Pay dirt: Iowa farmland value soaring again
(WCF Courier) - Click, click, click, click. Up it goes.
People buying and selling Iowa farmland have been on a roller coaster ride the past 30 years. It has made some cheer and others sick to their stomachs.
For most of the past decade, prices have steadily climbed. Reports indicate values soared by about 24 percent this year.
According to the U.S. Department of Agriculture, the average value of cropland statewide this year is $5,700 per acre. Land brokers and buyers say high-quality soil easily sells for thousands more.
"Goodness gracious, I can't take a breath because it keeps going up," said Dave Hommel, a rural Ivester farmer describing recent land auctions he has attended. "Farmers are holding on to their chairs with both hands, and lawyers for estates are just smiling."
A year ago, Hommel paid $9,000 per acre for a 60-acre tract.
Landowners have been on this ride before.
Farmland more than quadrupled in price from 1971 to 1981. A sharp descent followed, the primary cause of the farm crisis in the mid-1980s. It is considered the worst time in agriculture since the Great Depression. Forced farm auctions in the Corn Belt were common.
There is fear among growers and agriculture experts it could happen again.
"Maybe not as prolonged, but in two years we could have another crash. Paying $10,000 to $15,000 an acre for ground will come back to bite you. ... I'm fairly confident about this," said Larry Depping, a farmer near Reinbeck.
Many economists, land brokers and growers think land values will probably drop in the future. But will the so-called land price bubble burst?
Experts don't believe a repeat of the '80s is likely. The fundamentals that led to the increase in land prices and the financial stability of growers are far different today than three decades ago.
The 1970s
Often referred to as a golden era of agriculture, the 1970s were very profitable for U.S. farmers.
Yields increased as seed, fertilizer, herbicides and pesticides improved. Advances in technology and machinery allowed farmers to produce more with the same amount of manpower. And foreign demand exploded.
In 1972, the U.S. signed a historic deal with the Soviet Union to sell wheat and corn to the communist nation at subsidized prices. The result was higher grain prices in the United States.
Iowa corn worth an average $1.25 per bushel during the 1970 marketing year, according the USDA, soared to $2.97 four years later. During the same time period, soybeans went from $2.82 per bushel to $6.36.
Government statistics show the nation's farmers made about $14.2 billion in 1970 and $34.3 billion three years later.
"I can see why it was referred to as the golden era. ... The Soviet Union entering in the food market as a buyer gave a big boost to the whole ag complex," said David Oppedahl, business economist for the Federal Reserve Bank in Chicago.
The bank will host a daylong land price seminar Tuesday.
Exports grew by about 20 percent a year in the '70s. Farmers wanted to cash in, and they needed land and bigger and better machinery to do it.
Interest rates were low and crop prices were high. Farmers loaded up on debt, using their farms as collateral. Growers also acquired land on contract.
Land values soared by more than 375 percent during the decade. Iowa State University Extension figures show the average cost of Iowa farmland was $419 per acre in 1970. At the end of the decade, demand drove prices past over the $2,000 mark.
"Everyone wanted to be a part of it. There was unbridled exuberance," said Mike Duffy, ISU farm economist and coordinator of Extension's annual farmland price survey.
Farm crisis
As well as the 1970s treated Iowa's farmers, most of the '80s were equally bad.
A number of factors contributed to the farm crisis, primarily the collapse of land prices. Iowa lost farms at an unprecedented rate, and farm bankruptcies hit an all-time high.
Government statistics show Iowa had 117,000 farms at the beginning of the crisis in 1982 and 107,000 at the end six years later. The national bankruptcy rate was 23.05 per 10,000 farms, according the Brian Briggeman, an economist with the Federal Reserve Bank of Kansas City.
Maurice and Pam Johnson, grain farmers near Floyd, survived. The couple hopes it doesn't happen again.
"We lost a whole generation of farmers," said Pam Johnson, president of the National Corn Growers Association.
