It should come as no surprise to folks around the countryside that land prices have taken off like a rocket in the past couple of years. It wasn't all that long ago that $3,000 an acre was considered a top price for farmland in the region, but that figure has been rising higher and higher as demand for something to invest in has increased.
Locally, land prices have risen past $9,000 an acre in just the past few months, but just this past month of October, a new high price was paid for some northwest Iowa farmland. An unidentified farmer in Sioux County pulled out a checkbook and wrote the check on the spot at an auction to purchase a 160-acre tract north of Hull for a record price of $16,750 an acre.
For the record, that check was for $2,680,000.
$2.68 million for dirt.
That may sound simplistic, but when it comes right down to it, that's what this guy bought dirt.
I know there are a lot of folks out here in the country that would shake their heads over such a purchase, question the sanity or the foresight of the buyer, and there are probably a few that would be envious of someone who could pull out the old checkbook and whip one out for that kind of coin.
Just imagine what the banker thinks when that transaction comes through..
Seeing a land sale of that magnitude, and knowing what land prices have brought locally, one has to begin to wonder Where does it end? Are we headed for another full Depression like the 1930's?
Before you think I'm becoming too pessimistic, there are others who wonder the same thing.
Michael Duffy is a professor of economics at Iowa State University who authors the annual land price surveys for ISU each year. Professor Duffy is watching these developments, you can be sure.
After the Sioux County land sale, Duffy urged caution for individuals considering land purchases as in not getting caught up in the moment of higher prices and good returns on investments, and be lulled into the thought process that such good times will last forever.
But, Duffy also notes that many of the purchasers of farmland have the money to pay for it, so they are not accruing more debt.
According to the 2010 ISU Farmland Value Survey, authored by Duffy and his researchers, buyers paid an average of $5,064 per acre for farmland sold from September 2009 through September 2010. Land values have risen by an estimated 34 percent in the past year, according to real estate agents, while bankers say the prices are set to rise another 20 percent before the end of the year.
Other experts are calling for an average land price to be around $6,300 per acre at the end of the year, an increase of 25 percent from last year.
While the Sioux County sale is the one that is generating a lot of attention, the majority of land sales don't receive the recognition, because they are private sales. A conservative estimate puts average land prices for sales in the past year to come to $6,300, a 25-percent hike over the previous year.
With the next Iowa State Land Value Survey due to be released on December 14, Professor Duffy feels that land prices will be well above the average prices paid 40 years ago. However, Duffy notes those higher prices are also acting as a major deterrent to young farmers trying to get a start on their own. In the 2010 ISU survey, only three percent of farmland buyers were new farmers just starting out on their own.
Because of that fact, Duffy also expects farmland rental rates will also rise anywhere from 15 to 20 percent for the next growing season.
According to statistics from the U.S. Department of Agriculture, the lowest price paid for farmland in Iowa was $6 an acre in 1850, and rose to $43 in 1900. In 1920, farmland sold for $227 and acre, but the bottom fell out of the market during the Depression, falling to $65 an acre in 1933. Prices have been on the rise ever since, peaking at $1,999 and acre in 1981 before falling back to $786 an acre in 1987.
But now the value is on the rise, and as the saying goes, the sky is the limit.
But when you get right down to it, shouldn't the limit be good common sense?