Auctioneers have had to count higher than ever in recent farm and ranch land sales.
Low interest rates and high income per acre have allowed farmland prices to soar, according to a report by the Omaha World-Herald. Premium land in York County, Nebraska reached $15,000 an acre recently, and farmland in neighboring Iowa sold for nearly $19,000 an acre.
“In the last three months of last year, we sold more dollar-wise than in 12 months,” reported Jim Farrell, Omaha-based Farmers National's chief executive. “We sold $360 million worth of real estate.”
In April, Cody Staudt, a nineteen-year-old Iowa State University undergraduate, made headlines after purchasing $1.13 million for 80 acres of farmland near Rockwell, Iowa. He paid nearly $14,000 per acre.
While these prices didn’t ruffle Staudt, a survey by the American Farm Bureau Federation’s Young Farmers & Ranchers program found that securing adequate land to grow crops and raise livestock is the top challenge for young people who want to join the industry. With the average age of a U.S. farmer at 57 years old, it’s time for a new generation of farmers and ranchers to enter the fields, yet current land prices present a staggering startup cost.
Many farmers and ranchers anticipate the bubble to pop and land prices to fall, but economist Aaron Goertzen predicts the ag industry will continue to grow.
“Demand for agricultural products is growing rapidly, particularly in emerging markets, which has put agricultural prices and profitability on an upward trajectory,” explained Goertzen. “Meantime, the industry’s international competitiveness has been bolstered by a lower U.S. dollar.”
However, should interest rates increase and crop prices decrease, the value of farm and ranch land will fall, Goertzen admits. Stephen Gabriel, chief economist at the Farm Credit Administration, remarked, under such circumstances, “A 20 percent decline would not be out of the question.”
Until then, the high prices for premium land will act as a barrier for many farmers and ranchers who want to expand their acreage.