Why are land prices continuing to stay high after multiple years of lower crop prices and reduced profitability in the ag sector? Brad Hayes, an appraiser for Peoples Co., a farm real estate firm based in Des Moines, Iowa., is fielding that question quite often these days.
“Our appraisal team monitors land sale prices on a weekly basis as well as monitors the number of farms publicly for sale in Iowa at any given time,” he says. “Recently, our appraisal database indicated there were 548 farms for sale in Iowa which includes row crop farms, pasture farms, recreational farms, etc. Of these 548 farms, we can extract out how many farms have 85% tillable acres or greater.”
This data set allows him to hone-in on land value trends for highly tillable row crop farms. The data indicated there were 130 farms for sale that have 85% tillable acres or greater. This averaged out to approximately 1.3 highly tillable farms available for sale per county in Iowa. That’s equal to the number of farms that were available for sale midway through 2016.
So, why are land prices staying high despite low crop prices? There is a very limited inventory of farms for sale and an abundance of capital pursuing these assets. You would assume lower commodity prices would have a negative impact on land values; land values trended down from 2013 through 2016. “However, looking at our data it appears land values bottomed out in first quarter of 2016 and have seen an upward trend through 2017,” he says.
Big demand for the best land
The statistics illustrate land trends from 2015 through 2017 for tillable farms sold at public auction that have 85% tillable acres or greater. His team calculated the average dollar per CSR2 point (Corn Suitability Rating) based on tillable acres, on a quarterly basis. Land values saw a downward trend from the fall of 2015 through first quarter of 2016 and have seen an uptrend from first-quarter 2016 through second-quarter 2017.
Number of farms for sale will continue to increase as we move into the fourth quarter. This is generally the busiest time of year for public land sales. With a larger inventory of land for sale during the fourth quarter you’d think land values should see a downward trend due to increased supply. “But based on our data, the opposite can occur,” says Hayes. “During both 2015 and 2016 we saw an upward trend in land values during the fourth quarter.”
There are multiple market influences on the horizon that may have a positive or negative impact on land values. These include but are not limited to drought conditions in upper Midwest, increasing interest rates, tight profit margins, increasing global demand and trade relationships between the U.S. and global markets. “We look forward to seeing if and how the land market fluctuates through the rest of 2017 and into 2018,” he says.