Scarcity of available farmland keeps prices high

Finding good farmland for sale in Iowa and neighboring states is a tall order.

Sam Kain, regional sales manager for Omaha-based Farmers National Co., says a scarcity of high-quality Iowa farmland has led to selling prices as much as $2,000 an acre above the expected price.

“We simply don't have a lot of properties for sale, but there are plenty of interested buyers, which is why the supply and demand philosophy kicks in,” Kain said. “In Iowa, we sold 240 farms in 2008. In 2009, that figure fell to 140.

“So you can see the demand is there, but there simply aren't properties available. Our land prices have held stable because of that.”

Land prices in Iowa last year were as good as 2008 and better in some areas of the state, according to Kain. Better quality land in Iowa is selling for $5,500 to $7,000 an acre, while medium quality land is bringing $3,500 to $4,000 an acre. Lower quality land falls to $2,000 to $2,200.

As an auctioneer, Monty Meusch, area sales manager for Farmers National in western Iowa, Kansas and eastern Nebraska, has witnessed sales throughout the region where high quality land has sold for top dollar.

At a recent land auction in northwest Missouri, Meusch saw a top quality 80-acre farm sell for $8,100 per acre - $2,000 more than predicted. The final two bidders were local producers looking to expand their operations.

Meusch said with the rate on bank certificates of deposit falling under 2 percent at the close of 2009, farmland also is gaining attention from investors wanting a better return on their investment.

“Investors are hoping for a return of 3 percent to 5 percent as a hedge against the weak dollar and inflation,” he said.

The financial straits of the nation's cattle producers also is influencing demand for farmland.

“The demand for pasture and ranchland in many areas of the country has softened as cattle producers are pulling back due to the struggling cattle market the past 12 to 18 months,” Meusch said. “However, most auctions of smaller tracts - 160 to 640 acres - still draw a number of active bidders with the final selling price well over historic prices of the past 20 years.”

Lee Vermeer, vice president of real estate operations at Farmers National, expects the trend of scarce land fetching higher sale prices to continue this year.

“Competition will remain heavy for high-quality land in almost all areas from farmers and investors,” Vermeer said. “It appears investment funds continue to remain bullish on commodities, keeping grain prices at profitable levels.

“Seed and fertilizer costs have dropped significantly for 2010, increasing the opportunity for profit for most grain producers.”