(Des Moines Register) - A wave of farmland sales bringing $8,000 per acre and higher rolled across Iowa last month, prompting farmers, Realtors and lenders to ask: "How high will land prices go?"

A 50 percent rise in the price of corn since June is putting more cash in the pockets of farmers, who in turn are bidding up the price of land at the traditional post-harvest auctions.

On Tuesday, a 120-acre parcel near McCallsburg in northern Story County, complete with two wet spots, sold for $8,100 per acre at auction in Nevada.

A year ago, that price would have been considered exceptional. But it seemed almost ho-hum compared with an auction sale last month in cattle-rich Sioux County for $13,950 per acre.

"Farms are throwing off a lot of cash now, and farmers have it to spend," said land broker Henry Joe Sandve of Marshalltown. "Everybody's bullish on farmland."

Farmland represents the bulk of the wealth and borrowing power of Iowa agriculture, which accounts for one-quarter of the state's economy and is a major driver of Iowa's manufacturers and seed companies.

A week ago Deere & Co. said 2010 and 2011 will be two of the most profitable years in agriculture's history.

Around the state last month, two 80-acre tracts in O'Brien County sold for $9,700 and $9,200 per acre. In eastern Iowa, an Iowa County parcel topped $9,000 an acre.

The auctioneer in Nevada, Kyle Hansen of Hertz Farm Management, said after the sale he was "only a little surprised" at the price.

"We've had several sales above $8,000," Hansen said.

The seller, Jeff Hildreth of DeKalb, Ill., wasn't at the sale because he was tending to the elementary school where he is principal. He said he was "absolutely blown away" when Hansen called with the sale figure.

"When we decided to sell in September, we thought the land might bring $4,000 or so per acre," said Hildreth, whose grandfather farmed the land until his death in 1963. Since then it was farmed by a cousin, who earlier this year said he was ready to retire.

The buyer was Ringgold County farmer Dan Barker, who said of the $972,000 investment: "It's better than putting money in the bank."

Barker said he'll most likely rent out his new land, probably at around $300 per acre.

Barker is a typical Iowa farmland buyer. While Wall Street hedge funds have been active in the commodity markets, they have yet to turn up as buyers of Iowa farmland.

Land broker Sam Kain of Farmers National Co. in West Des Moines said Iowa laws make farmland ownership by nonresident, nonfarm corporations virtually impossible.

"Most of your buyers are farmers looking to expand," Kain said. "Corporate buyers are going to Illinois, which isn't as restrictive."

Even so, farm brokers report their telephones are ringing.

"I get calls all the time now from investors looking for farmland," said Steve Bruere of Peoples' Land Co. of Indianola. "The problem in the market today is that there are more buyers than sellers. That's always going to drive up the price."

Auction results this fall have been almost disorienting for veteran brokers, who say the last statewide average computed in September is probably obsolete three months later. The Iowa Realtors Land Institute reported that the value was $4,518 per acre, up 8.5 percent from the previous year.

"Farmland has appreciated by about $1,000 per acre since the end of the summer," Kain said.

The Federal Reserve Bank of Chicago reported a 13 percent rise in farmland values in Iowa for the year ending Oct. 1, based on a survey of bankers. The Chicago Fed didn't put an average per-acre dollar figure on land prices.

The surge in farmland values is driven by the rising price of corn, which generally determines the value of Iowa farmland. Because of tight supplies worldwide and stronger export and ethanol demand, corn has shot up from $3.50 per bushel in June to $5.60 per bushel since October.

According to Iowa State University figures, farmers who were looking at a profit margin of about 40 cents per bushel for corn in June now can expect more than $2.50 per bushel profit on corn. Soybean margins have more than doubled during the same period to more than $6 per bushel.

Cash profit potential like that will turn investors' heads away from even blue-chip dividend stocks.

"I'm looking around the Midwest for land for some stockbrokers," Sandve said. "Stockbrokers are bullish on farmland. The stock market is largely hype. Farmland is real."

But as Sandve notes, "farmland isn't for the faint of heart."

Farmers and historians know that twice in Iowa's history - in the early 1920s and again in the late 1970s - booms in farmland prices were followed by collapses that led to the Great Depression of the 1930s and the farm crisis of the 1980s.

In both cases, the fall in land values put farmers underwater on heavy debts taken out for purchases of land and machinery during the good times.

Some voices have been raised in warning of a repeat speculative crash. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned an Omaha conference last month that farmers may be tempted to borrow excessively on their rising land.

But farm insiders say agriculture is better prepared today for the inevitable downturn than in earlier generations.

Jerry Lage of Hertz was a lender with the Farm Credit Administration and then with an insurance company during the 1980s downturn. "Back in the '70s and early '80s, we were lending 85 percent, sometimes even 100 percent, of the total value of land purchases.

"Today, farmers can get loans for only about 55 or 60 percent of the value of the purchase," he said. "The higher down payments mean more equity."

Lage also noted that in the late 1970s farmers were stuck with variable-rate interest on loans, which turned into a disaster when rates climbed into double digits by the early 1980s.

Lage's words have been seconded recently in comments by U.S. Secretary of Agriculture Tom Vilsack and Charles Evans, president of the Federal Reserve Bank of Chicago, in whose district Iowa sits.

A more arcane worry has been expressed by some economists about an equity bubble that could hit agriculture in a manner similar to the speculative stock bubble that did in technology and Internet stocks in the late 1990s.

Evans said last week during a visit to Des Moines that the tech bubble precedent is valid for agriculture, but added: "If so, the downturn would be short, similar to the downturn after the tech bubble burst."

Kain said he worries less about agriculture's fundamentals than "changes by the stroke of a politician's pen."
Changes in trade policy, such as restrictive tariffs in the early 1920s and the embargo on grain sales to the Soviet Union imposed by President Jimmy Carter in 1980, helped trigger the farm depressions in the 1920-30s and the 1980s.

In recent years, U.S. foreign policymakers have taken care to preserve relations with China, which accounts for more than 60 percent of U.S. soybean exports.

Two government props for farmland values, ethanol and federal crop subsidies, are on the block in Washington.

Agriculture is sweating out the required extension of the 45-cent-per-gallon subsidy to ethanol, whose plants now chew up about half of Iowa's 2.2 billion bushels of corn.

During 2011 a new Congress, with new members sworn to reducing the federal budget deficit, will write a new farm bill to replace the current version that puts about $1.2 billion annually into Iowa in the form of government subsidies for insurance and direct payments to producers.

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