Into the stratosphere

Farmland values in O'Brien and Clay counties exploded over the past year due to positive factors affecting the U.S. ag economy and inflation.

The annual Iowa State Land Value Survey released last month reported a 28.7 percent increase in O'Brien County farmland prices in 2021 and a 30.6 percent increase in Clay County. The report noted surging ethanol demand and higher commodity prices as reasons for the 29 percent statewide increase in farmland values last year, as well as better-than-expected yields and pandemic-related government payments.

The statewide increase was much more than in 2020, when farmland values increased an average of 1.7 percent from the previous year. ISU assistant professor of economics Dr. Wendong Zhang, who leads the survey, said that favorable interest rates also contributed to the increases in 2021; however, he noted that inflation was a very important factor behind the value spike as well.

Last month, the U.S. Bureau of Labor Statistics reported that the country's inflation rate rose 6.8 percent over the last year, which was the largest increase since 1982.

"Inflation is driving some investors to consider farmland as an alternative investment asset because farmland value tends to rise with higher inflation," Zhang explained. "The inflation-adjusted average value only rose 21 percent but the nominal value rose 29 percent, which shows the effect of inflation."

The nominal value of an acre of farmland is now higher than at any point since ISU began surveying values in 1941 and is 12 percent higher than the previous peak in 2013; however, the current value in inflation-adjusted terms is still lower than that for 2012 and 2013. The last time farmland values increased more than 25 percent was in 2011, when they rose 32.5 percent.

In O'Brien County, the average price per acre increased from $10,656 in 2020 to $13,713 last year, while Clay County saw an increase from $8,872 to $11,586 during the same timeframe. The overall average in the 12-county Northwest Iowa Crop Reporting District was less than the state median, netting a 27.6 percent increase in 2021.

If overall farm income factors remain on the up, Dr. Zhang predicted another increase over the coming year, noting U.S net farm income is the highest it's been since 2013.

"The increase in 2021 farm income is largely driven by the rises in commodity prices and the resulting crop and livestock receipts, as opposed to almost solely ad hoc federal government payments as in 2020," he said.

All 99 of Iowa's counties showed an increase in land values greater than 20 percent last year. For the ninth consecutive year, Scott and Decatur counties reported the highest and lowest values, respectively. Land values in Scott County increased 30 percent, or $3,193 per acre, to $13,852. Land values in Decatur County increased 31.5 percent, or $1,213 per acre, to $5,062.

Clayton and Allamakee counties reported the largest percentage increase, 36.4 percent, while Scott County saw the largest dollar increase, $3,193 per acre. The smallest percentage increase, 23.2 percent, was reported in Keokuk County, while Taylor County saw the smallest dollar increase, $1,199 per acre.

Land values across all crop reporting districts increased. The Northwest district reported the highest overall value, $12,164 per acre, while the North Central district reported the largest percentage increase, 34.5 percent, and the largest dollar increase, $2,737 per acre.

The South Central district reported the lowest values, $6,035 per acre, and the lowest dollar change, $1,377 per acre, while the Southeast district saw the smallest percentage increase, 21.9 percent.