Price and optimism sky high in Iowa

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If there is an epicentre of the nation’s farmland boom, it can be found here amid the rolling hills of northwest Iowa.

A fortune is being plowed into the dirt of Sioux County, where well-heeled farmers and wealthy investors compete fiercely for some of the most fertile land in the corn belt. Prices across Iowa have been among the heartland’s fastest growing — up 261 per cent since 2000 — and have more than tripled in Sioux County.

Locals could not be more pleased about such prosperity — or more nervous about a potential pullback in values.

In what has been termed the “Iowa effect,” farmers and ranchers across the nation now routinely look at record-setting deals in this 768-square-mile county as a benchmark for America’s 408 million acres of cropland.

“I hear people talk and it’s not in a good way,” said Bill Tentinger, president-elect of the Iowa Pork Producers Association, who runs his family’s hog farm in Les Mars, Iowa, in south Sioux County. “People see these prices and think, ‘Well, if land in Iowa sells for $20,000 an acre, then why can’t my farm in Illinois or Minnesota or Nebraska sell for that much?’”

Good reasons

Locals here will tell you exactly why: rich soil, favourable weather trends, a high concentration of livestock and biofuel operations, and an intensely competitive farming culture. Those are some of the reasons why prices, which cracked $13,000 an acre two years ago, have now hit $20,000.

“Not all dirt is the same. Some dirt is astonishing, compared to other dirt,” said Jim Rogers, the billionaire commodities investor and author. “But it ultimately comes down to economics: How much does that land cost, what crop can you grow on that land, what price you can get for that crop, and how much it costs you to produce that crop.”

In early December, farmer Leland Kaster paid $20,000 an acre for fields next to his dairy near Hull, Iowa. If Kaster were to grow corn on his new 73.4 acres, he’d be able pull in about $1,250 per acre in gross revenues next year, given futures market prices and average corn yield. More simply put: It would take the Kaster family more than half a generation to recoup their money — and only if corn prices remain relatively high. But Kaster’s bid has wider implications.

“We call it the Iowa Effect,” said Nebraska auctioneer Randy Ruhter. “When prices go up there, prices go up elsewhere.”

Life left

Despite the dangers of extrapolating Sioux County’s land values for outside guidance, and given that the federal ethanol subsidies quietly expired last year, some people still believe there is plenty of life left in the local boom.

That faith prompted town officials in Hull — home to nearly 2,200 people, eight churches and no stoplights — to join the land rush: The town’s economic development team bought a nearby 80-acre parcel two years ago for $1 million.

City administrator Les Van Roekel insists the deal was a savvy move. Area crop and dairy farmers clamoured to cash rent the land, after a local cheese plant recently announced plans to double the amount of milk it processes each day.

Local leaders are shopping for more land, either to buy or trade.

“We’re somewhat in a bubble here,” Van Roekel said. “But I think we’re going to be fine.”

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