Briggeman said the global recession and rampant inflation in the 1980s slashed demand for agricultural products. The value of the dollar soared, which sent ag exports and incomes plummeting.
"The overall world economy fell. As a result everything collapsed. Once it started collapsing, it fed on itself," Duffy said.
President Jimmy Carter banned grain and technology exports to the Soviet Union in 1980 in response to the communist nation's invasion of Afghanistan a year earlier. The grain embargo made a bad situation worse.
Farmers borrowed money to stay afloat.
Interest rates in the '80s dramatically increased. Ag loans exceeding 15 percent were common, economists say. Eventually, growers could no longer afford to service high debt loads. Hundreds of thousands of farmers nationally were forced to liquidate, flooding the land market.
In 1981, the average price of farmland soared to a record $2,147 per acre. Six years later it was $787 per acre.
"Farmers were overextended and used high interest rates. A substantial realignment in the ag sector (occurred)," Oppedahl said.
Inflation-adjusted farm income was $108 billion in 1973, the economist added. Ten years later it was $30 billion.
Yet lax lending rules allowed growers to get financing even as incomes deteriorated.
"There was a significant drop off in buying power for ag. ... That was the underlying cause," Oppedahl said.
The farm crisis ended in 1987. Years of modest profits and losses followed.
Land prices slowly inched higher.
"Ag treaded water so to speak. No big increases in commodity prices and subpar returns compared to the '70s," Oppedahl added.
Boom but not bust
The ethanol boom hit in 2004. A year later, Congress passed a law requiring renewable fuels , primarily corn-based ethanol, be part of the nation's fuel supply. The ride went from mundane to thrilling almost overnight.
The Renewable Fuels Standard requires 13.95 billion gallons of ethanol and biodiesel be used this year. The number gradually increases to 36 billion in 2022.
Once a minor buyer, the ethanol industry now consumes 40 percent of the nation's corn crop.
Corn prices have more than tripled since 2004. To stay competitive and buoyed by strong export demand, soybean prices followed suit, doubling in price.
This fall, cash corn and soybeans locally are worth well more than $6 per bushel and $11.50 per bushel, respectively.
As in the 1970s, farmers are re-investing profits into land. Investors looking for returns outpacing the stock market are also active bidders.
Farmland prices, except for a minor setback in 2009, have skyrocketed the past eight years. Double-digit percentage increases are the norm.
In 2004, ISU figures show, farmland statewide averaged $2,629 per acre. That's less than half of this year's average, according to the USDA.
Speculation abounds whether land prices will crash again and spur another farm crisis. Most agriculture experts conclude that is not likely.
"There's a good chance land values will drop, but not a catastrophic fall. I just don't see it happening," Duffy said.
The farm management expert provided several reasons:
-Strong commodity prices. Grain stocks at historic lows coupled with strong demand will keep prices high.
-Less debt. Buyers are paying cash for farmland or putting down big down payments.
Interest rates are low and inflation is in check.
-Contract land purchases all but disappeared, making it harder to walk away from property.
"(Buyers) are not taking on as much debt. If it does correct, it might not make them happy, but they're not going to sell it," Duffy said.
Sterling Liddell, vice president of Agribusiness and Research with Rabo AgriFinance, said lending institutions learned from the farm crisis. Rabobank is headquartered in The Netherlands, but has branches throughout North America, including in Cedar Falls.
Liddell said one of the company's largest exposures is ag land financing. Tighter regulations and financing requirements have made farmland loans a good bet.
Ag lending institutions have a vivid memory of what the farm crisis was like," Liddell said.
Eighty percent to 100 percent financing for land and farm equipment that occurred at times in the '80s is no more, Liddell said. Equity, and a lot of it, is needed.
The debt-to-equity ratio for producers in the 1980s was 30 percent, Liddell said. Now it's 12 percent.
In the next three to seven years, Liddell believes, farmland prices will dip as crop inputs increase and margins narrow. A 10 percent to 12 percent reduction is likely, he said.
