Farmland prices are up sharply. How did it get so expensive?
A MARTINEZ, HOST:
Farmland is a limited resource, and over the past year, there has been a sharp climb in the cost of buying it. The high prices make it harder for young farmers to build their businesses on land they can call their own. And as Katie Peikes reports from Iowa Public Radio, that's especially true as demand from investors grows.
JOEL AMBROSE: Here we go. We have an online bid of 7,000. Asking 8,000.
KATIE PEIKES, BYLINE: At this farmland auction in Jesup, Iowa, there's more than two dozen people attending in person, and lots of others are online and on the phone. Just a couple years ago, the final sale would have been near 7- or $8,000 an acre. But now it's a lot different.
AMBROSE: Eighteen-thousand nine hundred in the nine. Now 19,000. $19,000...
PEIKES: The winning bids topped more than 17- and $19,000 an acre.
BEN RIENSCHE: I was astounded.
PEIKES: Jesup farmer Ben Riensche came to check out the prices. He didn't bid this time around, but recently at another auction, he bought 40 acres for $15,000 an acre.
RIENSCHE: It was way more than I ever hoped to pay. But we'll find out in a decade whether I was too high or too soon.
PEIKES: Farmland prices have rocketed, especially in the Midwest and the High Plains. Recently in Iowa, some farmland sold for no lower than $25,000 an acre. Andy Helgeson says it's just too much.
ANDY HELGESON: You go there, and you just get - I mean, basically, it's outmuscled That's what I call it.
PEIKES: Helgeson farms corn and soybeans in north central Iowa. He says he hasn't had any success at recent auctions. Reid Thompson in central Illinois farms largely on leased farmland but bought his first farm seven years ago for about $10,000 an acre. He says while beginning farmers get loans to help them, they have less cash and equity than those who have been farming longer.
REID THOMPSON: The less cash you have, the more debt you're going to have to incur. Same with less equity, the more debt you're going to have to incur. And so it's just going to limit when you can purchase and how much you can afford to pay.
PEIKES: So why is farmland costing so much now? Economists say things like good crop prices, a global food shortage, inflation and record-high government payments, largely from the pandemic. Randy Dickhut is the vice president of real estate operations with Farmers National Company. The company manages farms and conducts real estate sales and farmland auctions, including the one in Jesup.
RANDY DICKHUT: Like last year, farmers had better yields than they thought, higher commodity prices. So they had some good income. They hadn't maybe bought anything for a while. And so when they came on the market, they were pretty aggressive buying it.
PEIKES: There's also lots of competition from investors, people like Bill Gates, America's biggest private owner of farmland. Iowa State University economist Wendong Zhang says investors see farmland as a way to diversify their portfolio, and there's more momentum from investors than in years past.
WENDONG ZHANG: During uncertain times when their stock's value could go down by 30%, their farmland could hold on to the value.
PEIKES: It's unclear whether farmland prices will stabilize or continue to rise. But the Federal Reserve recently raised interest rates again. Some experts say that could help drag the value of farmland down, which could help those young farmers looking to buy land.
For NPR News, I'm Katie Peikes in Ames, Iowa. Transcript provided by NPR, Copyright NPR.