LINCOLN — Farmers with fat wallets are looking for more land to buy.
But few landowners are willing to sell.
It's a classic supply-and-demand situation that has helped to drive crop land prices to historic high levels in Nebraska and Iowa, along with other farm states.
“Nobody's ever seen any prices like this,” said Lee Vermeer, vice president of real estate sales for Farmers National Co., which specializes in agricultural real estate across the country.
The Omaha-based executive said choice irrigated properties have sold for more than $8,000 an acre in Nebraska and more than $9,000 an acre in Iowa.
After a drop-off in 2009, farmland prices in Nebraska and Iowa surged in the last three to four months of 2010, Vermeer said. The average price for choice irrigated properties was $6,500 in Nebraska and $8,200 in Iowa in December.
Jason Henderson, Omaha branch executive for the Federal Reserve Bank of Kansas City, reported that Nebraska farmland prices at the end of the third quarter of 2010 were 9.4 percent higher than farmland prices at the same point in 2009.
“It's going crazy in some places,” he said, explaining that record high commodity prices combined with low interest rates have created a situation in which farmland is one of the most attractive investments available.
If a buyer can find a willing seller — and a willing banker, that is.
Some bankers, wary of land value crashes like the one that clobbered the farm sector in the 1980s, have tightened their lending standards.
“Some agricultural bankers are limiting their exposure by lowering loan to value ratios,” Henderson said. “In the past, they might have been willing to loan 75 percent of a parcel's value. Now they're limiting it to maybe 50 to 55 percent.”
Iowa State University's annual land value survey showed the average value of farmland in the state to be $5,064 per acre as of Nov. 1, a nearly 16 percent increase from the previous year and a record since the survey began in 1941.
The University of Nebraska-Lincoln conducts a similar survey, which compares land values as of Feb. 1. This year's figures are not yet available, but last year's survey showed a nearly 11 percent increase for eastern Nebraska irrigated farmland from Feb. 1, 2009, to Feb. 1, 2010.
“The market is really strong right now,” said Bruce Johnson, the UNL agricultural economist who conducts the survey. “Commodity prices have gone through the roof, and the land availability is half the historical average.”
Alan Tiemann, a Seward, Neb., corn farmer, said $8,000 to $9,000 per acre reflects the top price range for the most productive cropland.
“The last farm sales I've seen around here, irrigated land went for about $6,700 an acre, and dry land went between $4,000 and $4,500 per acre,” he said.
Tiemann also said he has heard of a couple of instances of “no sale” auctions, in which landowners canceled their sale plans because they didn't get a high enough bid.
A tight supply of cropland long has been a fact of life in farm country, where property may not change ownership for a generation or longer, Tiemann added. He said he rents most of his farm ground, because land is tough to buy.
“You're lucky if you own more ground than you rent,” he said, adding that the most common way to acquire land is to inherit it.
Tight credit is not necessarily a problem for those in the market for farm ground, said Tiemann and Vermeer, of Farmers National.
“With crop prices the way they are now, there's quite a few farmers with pretty thick wallets right now,” Tiemann said. “And with interest rates as low as they are, there's not a lot of motivation to keep it in a bank CD or interest-bearing account.”
Vermeer said farmers often are willing to pay premium prices because, in many cases, a land purchase is a once-in-a-lifetime opportunity.
“Farmers still look at farmland acquisitions as a longtime investment — they plan on owning it for a lifetime, and hopefully for the lifetime of their kids,” he said.
Although 85 percent of cropland buyers are farm operators, Vermeer said off-farm investors also are spurring the current demand for cropland.
“We're getting interest from the type of buyers who have not been in the market for land before,” he said.
Vermeer said he doesn't foresee the bursting of any farm real estate bubbles, because landowners have lower debt levels today than they did in the 1980s.
Last year, when land prices dropped back a bit, the market dried up, he said, because landowners weren't in a position where they had to sell.
“That's an indication that land is in very strong hands,” he said.
Contact the writer:
402-473-9581, leslie.reed@owh.com
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