"We don't believe the classic land or asset bubble will burst. On average, land sales are supported by fundamentals. " Liddell said. "But that doesn't mean there's not a risk."
Farmland prices have never been higher. Apparently, there's no shortage of eager sellers and buyers.
Real estate agents say that wasn't the case a few years ago. But the meteoric rise in commodity and land prices has kept brokers hopping.
"It's the busiest summer I've ever had, and it appears it will continue," said Troy Louwagie, a land consultant and auctioneer with Hertz Farm Management in Mount Vernon. The company has offices throughout the Midwest, including Waterloo.
The average price of cropland statewide is $5,700 per acre, according to the U.S. Department of Agriculture. That's up 23.9 percent from 2010, and more than $2,000 higher than four years ago.
Corn and soybeans tripled and doubled in value, respectively, since 2004. Iowa State University Extension data indicates profits of $2 to $3 or more per bushel this year and last are common.
Louwagie, a 12-year veteran with Hertz, said this is probably the optimum time to sell. Highly productive land often commands thousands more than the average.
Farmers --- the primary buyers of farmland --- are re-investing profits, officials said. Investors, scared by the shaky economy and stock market, like the fact land is a tangible asset and it historically provides solid returns.
"If you're thinking about selling, now is the time. Capital gains are low, prices high ... and now you have multiple bidders," Louwagie said.
Sales are up 15 percent and acres sold jumped 17 percent during the past year, he added. Specific numbers weren't readily available.
Newspapers and farm publications are bursting with cropland listings, unlike years ago. Land auctions are popular events.
Dennis Shaffer, a real estate broker in eastern Iowa with Farmers National Co., said the robust farm economy and pent up demand has contributed to the surge in land prices.
For good-quality farmland, Shaffer said bidding is intense.
"The average goes right out the window," he said. "There's enough people looking for land, they have cash. There's an attitude, 'If it's next to me, I'm going to own it.'"
The recent sale of 60 acres in Linn County is the perfect example, Shaffer said. Five bidders fought over land with a corn suitability rating --- a scale of 1 to 100 that determines the quality of land --- of 62.
A farmer paid $7,000 per acre.
"When you see a below-average farm bring an above average price, I would say it's a good time to sell," Shaffer said.
In a few years, that might not be the case. Although commodity prices are strong, input costs are on the rise, especially cash rent for farmland.
Rent increased, on average, $20 per acre statewide this year to $196 per acre, according to the USDA. In Black Hawk County, the average price is $205 per acre. Growers and ag officials say rents exceeding $300 and even $400 aren't uncommon.
Farm economists predict profit margins will narrow to the point farmers will no longer be able to pay cash or put down sizable down payments on land, making purchases less attractive.
Most farmland experts agree prices will remain strong and may increase for another year or two, but values will probably dip after that. Sterling Liddell, vice president of food and agribusiness research of ag-lender Rabo AgriFinance, predicts a 10 percent to 12 percent decrease.
"The cost of producing crops have doubled in the last five years. It puts (producers) in a tighter position to operate," Liddell said.
Estates, investors looking to cash in and multiple family members who inherited farmland are the major sellers, brokers say.
Eight tracts of farmland totaling about 800 acres in Floyd and Chickasaw counties were auctioned off recently. An investor owned the land.
Such a large sale was rare years ago, officials said. Now, not so much.
Ben Johnson, 34, a farmer near Floyd, said his younger brother Andy attended the auction on behalf of the family. Two parcels didn't meet the minimum price, he said. The rest averaged about $7,000 per acre, with the top bringing $8,750.
The Johnsons didn't buy.
"We're on the lookout to buy if it fits in our operation and something of quality. You got to see what stuff brings.," he said. "I think a lot more land is for sale."
http://wcfcourier.com/news/local/pay-dirt-iowa-farmland-value-soaring-again/article_467fa306-77c9-57c1-af2d-2f34a9145b43.html
People buying and selling Iowa farmland have been on a roller coaster ride the past 30 years. It has made some cheer and others sick to their stomachs.
