Friday, January 04, 2008

Land Values on the Rise = Bummer for the Beginning Farmer

Today I had to make the drive down to the family farm to do a couple things for my dad and check out the cows (more on the cows tomorrow). As part of the trip I picked up their mail, because they are out of town, and started looking through an issue of the Iowa Farm Bureau Spokesman. In the middle of the front page is a big headline, "Iowa farmland values increasing at record pace." Good news for some ... not so good news for a beginning farmer!

Here are some farmland average prices from around the state. In Marion county, where I live and would like to buy, the average price for acre is $3,555 which is an increase of 21.5% over last year. Up in Black Hawk county, where I'm from originally, land is a whopping $5,083 per acre (average). That Black Hawk county number is up 28.6%. The highest priced farmland in the state ... Sioux county at $5,204 per acre! Just let these numbers sink in:
  • The average increase of $704 per acre is the highest in the 66-year history of the survey.

  • The state average is $3,908 per acre, 22% more than last year.

  • Since 2000 Iowa's average acre of land has increased by $2,051.

  • There are 99 counties in Iowa ... in 2007 51 of those counties had average land prices between $4,000 and $5,000.
Do you want to know why these land prices are going up at such drastic rates? In one word ... CORN! Iowa has seen it's share of land price spikes ... and large falls (the farm crisis of the 80's), but this seems to be different. Most analysts tell us that the current increases are not tied to an increase in farm debt like in the 70's and 80's. Also, those who study these things believe we haven't hit the top yet!

So, what does this mean? As I mentioned earlier this is a good thing for those that are selling land I guess, but for a guy like me that would like to buy some land in the future it is sobering news to say the least.

As I read the article I was reminded of all the advice I had read in books over the past year. Joel Salatin, Allan Nation, Gene Logsdon, and others always tell you to rent land if you can't buy land to get your start ... that advice has never been more correct at a time like this ... except for one thing. One thing that they weren't able to factor in because their books were written years ago is that rent prices are on the rise. Mike Duffy, who works for the ISU Extension, expects cash rent prices to go up 25% in the coming year.

So, what is a beginning farmer to do ... especially if they don't want to raise corn in a corn crazy state? Well, I'll just keep on doing what we are doing now and see how the chips fall. The increasing land prices will make it more difficult for young beginning farmers to get a start, but I don't think it is the end all. In reality, I can hope for the bubble to burst or for a market correction, but I'm not sure if that will happen anytime soon!

Just some sobering news for the day ... but, to keep things in perspective I'm sure that land has crazy prices elsewhere too. If you know what average land prices are for farmland in your area let us know!


Randy said...

When we bought our 1.2-ac property in agricultural zoning about 25-miles south of Daytona Beach, FL in early 2006, we paid $289,000 for a half-cleared property with a 1978 house on it. Our taxes and insurance are around $5,000 per year. The scary thing is, that was the least expensive house/property that we saw that fit our needs.

Its a normal house in a decent neighborhood. We wanted more land but just couldn't afford it. Our plan is in a few years (like 15 to 20) to lease or buy 10 to 20-ac nearby and expand our homestead/farming operations while still keeping our home. Right now we are raising about 30 laying hens (Leghorns and Rhode Islands), 40-50 Cornish meat birds per year, two mature Nigerian Dwarf dairy goats (one just kidded and the other will soon), about 10 fruit trees, some grape vines, and just starting a small vegetable garden. Oh yeah, and an 18-month old toddler and a newborn on the way in early February.

The 1-ac homestead is enough for us now, especially with the young children requiring a lot of time. We will expand into a couple of turkeys, an above ground pool to raise tilapia, and who knows what else.

I'd like to get the back half acre cleared so we can put the goats there rather than in the front and side yards. Does anyone know if mulching pines and palms would inhibit grass/browse from growing back quickly?

BTW: I'm not filthy rich, I just had a grandmother who lived through the great depression and lived her 92-yrs with the motto "spend a little, save a lot". She bought some stock for me when I was born, and with mergers and a good economy that bloomed into a sizeable downpayment on a house. "A good man leaves an inheritance to his children's children", as Solomon says. We were blessed by a wise and thrifty grandmother.

Yeoman said...

Bummer indeed.

The price of land is the single biggest reason that I have a town job. I don't want to work in town, I simply cannot afford the ground that I need to make myself an agricultural solo.

Wilhelm Ropke, the German economist, wrote that he felt that people who didn't use agricultural land productively should not be allowed to own it. He was writing in the immediate post WWII environment. That likely seemed shocking to an American audience at the time, but I think there's something to that.

