John Kirkpatrick, who manages our business in Iowa, had some good thoughts recently on the attention given recently to prices on Iowa farmland. The sale of a farm for $20,000 an acre popped up on the national media radar screens, just as the eye of the nation was already focused on the state, which was packed full of reporters there to cover the Iowa caucuses.
It’s always good to see strong farmland values (especially since I own some Iowa farmland myself), but John worried that people might get the idea that quality Iowa ground has just gotten too expensive for them. Here’s what John said in a Murray Wise Associates press release:
“Right now, you can find productive Iowa farmland for far less than the prices that have been making the headlines, but investors are getting spooked by the very highest prices they’re hearing.”
Indeed. The annual Iowa State University survey published in December found the average price per acre in Iowa was $6,708. There’s a lot of high-quality farmland to be had for less than $9,000 an acre, even now.
So what’s behind those enormous prices? Unique local factors, usually. Sometimes two local farmers or investors want the same land and are willing to pay whatever it takes to get that. Since we’re an auction company, we let the market decide, but when we sell at auction, it’s our job to get the highest price we can for the seller. Prices can also be driven by the need for EPA manure easements.
That said, I do advise farmland investors to seek land at values where the “numbers” work for them as an investment. At the current overall price levels, you can still get a 3.5-4.5% return on much Iowa farmland, and it’s hard to find a better investment.
People with land to sell need to be realistic too. I wouldn’t want anybody to make a decision to auction a farm expecting to get $18,000 or $20,000 an acre. But almost anybody with good Iowa farmland, who’s held it a year or more, is almost certainly looking at a nice profit.