For most of the past decade, prices have steadily climbed. Reports indicate values soared by about 24 percent this year.
According to the U.S. Department of Agriculture, the average value of cropland statewide this year is $5,700 per acre. Land brokers and buyers say high-quality soil easily sells for thousands more.
"Goodness gracious, I can't take a breath because it keeps going up," said Dave Hommel, a rural Ivester farmer describing recent land auctions he has attended. "Farmers are holding on to their chairs with both hands, and lawyers for estates are just smiling."
A year ago, Hommel paid $9,000 per acre for a 60-acre tract.
Landowners have been on this ride before.
Farmland more than quadrupled in price from 1971 to 1981. A sharp descent followed, the primary cause of the farm crisis in the mid-1980s. It is considered the worst time in agriculture since the Great Depression. Forced farm auctions in the Corn Belt were common.
There is fear among growers and agriculture experts it could happen again.
"Maybe not as prolonged, but in two years we could have another crash. Paying $10,000 to $15,000 an acre for ground will come back to bite you. ... I'm fairly confident about this," said Larry Depping, a farmer near Reinbeck.
Many economists, land brokers and growers think land values will probably drop in the future. But will the so-called land price bubble burst?
Experts don't believe a repeat of the '80s is likely. The fundamentals that led to the increase in land prices and the financial stability of growers are far different today than three decades ago.
The 1970s
Often referred to as a golden era of agriculture, the 1970s were very profitable for U.S. farmers.
Yields increased as seed, fertilizer, herbicides and pesticides improved. Advances in technology and machinery allowed farmers to produce more with the same amount of manpower. And foreign demand exploded.
In 1972, the U.S. signed a historic deal with the Soviet Union to sell wheat and corn to the communist nation at subsidized prices. The result was higher grain prices in the United States.
Iowa corn worth an average $1.25 per bushel during the 1970 marketing year, according the USDA, soared to $2.97 four years later. During the same time period, soybeans went from $2.82 per bushel to $6.36.
Government statistics show the nation's farmers made about $14.2 billion in 1970 and $34.3 billion three years later.
"I can see why it was referred to as the golden era. ... The Soviet Union entering in the food market as a buyer gave a big boost to the whole ag complex," said David Oppedahl, business economist for the Federal Reserve Bank in Chicago.
The bank will host a daylong land price seminar Tuesday.
Exports grew by about 20 percent a year in the '70s. Farmers wanted to cash in, and they needed land and bigger and better machinery to do it.
Interest rates were low and crop prices were high. Farmers loaded up on debt, using their farms as collateral. Growers also acquired land on contract.
Land values soared by more than 375 percent during the decade. Iowa State University Extension figures show the average cost of Iowa farmland was $419 per acre in 1970. At the end of the decade, demand drove prices past over the $2,000 mark.
"Everyone wanted to be a part of it. There was unbridled exuberance," said Mike Duffy, ISU farm economist and coordinator of Extension's annual farmland price survey.
Farm crisis
As well as the 1970s treated Iowa's farmers, most of the '80s were equally bad.
A number of factors contributed to the farm crisis, primarily the collapse of land prices. Iowa lost farms at an unprecedented rate, and farm bankruptcies hit an all-time high.
Government statistics show Iowa had 117,000 farms at the beginning of the crisis in 1982 and 107,000 at the end six years later. The national bankruptcy rate was 23.05 per 10,000 farms, according the Brian Briggeman, an economist with the Federal Reserve Bank of Kansas City.
Maurice and Pam Johnson, grain farmers near Floyd, survived. The couple hopes it doesn't happen again.
"We lost a whole generation of farmers," said Pam Johnson, president of the National Corn Growers Association.
Briggeman said the global recession and rampant inflation in the 1980s slashed demand for agricultural products. The value of the dollar soared, which sent ag exports and incomes plummeting.
"The overall world economy fell. As a result everything collapsed. Once it started collapsing, it fed on itself," Duffy said.
