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November 2012 - Volume 20, Number 4

   

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Iowa Farmland Continues Upward Trend

By Deborah D. Thornton

 

A key discussion point in the 2012 presidential election was the decrease in net worth of middle-class Americans since the 2008 recession. According to the Federal Reserve, the median net worth fell by 38.8 percent from 2007 to 2010.[1] Most of this drop was a result of declining housing prices. However, if you are an Iowa landowner or farmer your story is somewhat different.

 

The brightest spot in the Iowa economy over the last few years has been the steady increase in farmland prices. According to the most recent report from the Realtors Land Institute, farmland values rose 7.7 percent from March through September, following a 10.8 percent rise from last September to March – for an overall 18.5 percent increase in the past year. There were increases in all nine districts. High-quality cropland was valued at an average of $10,445 per acre. Medium-quality was $7,877 and low-quality sold at $5,314 an acre. Pastureland was up 7.7 percent and timberland up 2.9 percent over the same six-month period. The highest average price reported was in northwestern Iowa, at $11,908 per acre for high-quality cropland.[2] In October the highest price ever for farmland, $21,900 per acre, was paid in Sioux County, Iowa.

 

The overall Rural Mainstreet Index of economic indicators done by Creighton University in Omaha increased to 56.6 in October, moving above the growth neutral (50) level for the first time since June. The Iowa specific portion of the survey was slightly higher than the region at 57, up from 48.7 in September. The farmland-price index part of the survey was significantly higher at 71.7, reflecting the high land prices reported by the Land Institute. Both high commodity prices and low interest rates are driving the farmland-price index.[3]

 

According to economist Dr. Ernie Goss from Creighton, “Bankers in some parts of the region are reporting farmland prices as high as $20,000 per acre. Despite the drought, farmers continue to put more air into the farmland price bubble. This is the 32nd consecutive month that the farmland-price index has risen above growth neutral.”[4] Our neighbors to the far north – up in Canada – have seen a similar pattern. Their average land prices rose by 8.6 percent in the first half of 2012, following a 6.9 percent increase in the last six months of 2012.[5]

 

To the east, in Indiana – where the drought was the worst in decades – prices have also continued to rise. A June Purdue University survey estimated that the statewide price increase from 2011 had been between 14 and 18 percent, with cash rents increasing from 13 to 15 percent. The average values for Indiana cropland ranged from $7,704 for “top-quality” land to $5,013 per acre for poor-quality land.[6] These prices are somewhat lower than those in Iowa.

 

Goss added that he expects negative economic responses from the drought to increase, resulting in higher food prices later this year. This opinion was reflected in the national September Consumer Price Index, which reported an annual increase of 1.6 percent for food and a 2.3 percent increase in the energy index.[7]

 

As reported by the Iowa State University annual farmland value survey, most of the land (74 percent) is being bought by current farmers, with about a quarter being purchased by investors (22 percent), and only a small portion being bought by new farmers (3 percent).[8] According to the Chicago Federal Reserve, the average interest rate for a farm loan was 5.36 percent in 2011, the lowest since 1974.[9] As in the housing market, those buyers with a good credit rating and available cash have been able to make significant investments over the last year or two. Their net worth has probably increased, compared to most of the rest of the country.

 

Now if we can just get a good winter snowfall, followed by enough – but not too much (!) – rain in spring 2013, things should continue on an upward track. As a farmer’s daughter, I still watch the weather report every day, and farmers still remain optimistic gamblers, trusting that the seed will come up and prove fruitful.

 

 

Endnotes
[1] Jesse Bricker, et.al., “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, June 2012, Vol. 98, No. 2, pp. 1 & 2, <http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf>, accessed on October 22, 2012.
[2] Mike Walsten, “Drought? What Drought? Iowa Farmland Posts 8% 6-month Gain,” October 9, 2012, <http://www.agweb.com/blog/Your_Precious_Land_217/> accessed on October 22, 2012.
[3] Dr. Ernie Goss, “Rural Mainstreet Index Soars: Bankers Expect 2.3 Percent Holiday Sales Growth,” Creighton University School of Business, October 19, 2012, <http://business.creighton.edu/centers-programs/economic-outlook/mainstreet-economy> accessed on October 22, 2012.
[4] “Survey Details,” Creighton University School of Business, October 19, 2012, <http://business.creighton.edu/centers-programs/economic-outlook/mainstreet-economy/survey-details> accessed on October 22, 2012.
[5] Mike Walsten, “Canada Farmland Up 8.6% First Half 2012,” October 15, 2012, <http://www.agweb.com/blog/Your_Precious_Land_217/> accessed on October 22, 2012.
[6] Jennifer Stewart, “Farmland Values, Cash Rents Soar Amid Drought,” Purdue University News Release, September 12, 2012, <http://www.agweb.com/article/farmland_values_cash_rents_soar_amid_drought/> accessed on October 22, 2012.
[7] “Consumer Price Index Summary,” Economic News Release, The U.S. Bureau of Labor Statistics, October 16, 2012, <http://www.bls.gov/news.release/cpi.nr0.htm> accessed on October 19, 2012.
[8] Michael D. Duffy, “2011 Farmland Value Survey,” Iowa State University, January 2012, <http://www.extension.iastate.edu/agdm/wholefarm/html/c2-70.html> accessed on October 22, 2012.
[9] Ibid.

 

IOWA ECONOMIC SCORECARD is our quarterly economic forecast, arriving in February, May, August,
and November. It consists of statistics about and analysis of the Iowa economy.

 

IOWA ECONOMIC SCORECARD is published by Public Interest Institute at Iowa Wesleyan College, a
nonpartisan, nonprofit, research and educational institute whose activities are supported by contributions from private individuals, corporations, companies, and foundations. The Institute does not accept government grants.

 

Contributions are tax-deductible under sections 501(c)(3) and 170 of the Internal Revenue Code.

 

Permission to reprint or copy in whole or part is granted, provided a version of this credit line is used: “Reprinted by permission from IOWA ECONOMIC SCORECARD, a quarterly newsletter of Public Interest Institute.” The views expressed in this publication are not necessarily those of Public Interest Institute. They are brought to you in the interest of a better-informed citizenry because IDEAS DO MATTER.

 

   

 

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