“We call it the Iowa Effect,” said Nebraska auctioneer Randy Ruhter. Land prices in eastern Nebraska, a state which saw a more than 40 per cent jump in the third quarter, edged up another 3 to 5 per cent after the deal.
“When prices go up there,” Ruhter said, “prices go up elsewhere.”
Part of the reason that land values can be so easily influenced by a single auction in a small rural county is that calculating the value of a farm field is different than figuring out what people are willing to pay, say economists.
Land values can fluctuate wildly, depending on who is doing the math and what income and expense factors are used. The Federal Reserves’ Midwest farmland surveys come out quarterly. Researchers at land-grant universities regularly roll out their research, too.
And there are so many different elements to weigh - including human emotion and other hard-to-quantify factors - that nailing down a transparent answer that is universally accepted can be difficult.
“Each land sale is unique and each person will take their own set of assumptions into the calculation,” said Michael Duffy, an agricultural economist at Iowa State University.
That inconsistency is partly why investors and sellers alike have turned to public auctions to figure out what the market will bear.
Perfect place for a perfect storm In many ways, Northwest Iowa is unusually ideal for such a perfect investment storm.
Amid the rolling hills that border the Big Sioux River, tilled fields abut ethanol plants, hog farms and dairy factories.
The soil is rich. Weather patterns have shifted in recent decades, allowing the dirt to retain more water and improve crop yields in northwest Iowa. The county’s annual precipitation has averaged 30.44 inches in the past 30 years, up 13 per cent from the previous three decades, according to state climatology officials.
Extreme summer heat has been less frequent. In Sioux City, for example, there were only seven days where the temperatures hit 100 degrees or higher in the past decade, down from 21 days in the 1980s.
Competition for land and grain is also intense. Sioux County has more farms - 1,664 - than any of the state’s other 98 counties, according to the USDA’s 2007 Census of Agriculture. It’s the state’s top seller of cattle and hogs, and the second largest seller of corn.
There are 13 ethanol plants, and two biodiesel factories, within a 90 minute drive of the county’s center, reducing transportation costs. Those plants compete for crops with the region’s scores of hog farmers, dairy producers and cattle feedlots, the engine that drives much of the county’s success.
Worries about Washington, and the growing regulatory influence of the U.S. Environmental Protection Agency in rural America, have livestock farmers here scrambling to buy more land to dispose of their animals’ manure. The EPA has already warned dairies in California over their failure to dispose of manure.
The growth of a larger local customer base has reshaped land values, too, according to data compiled by Iowa State University.
During the farmland boom of the 1970s, land prices were valued higher on the eastern side of the state, where farmers were physically closer to barge transportation on the Mississippi River.
Louisa County in southwest Iowa, which sits alongside the Mississippi, saw its farmland valued among the highest in the state during that period: It jump 355 per cent during the 1970s, according to Iowa State University research.
Now, however, its value has risen 64 per cent in five years, lagging behind Sioux County’s 80 per cent leap.
Graphic: Iowa farmland values
Emotion, not economics Then, there’s the human factor. Auctioneers and real estate experts say the extreme high-priced deals are often driven by a regional culture of competitiveness, rather than economics.
Dutch immigrants flocked to Sioux County in the mid-to-late 1800s, in search of cheaper land to carry on their farming heritage. They brought with them a culture of faith and frugality that exists today, with farmers flush with cash and deep emotional roots to their land.