President Jimmy Carter banned grain and technology exports to the Soviet Union in 1980 in response to the communist nation's invasion of Afghanistan a year earlier. The grain embargo made a bad situation worse.
Farmers borrowed money to stay afloat.
Interest rates in the '80s dramatically increased. Ag loans exceeding 15 percent were common, economists say. Eventually, growers could no longer afford to service high debt loads. Hundreds of thousands of farmers nationally were forced to liquidate, flooding the land market.
In 1981, the average price of farmland soared to a record $2,147 per acre. Six years later it was $787 per acre.
"Farmers were overextended and used high interest rates. A substantial realignment in the ag sector (occurred)," Oppedahl said.
Inflation-adjusted farm income was $108 billion in 1973, the economist added. Ten years later it was $30 billion.
Yet lax lending rules allowed growers to get financing even as incomes deteriorated.
"There was a significant drop off in buying power for ag. ... That was the underlying cause," Oppedahl said.
The farm crisis ended in 1987. Years of modest profits and losses followed.
Land prices slowly inched higher.
"Ag treaded water so to speak. No big increases in commodity prices and subpar returns compared to the '70s," Oppedahl added.
Boom but not bust
The ethanol boom hit in 2004. A year later, Congress passed a law requiring renewable fuels , primarily corn-based ethanol, be part of the nation's fuel supply. The ride went from mundane to thrilling almost overnight.
The Renewable Fuels Standard requires 13.95 billion gallons of ethanol and biodiesel be used this year. The number gradually increases to 36 billion in 2022.
Once a minor buyer, the ethanol industry now consumes 40 percent of the nation's corn crop.
Corn prices have more than tripled since 2004. To stay competitive and buoyed by strong export demand, soybean prices followed suit, doubling in price.
This fall, cash corn and soybeans locally are worth well more than $6 per bushel and $11.50 per bushel, respectively.
As in the 1970s, farmers are re-investing profits into land. Investors looking for returns outpacing the stock market are also active bidders.
Farmland prices, except for a minor setback in 2009, have skyrocketed the past eight years. Double-digit percentage increases are the norm.
In 2004, ISU figures show, farmland statewide averaged $2,629 per acre. That's less than half of this year's average, according to the USDA.
Speculation abounds whether land prices will crash again and spur another farm crisis. Most agriculture experts conclude that is not likely.
"There's a good chance land values will drop, but not a catastrophic fall. I just don't see it happening," Duffy said.
The farm management expert provided several reasons:
-Strong commodity prices. Grain stocks at historic lows coupled with strong demand will keep prices high.
-Less debt. Buyers are paying cash for farmland or putting down big down payments.
Interest rates are low and inflation is in check.
-Contract land purchases all but disappeared, making it harder to walk away from property.
"(Buyers) are not taking on as much debt. If it does correct, it might not make them happy, but they're not going to sell it," Duffy said.
Sterling Liddell, vice president of Agribusiness and Research with Rabo AgriFinance, said lending institutions learned from the farm crisis. Rabobank is headquartered in The Netherlands, but has branches throughout North America, including in Cedar Falls.
Liddell said one of the company's largest exposures is ag land financing. Tighter regulations and financing requirements have made farmland loans a good bet.
Ag lending institutions have a vivid memory of what the farm crisis was like," Liddell said.
Eighty percent to 100 percent financing for land and farm equipment that occurred at times in the '80s is no more, Liddell said. Equity, and a lot of it, is needed.
The debt-to-equity ratio for producers in the 1980s was 30 percent, Liddell said. Now it's 12 percent.
In the next three to seven years, Liddell believes, farmland prices will dip as crop inputs increase and margins narrow. A 10 percent to 12 percent reduction is likely, he said.
"We don't believe the classic land or asset bubble will burst. On average, land sales are supported by fundamentals. " Liddell said. "But that doesn't mean there's not a risk."
Farmland prices have never been higher. Apparently, there's no shortage of eager sellers and buyers.
