The big news on farmland values this week was the $16,750 per acre price for Iowa farmland. Even more shocking was that it topped the previous high price of $15,368 an acre a whole week before in another part of the state. Granted, this is some top tier quality farmland with high Corn Suitability Ratings. Still, it’s shocking right? Not even a year ago, I met with a group of farmers when Midwest corn ground was hitting $7,000 to $8,000 an acre on a regular basis and the consensus was “It can’t go any higher, how will they sustain their costs.” Like the title says….Don’t Say it Can’t Go Any Higher….because it will.
In Kansas during the height of the residential boom (pre-2007) good development land that was previously pasture or maybe some farmland was going around $25K to $35K per acre. So Iowa cropland prices are absolutely amazing in comparison. However, on the flip side you will probably never hit those high corn yields on Kansas ground.
In the Commercial Connections recent newsletter from the National Association of Realtors Commercial Real Estate division, Edmond Massie makes a great observation about land that hits this high price point issue perfectly.
Land is the basis for food and the demand for food is always there so land values may continue to go even higher for high quality productive farmland that produces a diverse use crop. There has been interesting talk in the mainstream media recently on the subject of high farmland prices as well. Bloomberg posted the headline last week that Soaring Farmland Prices in US Midwest Bring Fed Scrutiny of Rural Banks. And the old faithful retired Fed Chief who has been preaching about a farmland bubble for quite some time, Thomas M. Hoening, has likely had Jason Henderson take up the microphone for him on the subject. The Federal Reserve Bank of Kansas City published an eye-popping headline this week in TEN magazine called “Growing Value: Is the farmland boom sustainable?”
Land is often referred to as “Dirt” and according to the Wikipedia definition dirt means “unclean matter” and maybe regulators and media news outlets look at it that way because of all the extreme scrutiny on the issue lately. For a real estate sector that typically only turns over historically at a rate of 3% a year and estimates show that in the last year it was closer to 1.5% due to the tight market of farmland; it is amazing to see the vast amount of attention given to the topic of farmland investing in mainstream media.
So will land prices go higher? The crystal ball does not reveal an answer today. A guess would be that farmland prices will level out and may do so quickly if there is a major uproar in the commodities markets. You will probably never see farmland go for that much in our lifetime in Kansas unless it is pre-development transitional land. Well…there you go… I said it… it won’t go any higher…in Kansas anyway!
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Great Article! I too am amazed att he increasing price of farmland as a developer of scenic Mississippi Riverview Properties, which sometimes includes acreage that is fields or pasture. we sometimes are accused of running up the price per acre of land but this year the farmers have run up the price of the land!
I may have to plant corn next year!
Regards,
Scott
One of the reason land prices are going up is farmers are selling when they retire, not leaving it to heirs. Estate taxes are too high and they lose a lot passing it on. Farmers are keeping their land longer because the heirs need an income and dad who is living longer these days, is not ready to give up his yet.
Another big reason– no one wants to pay the real estate broker his huge commission so it is added on to the price of the land. Each time it is turned over it gets higher.