In US Midwest, young farmers priced out of land

Matt Miller dreams of the farm he and his wife and young son could one day live on.

Mr. Miller says he could make it work with 200 acres near the small farm his father owns if he focuses on organic agriculture and diversifies with a few dairy cows or hogs. The problem: buying the land.

He already rents 90 of those acres, and he and his wife have been saving her income for years to buy the rest. But every time they reach their goal, land prices go up.

Real estate prices in cities may be falling, but in Midwestern farm country, land values are going through the roof. Fueled by heavy ethanol demand, which has pushed up corn prices, land that sold for $4,500 an acre a year ago might go for about $6,000 an acre today.

"It's kind of disheartening," says Mr. Miller, an organic inspector for the state of Iowa. who has a friendly smile and an upbeat attitude. "It's like a moving target. All these things we've done are futile."

Average land values are up 13 percent in Iowa from a year ago and 14 percent in Nebraska – and far more than that in prime counties. Along with surging corn prices, land-value growth means a boom in wealth for farmers who own their land. But for beginners like Miller, it's made an already tough proposition far tougher.

"It's absolutely destroying their chances," says Mike Duffy, an agricultural economist at Iowa State University and director of the Beginning Farmer Center. When Mr. Duffy advises aspiring young farmers, he says he encourages them to find other ways to begin than buying land. "But they always want to own land," Duffy says. "That's somehow the badge of being a farmer."

The issue is a concern to some because of the aging farmer population and the continuing trend of consolidation and depopulation of rural America that it contributes to. About half the nation's farms are owned by people over the age of 65, and a quarter are owned by people over 75, according to the most recent survey, which Duffy's organization conducted five years ago. He expects those numbers to rise significantly when they redo the survey this year.

As land passes down to a generation that may be farming it, more acres – currently about 1 out of every 5 – are owned by people who don't live there.

Some see that as the natural evolution of farming and a way to keep things efficient, but others worry that the barriers are getting too steep – and that America's rural culture will suffer a loss. Many, of course, celebrate the surging land price.

"It represents a huge wealth increase for those who own the land," says Bruce Johnson, an agricultural economist at the University of Nebraska in Lincoln. "It's the hottest real estate market to be in right now."

For those trying to enter it, Professor Johnson acknowledges, it's tough. Like Duffy, he encourages young farmers to find alternatives to owning land.

Niches with higher profit margins – like the organic market Miller hopes to enter – can also help.

Not all young farmers are discouraged. Kyle Maas, a senior at Iowa State University and the former chairman of the Beginning Farmers Network there, has already entered into a nonfamily partnership with an older farmer and his son. They're focusing on cattle, because it requires less land. They also grow some row crops and hay. The high rents are tough, he says, but he thinks the market is such that they can make the operation profitable.

"If you tell yourself about how high cash rents make it too difficult, then it is," says Mr. Maas, who grew up on a small farm in northwest Iowa. "But if you move past it, then you can try to overcome it."

He encourages young, aspiring farmers to come up with creative solutions, and to talk to as many farmers nearing retirement as they can – many of whom can get significant tax advantages if they enter into a partnership with a young person.

"The older generation has the capital," Maas says, "but we've got advantages, too" – including familiarity with technology and the willingness to work long hours.

One concern for anyone trying to buy land is whether the current values will last. Back in the 1970s, land and corn prices saw a similar spike, only to be followed by a crash of land values and higher interest rates that led to a wave of foreclosures and farm consolidations in the 1980s.

"It's an interesting time to be in agriculture, and from our perspective, it's been a very good thing," says Jim Farrell, president and CEO of Farmers National Bank in Omaha, Neb., which manages about 1.2 million acres that it leases to farmers and sells close to 600 farms a year.

The last four months in particular have shown a steep surge, Mr. Farrell says. The factors driving those prices up – corn at more than $4 a bushel and a steady demand for ethanol – have helped inject a sense of euphoria into agriculture that reminds Farrell of the late 1970s.

So far, he and many other farmers remain cautiously optimistic, saying that the economic fundamentals are solid. "It's much more sustainable, based on who is buying it," says Johnson.

But people like Miller who are just trying to enter the market aren't so sure.

"If you pay $5,000 an acre and corn prices drop, then you're in a really bad situation," he says. "Maybe I'm too cautious, but I think there's a lot of uncertainty."