The value of cropland in Iowa has fallen during the last 6 months, pressured down by lower prices for corn and soybeans—and firmer interest rates. The statewide average value for cropland fell 3.4% from March to September 2014, according to an Iowa Realtors Land Institute survey report released September 17.
Iowa's cropland had an average value of $8,000 an acre as of September 1, down from $8,222 an acre in March. Those values only include tillable cropland in Iowa, not pasture or timber. The state has seen its average cropland values fall 8.8% in the last 12 months, according to the survey.
"Lower commodity prices account for most of that decline in the land market," says Kyle Hansen, an accredited land consultant with Hertz Farm Management, based at Nevada, Iowa. He's chairman of the Iowa Realtors Land Institute's Land Trends and Values Committee, which conducts the survey twice a year.
He doesn't see a bubble bursting; rather it's a slow decline
Corn prices in Iowa have been hovering between $3.40 and $3.60 per bushel in September, down from around $5 per bushel a year ago. Soybeans have taken a similar downtrend, selling for slightly less than $10 per bushel in September, down from just under $12 per bushel a year ago.
The 8.8% decline during the past 12 months doesn't indicate cropland prices are headed toward a bust. Rather, Hansen believes land prices are coming down to a more stable level after a period of fast growth the past couple of years. "This September survey is a solid indicator that cropland values have come down, but we are coming down slowly. It's not a big bubble bursting," says Hansen. "It's a slow deflation down to the point where we are stable."
The Realtors Land Institute report is released every year in March and again in September. The organization surveys it's members and other farmland specialists, to get their view on what land values are doing. The survey asks what high quality land is selling for in an area; it also asks about medium and low quality cropland. Average value for high quality cropland in the state declined to $10,724 an acre in September 2014—down 8% from $11,661 an acre a year ago, according to the report.
Which areas of Iowa have held up better than others?
The report also looks at land prices by region, and there are 9 regions or crop reporting districts in the state. This September, every region except south central and southeast Iowa shows a decrease in value of cropland on average for the region.
"Despite these declines in land value we're now seeing, cropland values still remain higher than in September 2012, which was an outstanding year for Iowa farmers, financially," notes Hansen. The state's farmers reported a net income of about $9 billion in 2012, according to USDA statistics. That's the second highest amount, behind a record $10.9 billion net income in 2011.
5-YEAR COMPARISON: The average value for an acre of high-quality cropland in Iowa fell 8% from a year ago, but land values are still up from 2012 and nearly double where they were in 2010. Table shows average values for an acre of high-quality cropland, as reported each September.
Results of fall survey for last 5 years
Source: Iowa Realtors Land Institute
Farmers are still buying land, just not bidding as strong
"We're seeing a large reduction in commodity prices this year and the land market is following those prices downward," says Hansen. "But this decline in land values is occurring at a slow rate. A slow decrease in land values means farmers are still out there buying land, still getting the land they want to bid on and buy. However, farmers are taking into consideration what their future revenue will be. That affects what their purchase decisions and how much they are going to be willing to pay for land."
The September 2014 survey shows Iowa actually had a 3.1% increase in land values in southeast Iowa, and a 6.5% decrease in northeast Iowa. "The reason for this regional difference is due to good livestock producers in that part of the state," he says. "There are good, large areas of livestock production in southeast Iowa. Livestock producers have had good prices over the last few years. So the land market has strengthened in southeast Iowa—on the high quality pieces of land that have come up for sale."
Why is the southeast Iowa land price trend different?
The southeast region of Iowa had the largest cropland value decrease—compared to the other 8 crop reporting districts—in the March 2014 survey. "There's more uncertainty during the March time frame, compared to September," says Hansen. "We had just had a big run-up in commodity prices at that time, so attitudes were still very low, crop prices were down and the producers who fill out these surveys showed there was a little bit more strength in that region of Iowa than they had initially thought."
Meanwhile, livestock producers have done quite well and are still willing to compete for the right property.
Who fills out survey? Who gets it? Who puts numbers together?
This September, the Iowa Realtors Land Institute surveyed over 300 individuals who have a working knowledge of ag lending, appraisal and farm management of farms, as well as a knowledge of real estate. "We get a little over 50% response to the 300 surveys we mail out," says Hansen. "But all the people who complete the survey are individuals out there working the land, who understand agriculture, understand lending as well as understand the appraisal process and management of the farms."
What does Hansen see happening between now and when the next survey is taken by Iowa Realtors Land Institute? That survey will be conducted in early March 2015. "The surest thing I can say is the outlook for land values is 'uncertain,' says Hansen. "Land followed commodity prices downward the last 12 months. As commodity prices have decreased, land values have declined. I think that will hold true moving into 2015. If we can get some stability in commodity prices, and potentially increase crop prices, that would be good. Farmers would like to see some stability in commodity prices and potentially an increase in crop prices. That would add stability to the land market."
Land market may slowly soften some more, and values decline
"However, if commodity prices continue to soften and downtrend even lower, we may continue to see the land market slowly follow the grain prices downward," he observes.
One reason there is still a lot of strength remaining in land values is because of a low supply of land on the market. Not much land is being offered for sale. And at the same time there is still a lot of demand for land, says Hansen. "There some farmers who still have cash on hand. They want to use that cash to buy land, to diversify their portfolio. In some cases they are working with outside investors to help finance the farmland purchases. But there are also farmers who still have lots of cash on hand from the good grain and livestock markets the past few years. And if the right farm comes up for sale, those farmers are still ready and willing to go after it."
For information and to view a complete copy of the September 2014 Iowa land value survey, go to the Realtor's Land Institute website. Click the tab that says "trends and values" to find the September 2014 survey report.