opinion
Hot Iowa Land Market Catches Investors’ Eyes Guest Column from Iowa Farm Bureau’s Dirck Steimel But one has to wonder if it’s really a good thing that the state’s farmland prices are so red hot that America’s top business publication highlights them as an alternative investment attracting a lot of attention. Does it foretell a flood of outside money flowing into the farmland market in the coming months or years? There would be definite downsides if that happens, economists say. First, it could overheat the land market and create a bubble situation that would end in a sudden and devastating collapse when it ends. Second, continued gains in land prices makes it even more difficult for younger people to get a foothold in farming and can send cash rents up to unsustainable levels.
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kimming over a recent Wall Street Journal on my lunch break, a chart caught my eye. To my surprise, in an article on Federal Reserve interest rate policies and filled with graphics barely understandable to anyone but an economist, there was a chart of Iowa farmland prices over the past decade. The article highlighted Iowa farmland prices as the type of investment that is catching the attention of investors who are looking for better returns in the current ultra-low interest rate climate. And, you have to admit, the trajectory of the land price gains looks pretty impressive, shooting up and up like a rocket ship.
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Rural Route
They cite as evidence the fact that land prices actually fell back slightly in 2009, when big harvests caused crop prices to dip.
“Continued gains in land prices makes it even more difficult for younger people to get a foothold in farming and can send cash rents up to unsustainable levels.”
Keeping vigilant The agricultural economists that I’ve visited are being very vigilant about watching the land price market in Iowa and other Corn Belt states for signs that a bubble is forming. So far, most don’t see it. Iowa State University’s Mike Duffy, whose annual survey was the basis for the Wall Street Journal chart, said he still sees discipline in the market for farmland, even with the recent steep price gains. The land price gains have paralleled the sharp gains in corn and soybean prices over the past several years, Duffy and other economists noted.
But that doesn’t mean the farmland market is immune from a bubble, especially if more outside money starts chasing land. As any economist will tell you, in a hot market like the one today for farmland, extreme vigilance is warranted.
Dirck Steimel is the News Services Manager for the Iowa Farm Bureau Federation. This article was reprinted with permission from the Iowa Farm Bureau Spokesman.
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