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.