Demand, Low Rates Drive Up Farmland Prices REGISTER FARM EDITOR October 12, 2004 Iowa farmland prices shot up an average 15 percent in the past year, the largest annual increase in eight years, and hit record levels in most of the state. According to a survey released Monday of farm real estate brokers and others knowledgeable about Iowa's farmland market, Iowa cropland prices rose 7.5 percent from March 1 to Sept. 1 to a state average $3,245 an acre. The figure comes from land that produces at least 160 bushels of corn. Combined with a 7 percent increase from Sept. 1, 2003, to March 1 reported earlier this year by the Iowa Farm & Land Chapter No. 2 Realtors Land Institute, the annual increase totaled 15 percent for the year ended Sept. 1. That is the largest annual percentage rise in Iowa farmland prices since a 16 percent increase in 1996, said Troy Louwagie of Hertz Real Estate Services in Mount Vernon. The price of Iowa farmland is seen by many as an indicator of the health of Iowa's agricultural economy. It also represents a significant portion of many Iowans' net worth. Farmland prices also are a factor in determining rent paid for land farmed by non-owners. All nine of Iowa's crop reporting districts showed an increase in farmland prices during the past six months, the survey showed. Increases ranged from 2.3 percent in southwest Iowa to 9.9 percent in southeast Iowa for low-, medium- and high-grade farmland. Survey respondents said a lack of farms for sale, high demand for farmland, tax-deferred exchanges, investors seeking to diversify their portfolios and low interest rates contributed to the record highs. Factors that had a negative impact on farmland prices included lower corn and soybean prices caused by an expected large harvest and concerns about the economy's long-term prospects, Louwagie said. "We're seeing more cash buyers than we have in the past," said Louwagie, who also is the survey chairman. "Farmers are using their strong equity position and investors are diversifying their portfolios." In areas surrounding metropolitan regions like Des Moines-Ames and Cedar Rapids-Iowa City, investors are outbidding farmers for land, Louwagie said. In more rural areas of the state, he said, farmers are buying about two-thirds of the farmland because they want to expand their operations. Investors are buying a larger percentage of farmland than they have in the past, he said. Times are different now, however. Louwagie said that during the farm crisis, many farmers borrowed money at low interest rates to buy farmland. When inflation sent interest rates skyrocketing, many farmers found it impossible to make their loan payments and subsequently lost their land and livelihood. These days, about three-fourths of Iowa's farmland is not encumbered by debt, Louwagie said. "We've got more cash buyers than we have had," he said. "Nobody is going to get their head under water like they did in the Eighties." "They've had tremendous looking crops all year," he said. "And their harvest is proving to be exceptionally good this year." Also, the expansion of U.S. Highway 218 to a four-lane thoroughfare through southeast Iowa is boosting land prices. In west central Iowa, where the best cropland increased 10 percent in price in the past year, farmers saw exceptional crops, and there is less farmland for sale, Louwagie said. South-central Iowa farmland prices continue to benefit from an influx of outsiders who are pooling their resources and buying farms and timberland for hunting or recreational purposes, Louwagie said. In southwest Iowa, where farmland prices lagged behind the state average, a relatively poor crop last year seemed to have a depressing impact on farmland, he said. The institute's survey is in line with a Federal Reserve Bank of Chicago survey released in August that showed Iowa's farmland prices rose 12 percent during the year ended July 1.
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