings, grain storage and land.

Wardell said he recently helped one family pull off just such a move as they left the Omaha area and eventually bought a complete operation in Cass County.

Their land near Omaha is being converted to an apartment complex. The new farm situation was not easy to find.

“It was adequately sized, had a house, grain bins and buildings, everything,” he said.

Wardell also said he is seeing more of what he calls “boomer farmers” in their late-50s with grown children who moved out and aren’t coming back to the farm.

These farmers are more willing to sell than their parents or older relatives might be because they’ve been through the difficult times of the 1980s, and they want to enjoy their retirement.

In some cases, they are willing to sell land near metropolitan areas, then buy a house in town and some less expensive farmland farther from the city.

All of those items continue to drive the overall trend, which is an increase in farmland values. Every part of the state saw an increase in the past six months, with Southwest Iowa seeing the biggest rise at 10.9 percent.

Louwagie credited that partly to the fact Southwest Iowa values had lagged behind the rest of the state in recent years, perhaps because of dry weather conditions and poor harvests. But, good grain prices and pressure from the Omaha market have bolstered prices in that area recently.

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