John said...

I bought my 40 acre parcel in Marion County Illinois in August 07 (I realize you are talking about Marion, Co Iowa). At the time it was the least expensive parcel in a 5-6 county area that I looked at that met my needs to have both timber and tillable. I paid $2850 an acre. The property was purchased less than 2 years earlier in order to assess mineral content since there have been some big oil discoveries in the county recently. The prior buyer bought the property for $2000 and acre.

I am glad I bought when I did. The land prices are not going down. Salem Ill just recently announced that an ethanol plant is being built on the other side of town. King corn is the game, it seems.

Yeoman said...

By the way, in writing this, let me note that I'm writing from Wyoming. When I first got out of law school (and being a lawyer here is not a high dollar occupation), I actually could have nearly afforded, with family help, a small place. As my parents were elderly, I didn't feel I should ask for help.

Now, places that I could have almost afforded are grossly out of my reach. This is not due to local conditions at all, but almost solely due to ranches being bought by out of staters, who do not live here, and who merely want to say they "own" a ranch. Next to that, out of state development companies have driving up the price of things close to down by buying land and subdividing it, and likewise selling 40 acre "ranchettes" (i.e, dust bowls) to out of staters who do not live on them either.

Sad state of affairs.

Odd to think that when my grandfather left Iowa for here, as a 13 year old, land was free, up to a section anyway.

Kramer said...

With increasing land prices, the government is going to get theirs too. Taxes go up which mean those who rent, have to pay more to cover the property owners ag exempt taxes. Looking for a way that you can guarantee improvement to ones land with minimum cost to you and the land owner will be the way to go. As I said in a comment before, if done correctly, with Managed Intensive Grazing and High Stock Density Grazing, the land owner you are renting from should be paying you to run cattle on their land. All it takes is soil analysis, $10.00 a pop and forage testing to prove this. Food for thought.

Ethan Book said...

Thanks everyone for your comments!

Randy, I knew that there would be some super high land prices out there in places close to cities and such that were inhabited by people who work in the larger areas, but I do have to admit that you have some expensive land!

Yeoman, here in Iowa (at least in Southern, IA) we have another factor along with the corn prices ... hunting ... there is a decent amount of land that is being plucked up for hunting ground which is also adding to the land prices.

Kramer, I think you have a good point about High Density Grazing. If we are able to get on our own place soon I believe that is going to be our ultimate grazing goal.

Keep the comments coming!

Anonymous said...

The land we bought recently was $6,300 per acre. The average price in the area is $10,000 per acre. Crazy stuff...

Anonymous said...

Land is expensive. Lake front is expensive. Ocean front is outrageous. They're not making any more of it.

Farm land is expensive largely because people have made money off farm (in cities) and want something more. For them, land at two, three or five thousand an acre is cheap.

It's not just for farming. In Georgia, people are buying hundreds of acres just so they can preserve the right to hunt. That has resulted in land in some counties easily surpassing $15-20K per acre. Of course, all of this is within a 2 hour drive of Atlanta, where there are 5 million plus people.

Bottom line: land is, as you said, expensive. It will not get any cheaper. I would recommend to get any land you can.

Nature's Harmony Farm

Yeoman said...

"I would recommend to get any land you can."

Solid advice.

The trouble is, a lot of would be farmers cannot get any, as their only income has been farming. Ironically, that tends to price them out of the market.

The ultimate irony of it all is that this effectively means that the US has arrived at the point where it has become what our ancestors left. For many of us, perhaps most of us, our ancestors left their homes for a chance to obtain land. They couldn't obtain it where they were from, as it was owned by wealthy absentee landlords, and was too expensive.

Now we've effectively arrived back to where we started, and are the worse off for it.

We hear a lot about preserving family farms. If that is to really be done, at some point, we have to acknowledge that there's going to have to be preferentially dictated use of land. In a country of 25 million, that isn't the case. In one this size, of 125 million, it isn't either. But in one that is 300 million, and growing, it is the case. We often hear that preserving family farms preserves a critical part of America. That's true. But in a market that values subdivisions and Walmarts more, in real terms, farms can't compete. There's going to have to be help, no matter how much peoples wishes might want something, it'll require more than that.

Ethan Book said...

