Average price per acre reaches $2,914

DES MOINES, Iowa (AP)--The average price of Iowa farmland reached a record high for the third consecutive year, jumping 10.8 percent to $2,914 per acre, according to an annual survey by Iowa State University.

The increase of about $285 per acre means the value of the state's 27 million acres of farmland increased more than $7 billion in the year that ended Nov. 1, said Michael Duffy, the Iowa State economist who conducted the study.

"It's a third year of a record and continued to show pretty good strength with the 10.8 percent increase," he said.

The study, called the 2005 Iowa Land Value Survey, was based on reports by licensed real estate brokers and selected individuals considered to be knowledgeable of land market conditions. About 1,100 surveys are mailed each year.

The survey results were based on 483 responses. Participants were asked to estimate the value of high-, medium- and low-grade land in their county.

According to the survey, low-grade land averaged $1,961 per acre, a 14.5 percent or $248 per acre increase. Medium-grade land averaged $2,736 per acre and showed an 11.4 percent increase, or $279 per acre. High-grade land averaged $3,511 per acre, an increase of 10 percent or $318 per acre.

Farmland values in Iowa have been increasing since 2000, with statewide average land values increasing 56.9 percent over the past five years, the survey said.

The highest land values in the survey were in central Iowa at $3,415 per acre. The lowest were in south-central Iowa at $1,793.

The survey showed that investor interest in purchasing farmland remained high, partly because of low interest rates and poor stock market performance. The majority of sales--56 percent--went to existing farmers, but investors represented a new high at 39 percent, Duffy said.

"Typically you think of the three-piece suit on Wall Street. We see some of that, we see some speculation on land, but we also see people buying for recreational use, hunting camps, just a wide variety," he said.

A 2002 survey showed that 45 percent of Iowa's farmland was owned by people who did not live on a farm, while 19 percent of that was owned by people who don't even live in Iowa.

Duffy said it's hard to predict what can happen when people buy farmland for non-ag uses.

"If the economy would go south, if energy prices stay very high, what could that foretell? Well, it's hard to know exactly how they would react," he said, adding that it could lead to a flood of land on the market.

Duffy said in 2003 and 2004 limited supply in land available was cited by over 10 percent of the survey respondents, and it's not a factor this year.

"Based on what I've heard and then the results here indicate to me that we are seeing a lot of land on the market and it may not be moving quite as much as it had in the past," he said.

Some may be concerned that farmland values have reached their peak.

"Anytime you're at record levels then that's a question that you have to ask yourself," he said.

The good news, Duffy said, is that almost three-fourths of the farmland in Iowa was owned without debt. That may be an indicator that there is less chance for significant land value declines that happened in the early 1980s, when the farmland values were more market driven.

"Today we don't have the inflation near what it was and we're looking at different people purchasing the land--the investor category," he said.

"The situation is so much different than it was back in the 80s."

Sterling Liddell, an analyst at Iowa Farm Bureau, said farmers aren't simply getting rich off their land. In fact, he said they are experiencing steadily decreasing prices on their commodities, so they have to buy up more land to try and spread out the lower prices over more acres.

"Increasing land values, there's a lot that goes into those and to think that it's just that farmers have a lot of money is incorrect," he said. "There are a lot of factors at play and we need to be aware of what's going on in the agricultural community."