On Oct. 25, Iowa farmland set a record. Auctioneer Todd Hattermann and his partner, Rich Vander Werff, took turns taking bids as prices climbed for 80 acres in Sioux County. When bidding hit $20,000 per acre, says Hattermann, “you could hear a gasp in the room.” When bidding stopped at $21,900, there was applause.
High corn and soybean prices and low interest rates have made Iowa land an attractive investment. Even the worst U.S. drought since 1956 has done little to slow gains in farmland values. Nationwide, they’ve risen 31 percent in the past five years to $2,650 an acre, according to the U.S. Department of Agriculture. With exports at a record high and rising global populations and wealth prompting more food demand, many investors view farmland as a path to steady long-term returns, according to Michael Duffy, an agricultural economist at Iowa State University. “You have the yearly income of the crops and the long-term appreciation of the property,” he says.
Still, what a farmer may spend for choice land near an existing spread is widening from what an investor might pay to speculate, he says. The amount of Iowa farmland purchased by investors peaked at 39 percent in 2005, when the average price was less than half what it is now. In 2011 it was 22 percent. Meanwhile, farmer purchases in that period rose to 77 percent from 59 percent. Farmers may be able to justify the purchases because of their lack of debt, which is near 60-year lows, and their desire to acquire attractive nearby parcels that may become available only when a farmer dies or—rare in these times—leaves farming.
Bubble? Maybe, says Alex Pollock, an analyst with the American Enterprise Institute. “Commodity prices are very cyclical, and interest rates won’t stay low forever,” he says. “This isn’t going to be sustainable.”