INDIANOLA, Iowa (DTN) -- Eye-popping farmland values are grabbing headlines again. "We haven't seen these kinds of farmland auction prices since late-2013, early-2014," said Howard Halderman, president of Halderman Farm Management and Real Estate Services, based in Wabash, Indiana.
A Tipton County, Indiana, sale brought $14,467 per acre for 615 acres on Aug. 30. A 75.7-acre tract of farmland in rural Grundy County, Iowa, topped the charts at $22,600 per acre at an auction on Aug. 27. This exceeded the previous Iowa cropland record of a Sioux County farm in 2012 at $22,300 per acre.
"The farmland market really picked up in just the past couple weeks," Halderman noted. "We had six auctions in the last 10 days. Besides the Tipton County 615-acre sale and a lower quality recreational land/building site sale, four auctions brought in excess of $10,000 per acre on farms from 200 acres to 600 acres in size. That's a strong market for Indiana," added Halderman.
"Most people in the (Indiana) farmland market think really good ground can bring around $12,000 per acre," Halderman said. "Farmland values increased around 20% from the first of the year."
In Illinois, top farmland is now being bought for $13,000 to $17,000 per acre, depending on the neighborhood, reported Mark Mommsen with Martin, Goodrich and Waddell, a large farm real estate firm based in DeKalb, Illinois.
In Iowa, "we have lots of bidders in the $13,000 to $15,000 per acre range for good farmland. But, as bids get up to $15,000 to $20,000 the air gets thinner," said Doug Hensley, president of Hertz Real Estate Services, based in Nevada, Iowa. "A year ago, that would have been unbelievable to sell farmland for $15,000 per acre."
THE BACKSTORY ON THE MARKET TOPPERS
Of course, there is often more to the story in the record-setting sales. The Indiana auction pitted two titans of the seed industry to take prices into the stratosphere. Sonny Beck, CEO of Beck's Hybrids outbid Scott Campbell, who owned Campbell Seed and now contracts production as Total Seed Production. The large, contiguous tract was attractive for seed production.
The headline-catching Iowa farm had a lucrative wind turbine lease. The wind turbine lease will bring in $21,122 in 2022 and is expected to increase 2% every year through its 23-year contract term. Thirty bidders had registered for the northeast Iowa sale and local farmers stayed in the hunt until the price hit $20,000 per acre. Several investors took it to the final bid of $22,600 per acre. A farmer-investor from Cedar Rapids bought the farm in a 1031-exchange.
Farmers may not know their final yields yet, but they can see if they've got a good crop and their optimism is showing up in their purchases. DTN/The Progressive Farmer Agriculture Confidence Index was up 22.3 points from a year ago, although down slightly from the spring as farmers are concerned about input costs going into next year.
You can read more about the latest farmer Confidence Index here: https://www.dtnpf.com/…
Also aiding the strong farmland market are low interest rates, Hensley said.
"Long-term money is easy to borrow right now -- in the mid- to upper 3% range. And so far, the Federal Reserve seems comfortable supporting rates at these levels," Hensley added. "So, when a neighboring farm becomes available, many people are in buying mode, even if they have to borrow some money. The cost of money today makes that attractive."
The last time farmland values were this high in 2012 and 2013, the land market was driven by strong grain prices, but few had a good crop to sell, Hensley explained. "Today, there are many areas with good, if not great, crops and if you forward contracted back in May and June, you're positioned to make a lot of money this year. And even with higher inputs, 2022 doesn't look too bad either. Of course, there are some areas that are suffering and that will likely be reflected in the local land market. But a lot of the crop looks good; much better than in 2012."
ONE NEGATIVE FACTOR: MORE LAND ON THE MARKET
"Farmland for sale in the past couple of years has been extremely limited, which helped keep values steady," explained Mommsen. "Now, we're seeing things shake loose."
Hertz Real Estate Services has 50-plus auctions currently scheduled between now and early December. "And we're not alone," said Hensley. "There will be a lot of land for sale this fall. The question is, can the market maintain its strength in the face of increasing supply?"
"We're getting large crowds and good interest for our auctions," reported Halderman. "Will more farmland on the market change that? I suspect we'll see more land come up for sale if the infrastructure bill passes in Congress and is paid for with an increase in capital gains taxes. Landowners looking to sell are getting older and they may conclude that capital gains taxes will never be lower."
It's hard to predict how an increase in the volume of land sales will affect the market, Hensley admitted.
"But if you get a half dozen land sales in one locality, you could use up the local cash and that could put a lid on land values. However, it will be decided on a neighborhood-by-neighborhood basis. What I do expect is more segmentation in the market. Top farms could hit $16,000 to $18,000 per acre but lower quality land will not do as well. We'll see a bigger gap between the quality ranges of crop ground," Hensley predicted.
Elizabeth Williams can be reached at email@example.com
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