Real estate agents say that wasn't the case a few years ago. But the meteoric rise in commodity and land prices has kept brokers hopping.
"It's the busiest summer I've ever had, and it appears it will continue," said Troy Louwagie, a land consultant and auctioneer with Hertz Farm Management in Mount Vernon. The company has offices throughout the Midwest, including Waterloo.
The average price of cropland statewide is $5,700 per acre, according to the U.S. Department of Agriculture. That's up 23.9 percent from 2010, and more than $2,000 higher than four years ago.
Corn and soybeans tripled and doubled in value, respectively, since 2004. Iowa State University Extension data indicates profits of $2 to $3 or more per bushel this year and last are common.
Louwagie, a 12-year veteran with Hertz, said this is probably the optimum time to sell. Highly productive land often commands thousands more than the average.
Farmers --- the primary buyers of farmland --- are re-investing profits, officials said. Investors, scared by the shaky economy and stock market, like the fact land is a tangible asset and it historically provides solid returns.
"If you're thinking about selling, now is the time. Capital gains are low, prices high ... and now you have multiple bidders," Louwagie said.
Sales are up 15 percent and acres sold jumped 17 percent during the past year, he added. Specific numbers weren't readily available.
Newspapers and farm publications are bursting with cropland listings, unlike years ago. Land auctions are popular events.
Dennis Shaffer, a real estate broker in eastern Iowa with Farmers National Co., said the robust farm economy and pent up demand has contributed to the surge in land prices.
For good-quality farmland, Shaffer said bidding is intense.
"The average goes right out the window," he said. "There's enough people looking for land, they have cash. There's an attitude, 'If it's next to me, I'm going to own it.'"
The recent sale of 60 acres in Linn County is the perfect example, Shaffer said. Five bidders fought over land with a corn suitability rating --- a scale of 1 to 100 that determines the quality of land --- of 62.
A farmer paid $7,000 per acre.
"When you see a below-average farm bring an above average price, I would say it's a good time to sell," Shaffer said.
In a few years, that might not be the case. Although commodity prices are strong, input costs are on the rise, especially cash rent for farmland.
Rent increased, on average, $20 per acre statewide this year to $196 per acre, according to the USDA. In Black Hawk County, the average price is $205 per acre. Growers and ag officials say rents exceeding $300 and even $400 aren't uncommon.
Farm economists predict profit margins will narrow to the point farmers will no longer be able to pay cash or put down sizable down payments on land, making purchases less attractive.
Most farmland experts agree prices will remain strong and may increase for another year or two, but values will probably dip after that. Sterling Liddell, vice president of food and agribusiness research of ag-lender Rabo AgriFinance, predicts a 10 percent to 12 percent decrease.
"The cost of producing crops have doubled in the last five years. It puts (producers) in a tighter position to operate," Liddell said.
Estates, investors looking to cash in and multiple family members who inherited farmland are the major sellers, brokers say.
Eight tracts of farmland totaling about 800 acres in Floyd and Chickasaw counties were auctioned off recently. An investor owned the land.
Such a large sale was rare years ago, officials said. Now, not so much.
Ben Johnson, 34, a farmer near Floyd, said his younger brother Andy attended the auction on behalf of the family. Two parcels didn't meet the minimum price, he said. The rest averaged about $7,000 per acre, with the top bringing $8,750.
The Johnsons didn't buy.
"We're on the lookout to buy if it fits in our operation and something of quality. You got to see what stuff brings.," he said. "I think a lot more land is for sale."
http://wcfcourier.com/news/local/pay-dirt-iowa-farmland-value-soaring-again/article_467fa306-77c9-57c1-af2d-2f34a9145b43.html
Posted by Colvin & Co. at 11/16/2011 5:26 AM 
Categories: Farmland
Tags: farmland corn commodities USDA farming agriculture Weather Harvest Iowa exports inflation
Categories: Farmland
Tags: farmland corn commodities USDA farming agriculture Weather Harvest Iowa exports inflation
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