Iowa Farmland Values Continue To Climb

Iowa Farmland Values Continue To Climb

Spring survey of ag realtors shows Iowa farmland prices have risen 9.4% in past six months.

Iowa farmland values continued to move higher through winter. A new survey conducted in March shows a 9.4% increase in the last six months. For the past 12 months land values are up 17.1%, now reaching a statewide average of $8,691 per acre, according to the Iowa Farm & Land Chapter 2 Realtors Land Institute. 

LAND VALUES KEEP GOING UP: The latest survey by the Iowa Realtors Land Institute shows a 9.4% gain in statewide farmland values since last September. And in the past 12 months Iowa land values have risen 17.7% to a state average of $8,690 per acre.

The Iowa chapter conducts the survey of its members twice a year, in September and March. Those surveyed are realtors who specialize in farm and land sales, management and appraisal. All participants in the survey deal almost exclusively in farmland. They were asked to estimate average values of farmland as of March 2013. The estimates are for bare, unimproved land with the sale price on a cash basis. Pasture and timber land values were also reported as supplemental information.

The survey released March 28 shows the impact of high commodity prices and the financial safety net provided by crop insurance. "There is a lot of wealth out there," says Kyle Hansen, a realtor with Hertz Farm Management at Nevada, Iowa. He's also a spokesman for the Iowa chapter and helps oversee the survey.

The March 2013 land value survey shows a statewide average of:
* $11,515 per acre for high-quality cropland
* $8,693 for medium-quality cropland
* $5,864 for low-quality cropland
* Non-tillable pasture rose to $2,742 per acre, and timber increased to $2,189 per acre

The increases in value of tillable cropland occurred statewide. The largest percentage increase in the past six months came in Northeast Iowa, where prices jumped 12.6%. South-central Iowa cropland values were up 11.1% and East central values up 10.4%. The smallest increase was in west central where tillable cropland values rose 6.7% since last September.

The March 2013 survey report has a table showing average land values for all regions of Iowa at Farmland Value Survey – File C2-75.

Despite worst drought in over 50 years, land prices stayed strong
The main factors that have fueled Iowa's farmland boom still are in place: record high corn and soybean prices and strong worldwide demand for grains. The drought of 2012, the worst in Iowa in a half-century, reduced the state's corn yield by 20%, but it did nothing to cool off the land boom because corn prices stayed within a range of $7 to $8 per bushel most of the year. Crop insurance payments provided a valuable safety net for farmers.

This survey is the first after Congress on January 1, 2013 continued favorable tax conditions for the sale of farmland. Most crucially, Congress preserved the $5 million threshold or exemption in net worth before estate taxes are imposed.

Auctioneers throughout the state were very busy last fall as many sellers of land were fearful Congress might increase capital gains taxes from 15% to 23.8% and drop the exemption threshold on estate taxes from $5 million to $1 million.

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"There were a lot of farmland sales before December 31 because people were concerned about possible changes in federal tax laws," notes Hansen. The land market paused briefly after the congressional session. "After January 1 things were quiet for a while but then the land sales activity picked up again," adds Roger Johnson of Farmers National Company.

Continuing climb raises a question -- are we headed for a bust?
The land boom is stirring memories of the historic busts in land values that followed similar booms in the 1920s and 1970s. The resulting collapses in the farm economy in the 1930s and 1980s reduced the number of farms.

Hansen points out that today banks and other lenders are routinely requiring down payments of as much as 50% to finance land purchases as a guard against speculative farmland lending. He predicts an "inevitable correction" but believes a sharp collapse is unlikely given farmers' relative lack of debt against historical land price levels. He notes that demand for corn and soybeans remains high.

One factor that could cause a drop in price of land could be a possible repeal of the federal Renewable Fuels Standard, the basis for ethanol and biodiesel demand. Ethanol production consumes about 35% of the U.S. corn supply and 60% of the Iowa corn crop. Oil companies, along with livestock groups and food processors, are lobbying Congress to get rid of the Renewable Fuel Standard, which requires fuel suppliers to blend a certain amount of biofuels into the petroleum fuel they market each year.

Iowa's $8,691 average is more than double the value of land five years ago
The statewide figure of $8,691 is more than double the value of Iowa farmland just five years ago, when the 2008 average was $4,276 per acre. When Hansen mentioned that fact at a press conference in Ames when the latest survey results were released March 28, reporters raised questions as to whether the land market is in a bubble, much like the dotcom or housing bubbles of recent years.

Hansen answered by pointing out that land isn't in the same situation as those two predicaments. Farmers in the U.S. today are buying land with cash and the debt-to-income ratio remains remarkably low. "The amount of cash that's out there is tremendous," notes Hansen. Still, he and other realtors who were at the meeting don't expect land prices to continue to rise at the pace they have the past several years.

Land prices may cool off, but a dramatic drop isn't expected
Pasture and timberland prices also rose in value during the past 12 months, something that hasn't always happened in previous cropland price booms. Investors are starting to come back into the timber market, says Matt Adams a realtor with People's Company in West Des Moines. Buyers must be thinking the economy is getting better.

High cattle prices this past year also pushed up demand for pasture and lower-quality land, realtors say. High cattle prices help push up these other land values as farmers look for acres where they can spread manure. Some pasture is rising in value as buyers are considering converting the land to crop production.

The bottom line, says Hansen, is land has continued to rise in value at a relatively rapid rate the past 12 months although not quite as fast as in the previous year. Realtors anticipate land will continue to rise but at a slower rate. They don't expect it to drop dramatically. Hansen summed it up: "We don't know what the future holds. Right now, it seems land values will continue to increase for the foreseeable future."

For farm management information and analysis go to ISU's Ag Decision Maker site www.extension.iastate.edu/agdm and ISU Extension farm management specialist Steve Johnson's site www.extension.iastate.edu/polk/farm-management.

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