DEWITT — The value of farmland in Clinton County increased 16.3% last year, following the upward trend seen in all 99 counties of Iowa.

“Things are still aggressive in the farmland world,” said Alan McNeil, land broker with the DeWitt office of Peoples Company, a national brokerage.

Although rising interest rates can be a deterrent, strong commodity prices have kept farm incomes high, he noted. People buying land are “extremely solid” financially.

In Clinton County, the average value per acre of farmland as of Nov. 1 was $11,886 compared with $10,221 a year earlier, representing a 16.3% jump, according to the 2022 Iowa State University Land Value Survey released in December. The previous year – from November 2020 to November 2021 – the average value per acre had increased by about 31.7% in the county.

While inflation was a major factor that drove the increase in 2021, Wendong Zhang, an associate professor of economics and faculty affiliate of Center for Agricultural and Rural Development at Iowa State University, said also playing a role last year were commodity prices, limited land supply and low interest rates through summer 2022.

The average value of an acre of Iowa farmland in Iowa jumped 17%, or $1,660, to $11,411 per acre. That followed a year – between November 2020 and November 2021 – where values skyrocketed 29%.

The nominal value, or the amount before inflation, of an acre of farmland was higher last year than at any point since Iowa State University began surveying values in 1941, said Zhang, who is responsible for conducting the annual survey. When adjusting for inflation, the 2022 average value surpassed the previous inflation-adjusted record value set in 2013.

The inflation rates this year are similar to those from last year, but the Federal Reserve has used aggressive rate hikes since this summer to curb the problem, Zhang said.

“The Federal Reserve seems to be determined to keep raising interest rates until they get a firm control on inflation. This is a tricky balance because larger and quicker interest rate hikes run the risk of slowing down the economy, potentially to a recession,” Zhang said.

While he noted that higher interest rates put downward pressure on the land market, the effects typically don’t show up in land prices for one or two years.

While the Federal Reserve has been raising interest rates, Zhang said 81% of Iowa farmland is fully paid for, so the higher interest rates don’t always affect farmers’ land purchasing decisions. This is especially true when high inflation makes the real interest rates negative or low, which tends to incentivize more borrowing and investment. Furthermore, a significant portion of respondents of the Iowa State survey said that cash on hand was a positive factor influencing land values.

“Farmers have a lot more cash on hand and supply chain issues led to a shortage of equipment, so the money that farmers normally spend on equipment is now devoted to land,” he said.

As for commodity prices, Zhang said they have been strong this year and yields have been higher than expected despite the weather challenges.

Farmland values in Iowa have increased more than 15% in one year only a handful of times since 1941, most notably in 2011, when values rose 32.5%, and last year, when values rose 29%.

For the second year in a row, all 99 of Iowa’s counties showed an increase in land values. However, for the first time in almost a decade, Scott County did not report the highest overall value. O’Brien County topped the list, reporting a 20.6% increase, or $2,818 per acre, to $16,531. Decatur County again reported the lowest value, though land values there still increased 10%, or $505 per acre, to $5,566. Mills, Fremont, Page, and Montgomery counties reported the largest percentage increase, 21.6%, while O’Brien County saw the largest dollar increase, $2,818 per acre. Wayne, Lucas, Appanoose, and Decatur counties saw the smallest percentage increase, 10%.

Looking into the future, McNeil sees prices leveling off but remaining strong.

“Next year if interest rates keep going up, I see a pullback on that (land value increase) percentage,” he said, noting that it won’t be a decrease but a leveling off.

“We aren’t going to have as much for sale,” he said, adding that many estates and other landowners made the decision to sell last year.

Nancy Mayfield writes for the DeWitt Observer.

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