$30,000 an acre: Eye-popping farmland prices in northwest Iowa have an impact across the Midwest
A recent $30,000 per acre land sale in Sioux County, Iowa, sends signals into the land market in North Dakota, South Dakota, Minnesota and even as far away as Indiana.
ORANGE CITY, Iowa — Farmland prices have continued to rise in the upper Midwest, despite increasing interest rates and concerns about farm profit margins. Some of the most eye-popping prices have been in northwest Iowa.
Ross Simmelink, the Sioux County assessor in Orange City, Iowa, said the “rocket that catches the attention” is a $30,000 per acre sale on a 75-acre parcel in late November 2022. But more deals are probably closer to the ground, ag professionals in that area say.
Simmelink said a half-dozen parcel sales in the past two years had hit $25,000 to $26,000 an acre, and then a recent high of $30,000 per acre. Farmland in Iowa is taxed according to a valuation, with a common tax of $25 an acre. Most of the big sale prices are in the 80-acre range, and some as high as 160 acres.
“That gets people talking,” Simmelink said.
And not just in Iowa.
Kevin Pifer, founder and president of Pifer’s Auction & Realty and Pifer’s Land Management, in Moorhead, Minnesota, says what happens in northwest Iowa has at least some effect as far north as North Dakota.
“There may be buyers up here that say, on the high end they’re $8,000 to $12,000 an acre,” Pifer said.“They may be looking for some sort of an affirmation to pay a premium for land, and say, ‘If they can pay $22,000 to $30,000 an acre in Iowa, why can’t I pay $8,000 or $12,000?”
Red River Valley counties in recent months have hit record-highs — Clay and Wilkin counties had sales of $9,000 an acre. The northern valley has had the highest land auction values in the state’s history — well into the $11,000 to $14,000 per acre, especially in the Hoople area where sugarbeet and irrigated or non-irrigated potato interests overlap. Similarly central and western North Dakota parcels — out in oil country — sell for $5,000 to $5,500 an acre.
Steve Witges is senior vice president of Farm Credit Mid-America, headquartered in Louisville, Kentucky, which covers Ohio, Indiana, Kentucky and Tennessee. Witges is based in Bloomington, Indiana. They are the second-largest farm credit in the country. He's taken notice of the surprising increases.
“Iowa has led the way,” Witges said, of land prices. “I remember hearing about the first $20,000 an acre sale, and now this year we’ve heard $30,000,” Witges said, in a December interview. Meanwhile, many central Indiana sales were in the $15,000 to $16,000 per acre range, with some going beyond.
Witges thinks Iowa has a psychological effect, even more than 600 miles away. “We’re in a world of social media today, news travels fast,” Witges said. “Depending on what side of the equation you’re on, if you’re a seller you’re going to use those kind of sales as reasons for a price you think is reasonable, but a buyer might think otherwise.”
The old maxim is that farmland value is about “location, location, location,” Witges said. But it’s also about something else.
Troy Broers, 54, vice president and a senior ag lender at American State Bank of Sioux Center, Iowa, a bank with nine branches, has been in the business 32 years and started working with the business in 1986.
The key to Broers’ "location" is that it comes with livestock and a livestock farming culture.
“There’s billion-dollar ag counties in the United States and we happen to be one of the only ones in the Corn Belt,” Broers said. The closest other billion-dollar ag counties are western Nebraska and Kansas feedlot counties, or in Lancaster, Pennsylvania, with niche markets with retail sales. “We actually produce about four to five times more than the average county’s agricultural production.”
The love of livestock extends to surrounding counties. The activity generates value for the corn and soybeans going into meat, and creates associated jobs.
Sioux County leads the state in poultry, beef, swine and dairy production. The area has a strong ethnic tradition with Dutch and German farmers who embrace livestock production, which is the center of their farming operations. They created Christian colleges that helped teach agriculture and livestock.
Economists have said livestock dollars turn over in a community seven times — more than exporting grain to livestock producers in other parts of the world. Generally, livestock increases economic activity and health of the economy and drives the population. Sioux County has 10 school districts, and the manufacturing base is strong, with companies making paints and numerous mechanical products for farmers and ag-related businesses.
