Red-hot demand for farmland in the top U.S. corn-growing state of Iowa drove prices to record highs in 2012, buoyed by demand from cash-rich farmers and ignoring the worst U.S. drought in the last 50 years. According to Reuters, the average price of Iowa farmland was $8,296 an acre – an all-time high – a 23.7% rise from a year ago, according to the Iowa Land Value survey of 486 real-estate brokers and other market participants compiled by Iowa State University. That surpassed the previous record of $6,708 set in 2011. The gains also mark the third year in a row where values rose more than 15%.
Sky-rocketing land values have stirred banker fears about the possibility of a ruinous farmland bubble like the one seen in the 1980s U.S. farm crisis, when over-leveraged farmers lost their land as interest rates jumped. But farmers are carrying much less debt today, thanks to record incomes in recent years.
“Iowa land values have increased more than two and a half times since 2003,” Michael Duffy, Iowa State agricultural economist and lead author of the land value survey, said in a summary of the findings. “Obviously these increases raise concerns there will be a major correction in land values.”
Located in the center of the U.S. Corn Belt, the largest corn- and soybean-producing region of the world, Iowa enjoys rich soils and a normally temperate climate. Iowa leads the country in corn, soybean, ethanol and hog production and alone produces about 18% of the nation’s corn and soybean crops. Crop yields were hurt this year as the historic drought depleted soil moisture and concerns continue about 2013. But Duffy said that farmland values strengthened after the drought-hit harvest.