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Strong demand for farmland, values continue up

By Jean Caspers-Simmet

Date Modified: 12/27/2012 8:37 AM

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MASON CITY, Iowa —Iowa farmland values will likely be up in the 15 percent range, half last year's record increase of 32 percent, says Mike Duffy, Iowa State University Extension economist who conducts the Iowa Farmland Value Survey.

The results of the 2012 survey won't be released until Dec. 11, but Duffy shared some of his observations on farmland values at last week's KGLO Ag Expo at the North Iowa Events Center in Mason City.

While everyone has heard of the $21,900 per acre land sale in Sioux County, not all farmland is selling for such a premium price, Duffy said.

"We all know about auctions, and we all know the prices coming out of auctions, but auctions accounted for just 9 percent of sales in the first half of 2012," Duffy said. "The rest of the sales are private treaty, and we never hear about them."

High quality ground is moving fast, but with low quality ground, there have even been some no sales.

"I think that's because people have an unreasonable expectation of what their ground is going to be worth, and they go into the auction and get disappointed," Duffy said. "I'm not talking against auctions. I'm just saying that we need to be aware of what we're talking about."

The number of farmland sales has increased significantly this year with possible changes in the tax structure as one of the driving forces, Duffy said.

Commodity prices look relatively strong for at least for the next few years, but weather conditions could change all that. Winter recharge of soil moisture is essential for good yields in 2013.

"In Ames, Squaw Creek is bone dry, and you can walk across Skunk Creek and you'd maybe get your feet wet," Duffy said.

The shorter and longer term affect of the drought will also be felt.

"We had a lot of users of grains that shifted to other inputs in their manufacturing because prices got so high, and they won't be back in the short run even if corn and bean prices drop," Duffy said. "We could have a big crop with less demand."

Interest rates and inflation do not appear to be a concern for the coming year, Duffy said.

When it comes to land, returns aren't the only consideration.

"Most farmers buy land to own it not to flip it," Duffy said. "They don't buy land in the same way people get in and out of the stock market."

About 22 percent of Iowa farmland is owned for sentimental reasons, Duffy said.

He estimates it will cost $4.50 to produce a bushel of corn in 2013 based on 180-bushel yield. It will cost $11.70 to produce a bushel of soybeans based on 50-bushel yield.

Profit in 2012 was $2.82 per bushel of corn with 180-bushel corn. If yields were 140 bushels due to the drought, profits were $1.63 per bushel.

"We're still making money even with the drought," Duffy said.

For 2013, he estimates profit per bushel of corn will drop to $1.40.

Profit per bushel of soybeans in 2012 was $2.84, but with a 40-bushel yield on account of the drought, it dropped to 11 cents. For 2013 Duffy estimates profit per bushel of soybeans at $1.10.

Last year the average value of farmland was $6,708.

"If you adjust for inflation, our land values now are the highest they've ever been," Duffy said. "Last year was the first year where we finally beat what happened in the 1970s. We're in this new territory we've never been in before. In 2011 we were up 32 percent, the highest we've ever been up in a year."

In 2009 returns for corn and soybeans dropped, and land values dropped 3 percent.

"This shows me there's still discipline in the market," Duffy said. "If we get a bumper crop and corn and bean prices drop, we'll see land values drop."