A lone bright spot in real estate: farmland
Iowa land prices have jumped 18 percent in a year. But higher values come with a cost.
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The rise in land values reflects the extraordinary profits from agriculture lately. US energy policy, which encourages the production of ethanol from corn, has helped to drive up both crop prices and farm incomes. The US Department of Agriculture (USDA) estimates that farmers will earn a record $95.7 billion this year, 10.3 percent more than last year and 57 percent more than the 10-year average of $61.1 billion.Skip to next paragraph
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Farmers have been plowing much of this profit back into their farms, buying equipment and land. In recent years, investors had overtaken farmers as the largest buyers of farmland. Now most buyers are again farmers.
With prices so high, bidders stay away
Acquiring land has never been easy or cheap. Still, high prices scare off many potential buyers long before the bidding starts.
"Even middle-aged farmers don't have the capital to buy land," says Ryan Ross, who works for a farm-supply company and farms in his spare time. This year Mr. Ross, who has been farming for 12 years, considered buying 45 acres a few miles from his farm. In the end, he couldn't bring himself to attend the auction. "I did some crunching and, knowing the price it would be, I did not want to take the risk," he said. The field ended up selling for $5,600 an acre, a relatively modest price compared with the $8,000 or $9,000 an acre that the best farmland fetches.
The global financial crisis and fears of recession may have slowed the increase in land values, says Jason Henderson, an economist with the Federal Reserve Bank in Kansas City. Corn prices have fallen, following closely on the drop in oil prices. But the USDA expects prices to rebound.
Despite the apocalyptic headlines of recent weeks, many economists and land agents don't expect land prices to fall far, if at all. "It's viewed as a very safe investment," says Troy Louwagie, a land consultant in Mount Vernon, Iowa.
In the meantime, young farmers haven't stopped trying to acquire land. Earlier this year, Christopher Bone, a junior at Iowa State University in Ames and president of the university's Beginning Farmers Network, hoped to buy 160 acres for sale next to his family's land. Planning to finance part of the purchase with earnings from his job at a local farmers co-op, he met with a banker, studied yield records, and calculated his costs. "I looked and looked at it," he said. Then he said no.
"It would have worked out great, being able to work and farm at the same time," he said. But "if we had a drought, I'd be in big trouble."