As conditions change, people take a hard look at Iowa farmland values

Ron Gordon, who farms 3,000 acres near Creston and bought 400 acres last year, has never questioned the value of Iowa farmland.

"Things were good after I started farming in 1971 when I came back from 'Nam, then we hit a hiccup in the 1980s, but we got over that," said Gordon. "If you look at the long run, Iowa farmland is better than any other investment you can make."

But Don DeWaay, a Des Moines capital investment manager, suggested that Iowa farmland prices may be headed for a downturn.

"People in agriculture tend to not like investments other than farmland, so values have risen," DeWaay said Thursday at the Iowa Land Investment Expo at the Prairie Meadows Events Center in Altoona. "But history always repeats itself. I think we will see farmland prices come down."

Interest in Iowa farmland values, always high, has notched up in recent months as corn and soybean prices have plunged from record levels and the ethanol industry has stalled. "Agriculture had a crazy year in 2008," Iowa Agriculture Secretary Bill Northey said. "The first half of the year looked like the 1970s, the second half looked like the 1980s."

A rerun of the 1980s has been on the minds of many who remember that era's steep drop in land prices. Farmland values have more than doubled since 2001 to a statewide average of $4,468 per acre, according to the annual Iowa State University survey released in December.

Jim Knuth, vice president of Farm Credit Services of America, said his research showed Iowa land values rose by just six-tenths of 1 percent in the last six months of 2008. He noted that in the four-state region run out of the FCS Omaha office - Iowa, Nebraska, South Dakota and Wyoming - land auctions that resulted in no sale more than doubled from 100 in 2006 to 208 last year.

But Knuth said repeating the 1980s, when land values plunged more than two-thirds from an inflation-adjusted record of $5,500 per acre in 1979, is unlikely. He said farmers are in a much stronger cash position than they were a quarter-century ago and are carrying less debt.

"Credit will still be available for farmers, and credit is the only farm input cost that hasn't increased in the last three to five years," Knuth told about 250 farmers and investors at the conference.

Two speakers noted that demographics may play a more important role in Iowa agriculture and rural culture than economics.

Iowa State University economics professor Mike Duffy, who conducts the annual land value survey, noted that almost half of Iowa's land is owned by people older than 65. That represents an aging land ownership in Iowa not seen since the early 1940s and portends a surge in land turnover in the next decade.

Duffy also said that 21 percent of Iowa's farmland is owned by people who live out of the state. "We don't know how they'll react if the economy really goes into the tank."

Rural small businesses have a similar profile of aging ownership, said Rand Fisher of the Iowa Area Development Group. "The aging ownership of farmland and small businesses means a tremendous transfer of ownership is coming in rural Iowa," said Fisher.