Bet the farm: Cropland prices soar 20%

randy_wuebker.top.jpgRandy Wuebker would like to buy 600 to 700 acres of Iowa farmland so his kids can carry on the family tradition. But with skyrocketing land prices, he may have to hold off. By Les Christie, staff writer


NEW YORK (CNNMoney) -- The Corn Belt was the real estate place to be in 2010.

Land prices in the states centered on Iowa grew at a 15% to 20% clip, annualized, over the last six months of the year, according to Creighton University economist Ernie Goss.

Prices were sent soaring by higher commodity prices, as crop failures in some food-exporting countries boosted the demand for U.S. grains and soybeans. For example, corn rose to $240 a ton in December compared with $166 just 12 months earlier.

"Commodities have been doing quite well," said Goss. "Income is up and everyone wants to salt away some of that cash. They prefer to put it in farmland."

Dave Miller just bought an 80-acre farm to add to his two existing properties in Lucas County, Iowa, which includes more than 300 acres of tillable land. "A lot of farmers buy land in good times," he said. "It becomes their retirement portfolio."

When he sees land going for below-market prices, Miller grabs it if he can. How does he know it's a good deal?

Because cropland prices in Iowa are easy to figure using the "corn suitability rating," which measures soil productivity from 5 (worst) to 100 (best).

"Typically, in Iowa, you pay between $80 and $100 per corn suitability point," he said. "The farm I just bought had a rating of 40."

That means between $3,200 and $4,000 per acre for the property he purchased, or nearly $320,000 -- a lot of money in a state where the median income is $48,000.

But Miller paid the bargain price of $2,100 acre. "That's why I bought it," he said.

In central Iowa, there are farms that score in the 90s because of easy-to-work, flat topography and deep, rich soils. That land can cost more than $10,000 an acre, making the farmers who own that land among the wealthiest in the state. On paper, at least. They'd have to sell the farm and cash out to reap the rewards.

Most established farmers don't want to do that, at least until they're ready to retire. They may be getting rich right now but they don't usually profit from increasing land values unless they sell it.

"Farmers don't like to see this," said Goss. "They're not selling, but their property taxes go up."

It's especially hard on the young. "If I'm a young guy starting out, I'd be worried about the rapidly rising farm values," said Miller.

Randy Wuebker, a 32-year-old father of three from southwest Iowa, is trying to put together a good-sized spread, not just for himself but to pass on to his kids.

"I have two boys and a girl, and I'd like them all to be farmers," he said. "But it's hard. Land is very expensive. We're always looking but we can't justify buying, not with what land is bringing at this time."

With the average price per acre in Iowa at more than $5,000 and typical farms upward of 350 acres, the cropland alone may be worth $1.75 million. That's a huge investment for a young entrepreneurial agronomist looking to, well, grow.

Wuebker was lucky in that, more than 10 years ago, with help from his dad, he contracted with a retiring farmer to rent 240-acres, work it and eventually purchase it at $1,800 an acre.

"At the time, I thought it was a lot of money," he said.

No more. It was appraised at $2,600 an acre in 2006, and Wuebker figures it's worth more than $4,000 today, about four times its value when he first began.

Most farmers think long-term trends will keep values high, although the rate of appreciation should slow. One reason for their optimism is the blossoming alternative-energy industry.

Many farmers already sell some corn for ethanol production and others rent space to power companies for wind turbines.

Wuebker, for example, sells his entire crop to an ethanol plant. With those profits in hand, he keeps going to land sales, intending to make offers. The prices keep starting out higher than he would like to bid -- and then go higher still. So he's holding off for now.

"I don't expect prices to drop dramatically, but I do expect a setback in the near future," he said. To top of page


Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.30%4.25%
15 yr fixed3.29%3.32%
5/1 ARM3.45%3.63%
30 yr refi4.27%4.20%
15 yr refi3.26%3.24%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
  • Find Homes for sale
    Real estate and homes for sale on Trulia

  • Property Type
  • Find a home in: New York | Atlanta | Chicago | Los Angeles
  • Washington D.C | Houston | Philadelphia | More options
Index Last Change % Change
Dow 17,113.54 61.81 0.36%
Nasdaq 4,456.02 31.32 0.71%
S&P 500 1,983.53 9.90 0.50%
Treasuries 2.47 -0.01 -0.32%
Data as of 8:19pm ET
Company Price Change % Change
Bank of America Corp... 15.52 0.00 0.00%
Apple Inc 94.72 0.78 0.83%
Microsoft Corp 44.83 -0.00 -0.01%
Intel Corp 34.79 0.73 2.14%
Facebook Inc 69.27 -0.13 -0.19%
Data as of 4:03pm ET

Sections

Passion fruit, Mexican cinnamon and Ecuadorian cocoa. From coast to coast, entrepreneurs are brewing craft beers that incorporate Latin flavors. More

One recently retired airline worker on Obamacare said his tax credit for 2014 will return him $3,600 for the year, or 23% of his annual income. He's watching the dueling court rulings closely. More

Ladar Levison, the guy behind Lavabit, is launching Dark Mail to encrypt emails so the NSA doesn't even know who's talking. More

Passion fruit, Mexican cinnamon and Ecuadorian cocoa. From coast to coast, entrepreneurs are brewing craft beers that incorporate Latin flavors. More

Court documents show big support from Detroit employees and retirees for a turnaround plan that should help the city emerge quickly from bankruptcy. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.