At a recent farmland auction in Jesup, Iowa, a couple dozen farmers and landowners drank coffee, ate cookies and chatted before filing into rows of chairs for the sale.
Many didn’t come to bid, but rather to see what the market was doing.
Within minutes the fertile farm east of Waterloo had been sold. One section went to a local farmer for $19,600 an acre; the other two sections went to an investor for $17,700 an acre.
In comparison, two years ago high quality farmland in Iowa sold for an average of $9,500 per acre, according to data from Farmers National Company.
“I was astounded,” said Jesup farmer Ben Riensche, of the outcome. “This went probably 20% farther than I thought it would, past my expectations.”
Farmland values have been rocketing up across the Midwest, for the last year and a half. Farms in Iowa have sold for as much as $25,500 an acre with values increasing 26% in the state over last year and 18% in Illinois, according to data from the Federal Reserve Bank of Chicago. On average, prices rose 25% in Nebraska, and 23% in Kansas over the last year, according to data from the Federal Reserve Bank of Kansas City.
The high farmland values are making sales competitive, not just between farmers, but also with investors. But sky high prices can make it especially hard for young and beginning farmers to grow their business on land they can call their own.
Why have farmland values risen?
Economists and appraisers attribute the increase to a number of things: good crop prices, a global food shortage, low interest rates, inflation and record high government payments — largely from the coronavirus pandemic.
“Last year, farmers had better yields than they thought, higher commodity prices,” said Randy Dickhut, the vice president of real estate operations with Farmers National Company, which manages farms and conducts real estate sales and farmland auctions, including the one in Jesup.
“They had some good income,” he said. “They hadn’t maybe bought anything for a while. So when [farmland] came on the market, they were pretty aggressive buying it.”
Dickhut said 2012 to 2014 was the previous peak in land values. Land prices spiked, he said, due to higher commodity prices and good farm incomes.
“Then those commodity prices declined,” he said, “so the net incomes weren’t there on the farms, especially in Iowa, the Midwest and Grain Belt. So land values dropped off some … then they just kind of hit a plateau.”
Dickhut said good quality farmland is in “high demand” these days. And that’s as costs for other farm essentials, such as fertilizer, herbicide and fuel have been increasing as well.
High farmland values a hurdle for young farmers
The high farmland prices make it much harder for young farmers to get started and grow their businesses. Reid Thompson, 34, has been farming in central Illinois for almost 10 years. He said beginning farmers get loans to help them, but they have less cash and less equity than those who have been farming longer.
“The less cash you have, the more debt you’re going to have to incur,” he said. “Same with less equity, the more debt you’re going to have to incur. It’s just going to limit when you can purchase and how much you can afford to pay.”
Thompson farms largely on leased farmland, though he owns a small portion of his acres. He bought his first farm seven years ago at about $10,000 an acre.
He wants to grow, but says with high land prices and rising interest rates, he’s focused more on short-term investments like bulk fertilizer or fuel.
Andy Helgeson, 41, farms in north-central Iowa and also works as an agricultural loan officer at a bank. He said he’s tried to buy farmland several times in recent months, but has been unsuccessful.
“You go there and you just get out-muscled,” Helgeson said. “ … it’s just become a very vicious market.”
Helgeson said people are willing to travel farther to farm, and he’s seen land near him bought by farmers who live 50, even 100, miles away.
“You go there and you just get out-muscled. … it’s just become a very vicious market.” Andy Helgeson, Iowa farmer and agricultural loan officer
While leasing land is how many farmers get started, in the long term it doesn’t provide enough stability. Farmers can’t make conservation decisions about their land if they’re leasing, said Holly Rippon-Butler, the land campaign director for the advocacy group the National Young Farmers Coalition.
The group’s 2017 survey found the median size of land young farmers operate was 19 acres.
Rippon-Butler said rising land values are the top challenge for young farmers who are trying to establish their businesses.
“It's so much competition from buyers who are not farmers themselves,” she said, “that this makes it really, really challenging for young people to afford land on a farming income and to really compete in that marketplace.”
Farmland for investors
It’s not just farmers who are looking to buy farmland.
Investors are increasingly seeing farmland as a good option, especially as they eye an uncertain stock market.
“They’re mainly looking at farmland to provide a viable alternative to diversify their whole portfolio,” said Wendong Zhang, an Iowa State University economist.
Zhang leads Iowa State University’s annual farmland values survey. The latest one from November found the bulk of land up for sale is bought by local farmers. But there’s more momentum from investors than years past. According to Iowa State University farmland values surveys, in 2011, investors represented 22% of those who bought farmland in Iowa. In 2021, investors bought 25% of Iowa farmland up for sale.
“During uncertain times when their stocks’ value could go down by 30%, their farmland could hold onto the value,” Zhang said.
It’s unclear whether farmland prices will continue to rise or stabilize. The Federal Reserve recently raised interest rates by three-quarters of a percentage point. David Oppedahl, a senior business economist with the Federal Reserve Bank of Chicago, said the general pattern is that when interest rates go up, it puts some drag on farmland values.
“As interest rates rise, that’s going to have some downward pressure on the farmland markets,” Oppedahl said. “But at this point, it’s uncertain how quickly and how much other factors might be still stronger than that.”
The uncertainty around where prices will go can leave farmers who’ve bought land recently wondering what it will ultimately be worth.
Jesup farmer Ben Riensche didn’t bid at the July auction, but he bought 40 acres at another auction for $15,000 an acre. He said it was a “strategic” move because the tract of land he bought fit onto a larger field he has.
“It was way more than I ever hoped to pay,” Riensche said. “But we’ll find out in a decade whether I was too high or too soon.”
This story was produced in partnership with Harvest Public Media, a collaboration of public media newsrooms in the Midwest. It reports on food systems, agriculture and rural issues. Follow Harvest on Twitter: @HarvestPM
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