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By Bill Spiegel

Farmland prices across the Midwest have soared 20% or more in some areas, and that will continue for at least the next year, and possibly two, according to Steve Bruere, president of Clive, Iowa-based Peoples Company. Bruere’s comments are reflected in Peoples Company’s “National Land Values” report, available October 28. There are a number of factors that influence the strong, steady pace of farmland values:

Rising farm incomes due to increased commodity prices.
Historically low interest rates.
Limited supply of available farmland.

Buying farmland is a competitive endeavor, with farmers competing against investors for land. It’s easy to see why. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the annual average return for farmland in the Corn Belt (Iowa, Illinois, Indiana, Ohio, and Missouri) averages 9.9% (including 4.198% income and 5.361% capital gain) from 1991 to 2021, a “remarkably steady track record with almost boring returns,” the report states. “On the other hand, Corn Belt returns offer far greater stability when compared with financial investments, including equities, where the annual drawdown has exceeded 20% at least once per decade.” Farmland continues to appreciate, relative to stocks or bonds, adds Bruce Sherrick, professor and director for the TIAA Center for Farmland Research at the University of Illinois, who contributed to the report. The five-state average price per acre of land is about $6,500, with Iowa and Illinois values topping out at roughly $7,800 per acre. Across the nation, land values have appreciated considerably since the August 2020 USDA Land Values Summary. The 2021 version of that report indicates cropland values in the Midwest show the greatest percentage change (ranging from 8.9% in Iowa to 13.9% in Kansas) relative to cropland values in other areas of the nation.

Will those annual gains hold long-term? Bruere is cautious.

First, with inflation, the value of the dollars that sellers received is not as valuable as it was a year ago. Second, more land is hitting the market now than at any time in recent history, he says. Short term, there is a lot of cash in play to buy farmland. But “…beyond 2022, I have a real concern about the fundamentals that have been driving farmland markets,” he writes.

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