If there is an epicenter of the nation’s farmland boom, it can be found here amid the rolling hills of northwest Iowa.
A fortune is being plowed into the dirt of Sioux County, where well-heeled farmers and wealthy investors compete fiercely for some of the most fertile land in the Corn Belt. While farmland prices across Iowa have been among the heartland’s fastest growing - up 261 per cent since 2000 - they’ve more than tripled in Sioux County, rising faster than most of the state.
Locals could not be more pleased about such prosperity - or more nervous.
Like many people across the Midwest, they’re increasingly anxious of a potential pull-back in values, despite stark economic differences with the 1980s farm crisis.
But their greatest fear is that if this boom turns to bust, as the housing market did last decade, people may well trace one of the key causes to this corner of the Hawkeye State -- and blame local farmers and investors for creating an artificially inflated benchmark for the Midwest.
In what has been termed the “Iowa effect,” farmers and ranchers across the nation now routinely look to this 768-square-mile county as a benchmark for America’s 408 million acres of crop land. Record-setting land deals in this corner of the state are quickly deemed the new high-water mark for surrounding states.
“I hear people talk and it’s not in a good way,” said Bill Tentinger, president-elect of the Iowa Pork Producers Association, who runs his family’s hog farm in Les Mars, Iowa, in south Sioux County. “People see these prices and think, ’Well, if land in Iowa sells for $20,000 an acre, then why can’t my farm in Illinois or Minnesota or Nebraska sell for that much?’”
Locals here will tell you exactly why: rich soil, favourable weather trends, a high concentration of livestock and biofuel operations, and an intensely competitive farming culture.
Those are some of the reasons state records have been shattered time and again at local auction halls and barnyard gatherings. Sioux County bidders cracked $13,000 an acre for crop land two years ago. Last fall, the price tag on a farm field jumped to $16,750 an acre. In December: $18,250. Then: $20,000.
That run-up, warn economists, is fueling a potentially dangerous axiom in the minds of investors: that there is plenty of profit to mine from U.S. cropland, even if prices continue to reach once unimaginable highs.
“Not all dirt is the same. Some dirt is astonishing, compared to other dirt,” said Jim Rogers, the billionaire commodities investor and author. “But it ultimately comes down to economics: How much does that land cost, what crop can you grow on that land, what price you can get for that crop, and how much it costs you to produce that crop?”
Economists are hopeful there will not be a repeat of the boom-to-bust farm cycle in the late 1970s and early 1980s.
Farmers today do not appear to be borrowing heavily against their high-value land in order to fund new real estate purchases, economists said. Such leveraging was one of the key causes behind the last agricultural bust: grain surpluses depressed prices, farmland prices dropped by half and farmers were squeezed by deepening debt.
What is farmland really worth? As word spreads of each heady price tag from public sales in Sioux County, auctioneers and real estate agents said the boom is quick to ripple outward. The latest spike was set off in early December, when farmer Leland Kaster paid $20,000 an acre for fields next to his dairy near Hull, Iowa, a Sioux County hamlet located about 50 miles southeast of Sioux Falls, S.D.
If Kaster were to grow corn on his new 73.4 acres, he’d be able pull in about $1,250 per acre in gross revenues next year, given futures market prices and average corn yield. More simply put: It would take the Kaster family more than half a generation to recoup their money - and that’s only if corn prices remain relatively high.