Tim and Yeoman ... Thanks so much for adding to the conversation. We are at a crossroads here and I don't know how it will end up or what exactly needs to be done, but I do know that I don't want the Government involved in deciding land policy or such. With that being said we need to think about how our land is being used and that really comes down to personal responsibility ... which is one of the reasons that I got into student ministries ... I wanted to help teach students personal responsibility (Biblical responsibility). In fact this month at my senior high group we are going to be talking about our addiction with consuming stuff (and probably watch the stuff video).

But, back to land ... I agree get what you can, but for those that aren't wealthy or need the land to pay it's way it is getting increasingly difficult. Even here in Iowa were land is cheap compared to large metropolitan areas I'm not sure if the people buying $5,000 an acre land can expect to make it back in their life time doing corn and row crops!

We are just going to have to learn to be creative with the land we have if we are going to become farmers, because where we could have afforded 160 acres 7 years ago now we can barely afford 20 for the same money ... if you can find it!

Yeoman said...

"I'm not sure if the people buying $5,000 an acre land can expect to make it back in their life time doing corn and row crops!"

They can't. Nor can those here who buy ranch lands for high prices make the money back in cattle.

"We are just going to have to learn to be creative with the land we have if we are going to become farmers, because where we could have afforded 160 acres 7 years ago now we can barely afford 20 for the same money ... if you can find it!"

Quite right! Sadly, for many of us, that means that at best, we'll be tenants or perhaps sharecroppers.

I'm not sure how that works with crops, but with cattle you always have to worry about your lease. If you loose it, those cattle have no where to go.

In the end, all types of farming or stock raising require land. Most people harbor some desire to own land, which may say something about our basic nature (i.e., the basic nature of human beings). For those who want to farm, it's a drive that can't be suppressed, and will persevere in the face of impossibility, family pressure, and economics. For that reason, its a really tough time to get into farming. By the same token, that's tough on the would be farmer, as it doesn't work the same way other occupations do. If I'd been told that I couldn't practice law, I would have gotten over it (in about fifteen minutes). Being short and with glasses, I accept that I can't be a professional ball player. But at age 44, and a part time cattleman, I'm not accepting that I can't be one full time. I suppose at age 88, should I live that long, I still feel that way, and be trying to figure out how to be full time by age 98.

From my prospective, the one thing I really fear is not having my operation on a larger scale within the next few years. My son is 10, my daughter 6. I'd like one or the other of them to at least have the agricultural option. If I don't have it pretty much in place within the next four years, I've lost that opportunity for them.

Randy said...

Hey guys, what's with the woe?

I agree with Kramer, we unconventional farmers have the "unfair advantage" of higher stocking rates, niche/artisanal products, and a flexibility to quickly adjust to emerging market trends better than our Corporate, CAFO competitors.

I did a simple economic analysis of my 1.2-ac homestead at an assumed build-out productivity. The result was that I can produce $10,800 worth of food items per year (that's gross sale price, not figuring profit margin). Due to the smallness of my "farm", that level of productivity would more likely cover my food bill and pay for the chicken feed/goat hay than really be money in my pocket, but since I'm comitted to my career, that's just fine for me.

In my analysis, I discovered that $8,700 of that came just from the chicken and goat enterprises. Further, the sale price for the eggs, fluid milk, and whole roasting/broiler chickens comprise $7,400 per year.

My wife and I will actually work out the overhead of our farm throughout this year to see what the costs are, but it would seem to me that if those two enterprises (which are not maxed out since land is devoted to other enterprises which could be chicken/goat land) together can net $7,400/ac/yr then a land cost of $5,000/ac to purchase wouldn't be prohibitive. True, it would need to be mortgaged, but not indefinitely.

I was not raised agrarian, I am a city boy, so I don't know the realities of living exclusively off the land. I would be interested to know how I am naieve in my figuring.

Keep up the good work, guys. God bless.

Mellifera said...

Yeoman- read Great Basin Kingdom by Leonard Arrington. I was doing some reading up on the Mormon settling of the west, and come to find out they had the same exact views on land tenure.

As settlement was beginning, a bunch of folks started hoarding up land as speculation (way more than one family could possibly use, even in the arid West), considering that there were going to be many more people coming in behind them. Then Brigham Young found out *dun-dun-dunnn* and made the speculators give it away to newer settlers for free. That's right, Brother Brigham.

(Consider also the fact that land in Utah at that point wasn't actually owned by the US, so hoarders hadn't bought it from anyone from anyone either.)

Yeoman said...

Mellifera, I haven't read that, intersting.

Some of the writings of Wilhelm Ropke, the German economist, approach a strongly anti-speculative approach, in that Ropke thought that people who didn't use farm ground productively shouldn't be allowed to hold it.

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