Recently there was a record breaking sale of an 80 acre parcel of land in Iowa’s northwest corner for US$21,900 per acre, the equivalent of approximately US$54,100 per hectare.
This purchaser was either wildly optimistic about the future of Iowa farming, has more money than sense, or wants to go camping a lot.
On a more sensible note: good, reliable, high rainfall arable agricultural land in Western Australia can be purchased by an investor for around AU$3,000, equivalent to roughly US$1,250 per acre. And prices a lot lower than this are achievable for good land in lower rainfall (but still reliable) districts.
Although the sale mentioned above was unusually high even by US standards, according to Michael Duffy of Iowa State University, average farmland values in the Sioux County where the land is located were US$9,500 per acre at the end of last year.
Also according to ISU, typical cash rents in Sioux county are at $267 an acre which would represent a 2.8% gross annual rental return at these land prices. Remarkably, this rental level is cited by Mr Duffy as a justification for why land prices in Iowa are at the levels they are.
Back to Australia: Annual rental rates of 5% and higher are the norm. With astute buying, rental rates of up to 7% in lower rainfall areas are achievable.
So what’s going on here? Are land prices in Australia so much lower because yields in Iowa are so much higher?
Here’s another interesting fact: when measured on a land price per unit of production basis, at US$950 per tonne of wheat produced annually, Australian land prices are less than half those of the United States (US$2,400 / tonne annual wheat), New Zealand (US$2,500 / tonne annual wheat), the United Kingdom (US$2,575 / tonne annual wheat) and even Brazil (US$2,400 / tonne annual wheat).
Admittedly it’s not an apples-for-apples comparison because the Iowa land that sold for 17 times the price of prime Australian arable land isn’t wheat land. Nevertheless, the average rent farmers are able to pay open market should give any sensible investor an indication of true value.
We should qualify this article by admitting that we speak about Iowa with some caution as it is not a region in which Land Commodities has any direct experience.
We did recently invest in a company calculator though.