Iowa Farmland Values Are Showing Signs Of Softening

Iowa Farmland Values Are Showing Signs Of Softening

Farm Credit Services of America says sales prices for cropland are leveling in many areas the cooperative lender serves.

Land prices and demand continue to be strong across a four-state area of the upper Midwest, but the latest data gathered by Farm Credit Services of America suggest the market for cropland could be leveling off or in some cases softening. Iowa farmland values climbed 8.7% in 2013, down from the double digit increases of the previous couple of years.

FARMLAND VALUES: Farm Credit Services of America says sales prices for cropland are leveling in many areas the cooperative lender serves.

"After years of a steady rise led by lower than average U.S. yields, strong domestic and international demand for commodities, low interest rates and solid profit margins, we're now seeing the rate of price increases leveling off for farmland in some areas we serve," says Mark Jensen, senior vice president and chief risk officer for farmer-owned FCSAmerica. The financial services cooperative is a leading ag lender to farmers and ranchers in Iowa, Nebraska, South Dakota and Wyoming.

Jensen referred to two reports produced this month by the FCSAmerica appraisal team. The first is a semi-annual update of their Benchmark Land Values study, in which the lender has tracked the values of 65 farms for more than three decades. The second report is a compilation and analysis of more than 3,500 agricultural real estate sales transactions – both auctions and private sales – in all four states during 2013.

Average Change in Benchmark Farmland Values as of January 1, 2014

State

Six Months

One Year

Five Years

Ten Years

Iowa (21):

-2.8%

3.4%

98.3%

282.1%

Nebraska (19):

0.7%

8.0%

143.2%

325.9%

South Dakota (23):

7.2%

17.6%

109.3%

325.7%

Wyoming (2):

3.4%

6.9%

-3.8%

75.2%

Source:  Farm Credit Services of America. Numbers in parentheses indicate number of farms studied.

Both the benchmark report and the analysis of sales transactions for 2013 suggest the market for farmland is leveling off and in some areas softening in FCSAmerica's four-state region, Jensen said.

"There's evidence that farmland prices may be on a slight decline from record highs seen at the end of 2012 and for most of 2013," he notes. "Based on our benchmark study, Iowa land prices were down 2.8% in the second half of the year, and our review of real estate transactions showed Iowa land prices down 3.3% in the fourth quarter of 2013 compared to the third quarter. Nebraska benchmark farm value increases slowed to the lowest levels in several years, up just 0.7%."

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Land prices and demand for farmland continue to be strong in the four-state area, Jensen says, but buyer sentiment could be adjusting downward with decreased commodity prices that will in 2014—and maybe longer—reduce the record profit margins growers experienced the past few years.

"Even though the number of public land auctions in 2013 was down 25% to 30% compared to 2012, auctions were often well-attended with multiple bidders," Jensen says. "The number of auction 'no sales' in Iowa was 6.7% in 2013, an increase from 3% in 2012. Some sellers may have expected higher prices than the auction high bid. Local farmers continued to make most of the purchases."

Jensen says FCSAmerica's data suggest customers are positioned to weather a moderate downturn in land prices.

"Since 2008 FCSAmerica has used a risk management strategy that includes a cap per acre on the amount of money we'll loan for land purchases. We've been using a long-term sustainable value approach to projecting repayment and lending levels based on corn prices closer to $4.50 per bushel versus the prices of $7 or more that some farmers were receiving in 2012," he notes. "Our customers understand the financial risks and volatility in the agriculture industry. Their balance sheets and working capital levels are generally in a position of strength, and they have put a significant amount of equity into land purchases."

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State-by-State Highlights:

Iowa
Land continued to sell at all-time highs with premium ground generally bringing from $12,000 to as much as $17,000 per acre in 2013

The average price for unimproved cropland was $9,700 per acre in the fourth quarter of 2013, down from $10,100 in the second and third quarters. However, the average price of land was $9,800 for 2013, up 8% from $9,000 in 2012.

There were approximately 30% fewer public land auctions in Iowa compared to 2012.

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South Dakota
January 2014 South Dakota benchmark land values were up 7.2% for six months and 17.6% for the year.

South Dakota unimproved cropland values have steadily increased for the last three years and are currently selling at all-time highs with premium ground bringing up to $12,000 per acre.

Land prices increased 12% to $6,500 per acre in the fourth quarter of 2013. For all of 2013, land prices averaged $5,800 per acre, up 19% from $4,700 in 2012.

Nebraska
Nebraska benchmark land values were up 0.7% in January 2014 compared to July 2013 and increased 8% for the year.

Nebraska unimproved cropland values are measured separately for dry cropland and irrigated cropland.

Nebraska dry cropland prices have had significant price swings over the last two years. For the fourth quarter of 2013, prices increased by 15% to $5,900 per acre. The price per acre for 2012 and 2013 was $5,500 on average.

Nebraska irrigated cropland prices continued to rise, selling at all-time highs of $8,100 per acre. Land prices increased 6% during the fourth quarter of 2013. For all of 2013, prices were up 4.4% compared to 2012.

Auction activity in Nebraska was off approximately 30% in 2013 compared to 2012.

Wyoming
FCSAmerica's Wyoming benchmark land values were up 3.4% over July and 6.9% for the year.

Across the state sales were light, totaling 125. The diverse nature of the sales, and determining highest and best use, make it challenging to establish a trend. Considering those factors and the light sales data, pasture and unimproved cropland prices are about $750 to $1,500 per acre.

Source: FCS America

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