"Pricing is About Future Expectations" says Farm Bureau Economist
While the new record $21,900 per acre sale in Sioux County is not typical, it is a reflection of optimism in the economic strength of farming in Iowa," says Iowa Farm Bureau economist, David Miller. At a time when many parts of the country are struggling to climb out of a recession, Iowa's continued strong agricultural sector has provided a 'buffer' which has helped much of the state keep a lower unemployment rate than the national average (tinyurl.com/9rgv79z ) and provided financial sector vigor.
Despite drought-squeezed yields in many parts of the state, the price of farmland may continue its climb because multi-generational farm families are working together, pooling their resources and betting on a strong future for the next generation. "It's about the continuation of relatively-low interest rates which translate into high capitalization rates for farmland," says Miller, IFBF Director of Research and Commodity Services. "Seven dollar corn, $15 soybeans and 2% or less 10-year interest rates, all work together to push up the value of Iowa farmland."
While Iowa is unlikely to see many repeats of $21,000 per acre pricing, the state's farmers are likely to see farmland values continue to rise. "In general, there's no indication that Iowa land has topped out yet. We're likely to see good farmland, and I'm talking about the $8,000 to $11,000 per acre range, go up another 5 to 7 percent in Iowa on a year-to-year basis," says Miller.
There are many factors that influence farmland values, and sometimes those factors are thousands of miles away. "Weather problems are creeping into Argentina and Brazilian crops, so if crop prospects in South America deteriorate again like they did last year, that's another element that would support these higher-than-normal prices for another six months to a year. Out-of-state investors who show up at these farm auctions will also drive up prices for Iowa farmers, who have been saving and working for generations to buy land and bring their children into farming. But, capital asset pricing is all about pricing future expectations; $21,000 an acre at an auction means that at least two bidders were pretty optimistic about the future."