Farmland prices keep going up
Survey reveals more buyers are investors who won't be farming the land themselves
JERRY PERKINS
REGISTER FARM EDITOR
Des Moines Register
December 19, 2004
Competition for farmland - driven in part by more nonfarmer investors - has boosted land prices 15.6 percent over the last year.
An Iowa State University survey released last week showed that the average price of an acre of Iowa farmland was a record $2,629 in the year ended Nov. 1. Iowa farmland prices rose for the fifth straight year.
About 38 percent of the buyers were investors, said Michael Duffy, Iowa State Extension economist. That's up from less than 20 percent in the early 1990s.
"What we've seen is a decline in the number of farmers buying farmland, from 80 percent in the late 1980s to only about half now," said Duffy, who has compiled the survey results for the past 20 years.
Duffy said low interest rates paid by other investments and the poor performance of the stock market were two of the reasons investors are interested in farmland.
"They are people who are developers or people who are looking for a second home in the country or a summer home," he said. "They are hunters looking for a hunting camp or people who are returning to Iowa after being away for many years."
Sam Kain , regional sales manager for Farmers National Co. in West Des Moines, said the gap between the demand for farmland and the scarcity of farms for sale has become so wide that Farmers National is selling more farmland by auction when it brokers a sale.
On Tuesday, the day ISU released its 2004 land survey results, Farmers National brokered the sale by auction of an 80-acre farm in Hamilton County for $3,225 an acre.
The farm was bought by farmers Kurt and Jaime Miller, father and son, who live about three miles from the land.
The average price of Hamilton County farmland is $3,442 an acre, a 19.5 percent increase from a year ago, according to the ISU survey.
About 65 acres of the 80-acre tract are tillable, Kain said. The land has a lot of old buildings on it that will have to be torn down, he said, and it needs to have some drainage tile installed. It was sold by an estate.
Four of the five bidders for the Hamilton County farmland were farmers looking to expand their operations, Kain said.
That's unusual, he said, because about half of farmland buyers these days are farmers and half are investors, who won't farm the land themselves.
"It used to be 70 percent farmers and 30 percent investors a couple of years ago," Kain said.
Some of the investors are buying farmland, Kain said, because they are looking for a tax-deferred investment called a "1031" exchange.
A 1031 exchange allows land buyers to defer the payment of taxes on land they have sold if they purchase another piece of land.
Randy Hertz, vice president of Hertz Real Estate Services in Nevada, Ia., said demand for farmland is high because some people see land as an alternative investment.
Certificates of deposit are paying such low interest that some people are cashing in their CDs and putting the money into farmland because they think it will have a higher rate of return, Hertz said.
"We've had a lot of strong cash buyers, both farmers and nonfarmers," Hertz said.
Hertz said the rapid run-up in Iowa farmland prices also is coaxing some people to put land on the market.
"Once they find out land is going for so much, they are interested in selling," he said.
Record high corn yields on many farms this year are adding to the demand.
"Full bins sell farms," Kain said, quoting a farm real estate adage.
This year, 56 percent of the land was purchased by farmers and 38 percent by investors. New and beginning farmers were involved in 2 percent of the sales, and the "other" category accounted for 4 percent, Duffy said the Iowa State survey showed.
The small percentage of beginning farmers buying land is not surprising given the relatively high price of farmland today, said Duffy, who is professor-in-charge of Iowa State's Beginning Farmer Center.
The center advises beginning farmers and tries to match them with farmers who want to pass their farms on to the next generation.
"I don't encourage beginning farmers to buy land," Duffy said, "because you can get a higher rate of return from buying machinery or putting up a hoop barn. Buying farmland doesn't help young farmers. It makes their lives harder."