THIS fascinating installment of "Planet Money" on the farmland boom in Iowa is evidence that college towns occupy an alternate dimension; I had to listen to NPR to learn that the value of the rolling farmland I drive through every few days has more than doubled in the last few years. So why the boom?And from AgWeb:
The "Planet Money" presenters, Robert Smith and Dan Charles, cite three "global economic forces" that have pushed up land prices here in Iowa. Since there's not yet a transcript, here's my paraphrase:
According to Bruce Babcock, an economist at Iowa State University, the land boom is based on economic fundamentals and isn't a bubble. Credit may be cheap, but 30% down-payments are standard. Farming concerns, not speculators, are buying most of the land put up for auction. Nobody's flipping farms for a quick payoff. But what if ethanol subsidies go away? Mr Babcock says some subsidies are set to expire and it's hard to see them surviving deficit-reduction efforts. But everybody knows that, so the risk of vanishing subsidies is already reflected in land prices.
- 1. Ben Bernanke. Near-zero interest rates have made borrowing to buy farmland look attractive. Money in the bank isn't earning much, and the return on good Iowa farmland these days averages about 4% a year.
- 2. Corn prices. Most farmland in Iowa is devoted to corn. (The second most common crop, soybeans, yields a lower return but crop rotation is necessary to keep the soil in shape for bounteous corn yields.) The price of corn drives farm profitability, and the price of corn has gone up.
- 3. Oil prices. Oil prices drive corn prices. This year more American corn will go to ethanol factories than animal feed, which is a first. Farms in Iowa are now largely in the energy business. This is in part a creation of government policy. Ethanol subsidies get farmers $.45 in tax breaks for every gallon of ethanol, which comes to about 6 billion a year, propping up corn and land prices.
All that sounds mostly right to me, but I'd like to add a few observations.
First, not all subsidies to those in the ethanol biz are direct. America imposes a whopping tariff on Brazilian sugar ethanol. I don't doubt that the low political risk that this tariff will be reduced or repealed is already reflected in the price of Iowa farmland, but I think it's worth noting that one of the "fundamentals" determining the price of prime Midwestern corn-growing land is protectionist trade policy....MORE
Now It's $16,750/Acre in Northwest Iowa! Follows $15,368/Acre in Southeast Iowa
The Iowa farmland market continues to post record highs for quality land. The latest is a price of $16,750 an acre for 120 acres in Sioux County. The 160-acre farm involved is located just northwest of Hull, which is north of Sioux Center. The October 4 auction featured two tracts. Tract 1, 120 gross acres, with 116.5 tillable acres carried a Corn Suitability Rating (CSR) of 70 versus a county average of 64.8. That tract brought a total of $2,010,000, according to auctioneer Del Beyer, Beyer Auction & Realty, Sioux Center, who handled the auction along with realtor Ben Jans, Jans Real Estate, Inc., also of Sioux Center. As far as LandOwner can tell, this is a record high for the state. Tract 2, 40.67 gross acres and 40.3 tillable ables with a CSR of 68 brought $13,100 per acre. Buyers and contending bidders are area farmers, Beyer says....MOREHT on both: Big Picture Agriculture