The fertilizer effect
Sometimes a livestock producer needs to purchase land to accommodate and use livestock manure. Hog manure can be moved only so far. Cattle feedlots are beginning to compost manure, dry it and haul it as far as Minnesota, South Dakota and other locations. Some producers were sold out last fall.
No two deals are the same, Broers said, but farmers want manure for logistical reasons. The rising costs of synthetic-based fertilizer makes livestock manure more valuable.
Livestock has its detractors, but in Broers' community it’s largely positive. People here expect a seasonal waft of manure smell, but know it is vital to add value to their economy.
“As a lender, it’s made my job more exciting to be involved in a diversified area, versus just doing corn and soybeans,” Broers said. “You see different areas and aspects of fiber and food to the table, with a few more products than the typical Iowa county would have.”
The 1990s started turning toward hog finishing production. In the 2000s, the dairies grew and feed conversion ratios improved.
Profit margins get tighter. Hogs, sow farms, moved away where livestock is less dense. In some cases animal producers, especially dairy, moved into the area from Europe. The activity “feeds on itself,” generating veterinary, genetic and labor components. And there are major packers nearby.
“Iron sharpens iron, and you have young kids right out of college that want to do this, and have them in agriculture,” he said.
About 66% of cropland is in the hands of absentee owners, in part because it takes so much capital to farm it.
“You just don’t have enough capital,” Broers said.
Near the top?
Besides agricultural fundamentals, several northwest Iowa ag business sources (several didn’t want to be quoted by name) told Agweek that return-on-investment on the eye-popping prices usually have a back story.
In one case, about eight years ago, communities needed high-elevation land for the Sioux County Regional Airport. The airport opened in 2018, at Maurice, Iowa, a few miles west of Orange City. Land associated with the deal traded for about $20,000 an acre in a market that was trading at $10,000 at the time.
Some farmers whose land is involved in such a sale are in a strong position to demand replacement land within a certain distance from their headquarters. They can specify a certain CSR, or “corn suitability rating,” which measures productivity.
In other cases, outside investors may desire to buy a property for an Internal Revenue Code Section 1031. They can postpone paying tax on a gain in value if they reinvest the proceeds in another property in a qualifying “like-kind” exchange.
Farm prices eventually cycle downward, with some industry sources projecting 10% to 25% corrections, with interest rate changes. As one put it, people buying $20,000 per acre land, will need to charge $700 per acre land rent to achieve a 3% return, without counting tax obligations. They could buy a Treasury bill for 4.25%, for a more sure return.
Close to the top?
Pifer thinks changing loan interest rates mean the land values are either “close to the top or at the top” right now, after an 18-month surge upward.
“In some places you could go in and prove that land prices have doubled in the past year and a half, depending on pent up demand and inventory of land available,” he said.
In the past three or four months, the increase in interest rates have had their effect. Pifer sensed that in the last two months of 2022 that there were fewer buyers for land. The price didn’t necessarily drop, but instead of 50 people at an auction there might be 30.
“Those buyers that aren’t as cash-rich, or not doing a 1031 exchange, that have to go to a bank and borrow a significant amount — those buyers are now not in the game anymore,” he said. “They have left the land buying scene for now, for temporarily, until these interest rates come down.”
He noted that a person buying $1.5 million farm today and financing $1 million of it would spend $70,000 to $75,000 a year in interest — double what they’d have paid in 2022.
Farmland values are driven mostly by “fundamentals,” Pifer said, with commodity prices and interest rates as the main ones. Loan interest rates were “absurd” when they were 1% to 2%. They are now at 7.5%, and maybe 8% and 8.5% in March. If they rise to 9.5% to 10% it will start driving farmland values down and create a “bigger divide between the ‘haves’ and the ‘have-nots’ in agriculture.”
The 30- and 40-year-old farmers, will have a harder time doing debt financing, Pifer said. A former deputy North Dakota agriculture commissioner, Pifer said government has a role in setting crop insurance and interest rate polices. North Dakota may never rival Sioux County, Iowa, but it would benefit from fostering more advanced livestock management, he said.