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Dec. 12, 2012 Des Moines Register reports: Farmland prices hit another record Tuesday, but lenders and economists predicted the boom will cool gradually over the next five years as farm profits and commodity prices decline. "High corn and soybean prices have boosted farmland prices, but there's the old saying that, 'The cure for high prices is high prices,' " said Mike Duffy of Iowa State University Extension. His annual land price survey released Tuesday showed a 24 percent rise to an average of $8,296 per acre in Iowa. Duffy said that within two years, farmers in other grain-growing nations - particularly Brazil, Argentina, Russia, Ukraine, South Africa, Australia and Canada - will respond to high prices. The greater production, absent more drought problems, will lower corn and soybean prices worldwide and cool off the red-hot land values. "It won't be a crash, like we saw in the 1980s, but a slow decline," Duffy said. Values dropped by two-thirds between 1981 and 1986. Higher land prices are important to Iowa's overall economy because they're an indicator of a strong agribusiness sector. Higher corn and soybean prices in recent years have meant more cash for farmers, who have bid up land prices and bought new tractors and combines. Deere & Co., seed companies and other manufacturers have added thousands of workers to meet demand. Good times on the farm and subsequent hiring by agribusiness and manufacturers have been credited with helping Iowa weather the recession in better shape than the rest of the nation. But in coming years, tighter margins could transform the farm economy from an accelerator into a brake. Bill Davis, chief credit officer with Farm Credit Services of America, said the increases in farmland values have been driven by three factors: strong domestic and export demand for commodities, historically low interest rates, and strong farm income. "We believe at least two of these three factors will reverse over the next three to five years," Davis explains. "The most likely event is a significant reduction in net farm profit levels as we see supplies respond to higher demand levels for commodities. Interest rates also are likely to increase eventually, making alternative investments more attractive than they have been recently." While farmland prices have soared spectacularly in recent years - more than 60 percent just since 2009 - farm input costs have more than doubled since the middle of the last decade. Farmers pay up to $4 per gallon for diesel, $900 per ton for fertilizer and $300 or more for a bag of seed corn that covers 21/2 acres. They need almost $5 per bushel for corn to break even. They've gotten those prices through the last three harvests. On Tuesday, corn sold for $7.24 per bushel and soybeans at $14.72 per bushel. Corn and soybeans will generate a paper cash value to Iowa's economy of almost $19 billion this year, just shy of the first-ever $20 billion crop cash yield in 2011. "When there's money on the table, somebody always takes it," Duffy said. "Farmers' expenses will keep rising, and that will cut into profits." The 2012 ISU survey, which covered 486 responses from Iowa land brokers, reflected renewed confidence in Iowa land after the worst drought since the mid-1950s. "We got lucky last year on yields," Duffy said. "That reinforced the notion of the value of Iowa land." Existing farmers accounted for 78 percent of Iowa farmland buyers in the last year, versus 56 percent in 2005, Duffy said. New farmers were just 3 percent of buyers. "It's still very tough for a young, beginning farmer," Duffy said. "They are the ones I worry about, getting into debt too much to buy land." Sioux and O'Brien counties showed the highest averages, both over $12,000 per acre. The lowest values are along the Iowa/Missouri border, with Decatur, Wayne and Appanoose counties showing averages under $3,500 per acre. Iowa farm values soared in the 1970s in a commodity and land boom similar to today, only to crash spectacularly in the first half of the 1980s. Not until 2010 did Iowa land values return to an inflation-adjusted level of $5,770 per acre. Duffy said that because farmers are in better cash positions today than three decades ago, he didn't think Iowa farmland values were vulnerable to a steep dive. "High land prices kept going higher in the 1970s, even when farm profits narrowed," Duffy said. "That won't happen this time." Tweet |
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