On a recent morning inside a crowded town hall, auctioneer Jeffrey Obrecht sold off a sliver of western Iowa farmland barely wider than a football field.

The soil had drainage issues. A muddy creek made it tough for a tractor to reach the back corner. Still, the self-described dirt dealer figured some investor might want the tiny parcel in the nation's top corn producing state.

His raspy baritone rising high above the din of the crowd, Obrecht struggled to hide his shock as the price tag spiraled ever higher. In the final minutes, the bidding narrowed down to two farmers after an anonymous investor who was bidding by phone had dropped out earlier.

The winner paid $10,450 an acre -- more than double the land's value just two years ago.

There's no reason that land should have brought that kind of money, Obrecht, 61, said afterward. Am I dreaming, or did that just happen?

Here in the nation's heartland, institutional investors, eager speculators and well-heeled farmers have raced in recent years to buy up farmland in order to shelter their wealth from tumultuous Wall Street or expand their profits in the global food chain. And auctioneers like Obrecht have been on the front line of this farm frenzy, charged with talking up the bid amid these sprawling fields and boarded-up agrarian towns.

Their business is thriving as more and more sellers see auctions as their best way to cash in. But the auctioneers are also keen observers of the rally, and what they see is this: Outsiders may have helped set off the investment boom, but it's farmers that are now driving it to worrying extremes.


Even as grain prices slump to near their lowest in over a year amid prospects for a bumper 2012 crop, the cost of premium U.S. agricultural land zooms higher -- as much as 3 percent a month here in the Hawkeye State, a clip that some see as unsustainable.

On Wednesday, a 74-acre of western Iowa farmland was snapped up at auction for $20,000 an acre, a state record. The final bidders? Two local farmers.

In Nebraska, veteran auctioneer Randy Ruhter says he is seeing the same thing. Investors who want a 4.5 percent to 5 percent return on their investment will be lucky to get 3 percent as land prices rise, and commodity prices soften, he cautions.

So it's the farmers that are buying, Ruhter said.

That farmers, not pension funds or Wall Street bankers, are driving this bidding war sounds a note of caution, say industry watchers. On the one hand, farmers see such purchases as a long-term play and are not prone to flipping land in the way investors did in the residential real estate boom of the last decade.

But on the other, the consolidation of the farming industry means that the fall of one operator would likely have far deeper ripple effects in rural America -- not only in their immediate communities, but to the bankers, seed suppliers and other sectors that service their needs.


As prices continue to rise this post-harvest season, the news has skeptics -- even the auctioneers -- wondering if an economic problem could be brewing in rural America.

Fund managers also report waning interest among commodity investors. While farmers do not yet appear to be loading up on costly debt as they did before the farm rout of the 1980s, regulators and bankers are voicing fears that farmland prices are overheating, an echo of the housing bubble of the 2000s.

Some are concerned that a rise in input costs, coupled with forecasts of commodity prices tumbling early next year, could result in a wave of farmland financial woes. Others are worried about farmers using tax strategies to delay paying income tax, a potential problem should the commodity world sour.

Some of the auctioneers, too, have wondered about the longevity of this boom.

Since the days of the Pilgrims, farmers in this country have turned to agricultural auctioneers to set market values in times of uncertainty -- and get them the highest possible prices. The best auctioneers do it by tapping into a rural mind-set that has as much to do with emotion as economics.

Farmers use a different pencil than investors when they're figuring out the math of a land deal, said Obrecht, who entered the industry after his own farming dreams died in the 1980s farm bust. It's a heritage or a dream, or a fear of losing an opportunity. And they'll pay more, and risk more, to get that field than an investor ever will.

That demand is rich fodder for Obrecht and his brethren, who have helped drive a 25 percent jump in land values last quarter -- even though some say, deep down, they know this rally is not sustainable.

They don't see a collapse coming. But a correction, they say, is inevitable. It's just a matter of when, Obrecht said.

Graphic on farmland values: http://link.reuters.com/kar94s


This hunger among farmers has prompted more sellers to put their land up for public bidding to see what a sale will bring. The share of Iowa farmland being sold by auction, rather than private deals, has doubled to nearly 10 percent in recent months, according to data from Iowa State University.

The reason is clear: auctions command a premium.

In this week's record-setting Sioux County, Iowa, auction, caller Pete Pollema tried not to get tongue-tied as the dollar figure jumped with each investor wink and farmer finger tap.

The historical corn yields had been ho-hum. But it sat in Sioux County, home to dairies, swine farms and livestock feed lots that need land to disperse the manure.

An outside investor vied with local farmers, but dropped out when the price jumped to $17,000 an acre, said Pollema. The battle came down to two neighboring farmers: One had a fairly large, 1,500-acre farm operation; the other ran a modest 200-acre dairy.

The little guy won.

I didn't want to see him pay that much, but he really wanted it, Pollema said. I don't know how he financed it. Last I heard, after the auction, he was at the bank.

News of the price tag had farmers buzzing at diner counters and co-op grain bins across the state. After all, a 40-acre parcel just two miles away sold in a private deal earlier this year for $10,000 an acre.

You think them people ain't screaming now? Pollem said. They're screaming mad.


While auctioneers say that more and more investors are starting to seek out private sales to avoid public bidding wars, Obrecht and his peers are still reaping the rewards in 3-to-5 percent commissions or more.

Many are expanding their businesses. Obrecht keeps his son-in-law on speed dial to serve as a proxy bidder for investors who want to keep their identity quiet. Rex Schrader, who owns Schrader Real Estate & Auction Co in Indiana, has hired more office staff to handle the flood of requests for soil data and satellite images of farmland coming up for sale.

Scott Musser, who co-owns his family's auction company in the Pacific Northwest, has beefed up the company's website and become savvy about helping customers deal with would-be buyers knocking on his customers' doors to get a sales edge.

Tip No. 1: Tell them to wait for the auction.

There are four attitudes we see in sellers: I want it; I need it; I need it real bad; and I'm going to get it no matter what, because I'm afraid that if I don't act, I'll lose it, Musser said. We're seeing that last attitude a lot in farmers and it does propel people to pay more.


But parallels to the past are impossible to ignore. Today's soaring deals recall similar 20th century farm booms, which were followed by devastating rural depressions.

Obrecht draws comfort from the differences: current interest rates are far lower; farmers are sitting on piles of cash and need to plant it somewhere.

So he goes out each day, to sell the dream of owning farmland. Obrecht, a whirl of energy who favors crisp cotton shirts and worn boots, is this year's top salesman at Farmers National Co. He booked $24 million in auction sales in fiscal 2010 that ended October 1.

He will do the same amount in the last quarter of this year. The commissions have allowed Obrecht to buy his wife a new Mini Cooper. He has also planted some of his new-found wealth into farmland.

This past spring, Obrecht and his wife purchased 102 acres of rich Iowa dirt outside Des Moines. They paid $8,000 an acre -- the high price made him cringe.

Not everyone can afford land, so some farmers are finding other ways to spend their money and hedge their taxes. Younger operators have told Nebraska auctioneer Ruhter they are sinking their cash into new farm equipment, where financing can sometimes be easier to obtain.

That's what happened in the 1980s and that's going to wind up getting people into trouble, Ruhter said. I'm seeing a lot of new combines, new fancy trucks. That's great. Someday, I'll get to sell them.

(Editing by Bob Burgdorfer and Maureen Bavdek)