Iowa farmland values continue to decline

Iowa farmland values continue to decline

Ag realtors' survey shows average decline of nearly 9% for cropland from March 2015 to March 2016

The value of Iowa farmland continues to soften, reflecting low prices for crops and livestock and the resulting decline in farm income. The latest survey by the Iowa Chapter of the Realtors Land Institute, released March 30, shows a statewide decrease of 5% for the value of tillable cropland from September 2015 to March 2016. Combining this decrease with the 3.7% decrease reported in September 2015 indicates a statewide average decrease of 8.7% for the year, from March 2015 to March 2016.  

LOWER FARM INCOME: Reflecting lower farm income, Iowa cropland values have declined 22.5% from 2013, when the average value statewide was a record $8,690 per acre. U.S. farm income had climbed to $123 billion in 2013. USDA is projecting farm income this year at $54.8 billion.

“The nine Iowa crop reporting districts all showed a decrease in value in this latest survey,” says Kyle Hansen, who directs the twice-per-year survey for the realtors’ organization. The districts in Iowa varied from a 2.4% decrease in the east-central district to a 6.2% decrease in the northwest and south-central districts since September 2015. Hansen is a group leader for the Iowa chapter and a broker at Hertz Real Estate Services at Nevada in central Iowa.

Low commodity prices resulting in farm income decline
Respondents participating in the survey were asked to indicate the factors contributing to current farmland values. They include lower commodity prices, a limited amount of land offered for sale on the market and input costs for crop production. Other factors include lack of stable alternative investments, the amount of cash on hand and increasing interest rates.  

Iowa farmland values continue to decline

FALLING LAND VALUES: The largest decrease in land values for tillable cropland acres occurred in northwest Iowa and south-central Iowa. Both districts declined by 6.2% for the year, from March 2015 to March 2016. Statewide average decline was 5%.

The Iowa Realtors’ Land Institute farmland value survey has been conducted twice a year, in March and September, since 1978. Participants are real estate professionals who specialize in farm and land sales, management, development and appraisal. They are asked for their opinions about the current status of the Iowa farmland market.

A lot less land is being offered for sale today
“Participants in this survey were asked to estimate the average value of farmland as of March 1, 2016,” says Hansen. These estimates are for bare, unimproved land with a sale price on a cash basis. Pasture and timberland values are also requested as supplemental information. “The participants in our survey are realtors who specialize in agricultural land,” he adds. “Some ag lenders and farm managers also participate. Our participants analyze sales data from their region and based on their opinion and thoughts, they report what they feel is the average price for land in their area.”

Has the number of land sales declined? “Yes, we are seeing a lot less land being sold today,” says Hansen. “Some of our survey responses came back saying land sales were steady. But most of the responses showed a land volume decrease of 5% to as much as a 40% to 50% reduction, compared to the volume of land being sold at this time last year.”

Going forward, what trends do ag realtors see ahead?
“If someone called me today and was thinking about listing farmland for sale, with the information we have, I’d say as soon as you’ve made your mind up to sell, you should probably put the land on the market,” says Hansen. “My crystal ball is fuzzy, but we are seeing a continuing softening of land values and downward pressure on the land market. That’s primarily based on lower commodity prices as well as the decrease in livestock prices we’ve had over the last six to 12 months.”

Is there a certain part of the state or type of land that hasn’t been hit quite so hard with a price decline? “High quality land is sought after by investors as well as farmers,” says Hansen. “That is the one classification of farmland we would say still has the most demand for land. Prices for high quality land in some areas haven’t dropped off as much. But as a state average, all high quality farmland is down 3.9% this March, compared to last September.

Iowa farmland values continue to decline

DECLINE CONTINUES: Iowa land prices have dropped nearly 9% over the past 12 months as a result of lower farm income. Latest survey of ag realtors shows the average value of cropland has fallen to $6,732 an acre, 8.7% lower than a year ago.

“Basically we got a bit of a surprise in the March to September figure, and then the bigger, 8.7% drop in the year-to-year price of farmland—from March 1, 2015 to March 1, 2016,” says Hansen. “It puts the average tillable land in Iowa worth $6,732 per acre. That’s off from our value in September of a little over $7,200 per acre.”

Farm income is projected at 56% below its high of 3 years ago
“With lower commodity prices and lower revenue we continue to see a softening in the land market and downward pressure on land values,” says Hansen. Iowa’s average land value is 22.5% lower than it was in 2013, when values climbed to a record $8,690 per acre and U.S. farm income climbed to $123 billion. “The drop in farm income is a reduction that makes a buyer flinch,” says Hansen. This year U.S. farm income is projected at $54.8 billion, 56% below its high three years ago, based on USDA data.

Iowa farm income has dropped as well, falling 47% to $5.1 billion in 2014, the most recent data available, from $9.6 billion in 2011. Corn and soybean prices have also fallen 50% or more since peaking in 2012, a year of widespread drought. Cattle and hog feeders have also seen profits shrink.

It’s been a three-year struggle with declining farm profits
While farm income has been dropping, land values haven’t been dropping to the same degree, notes Steve Bruere, president of Peoples Company, a Des Moines-based land brokerage and farm management firm. That has resulted in farmland rents being slow to decline, causing some farmers to default on rental agreements this spring. “Farmers have been squeezed between falling crop prices and stubbornly high input costs such as seed, land rent and fertilizer. “Farmers have struggled for three years with declining profits, and land values will eventually reflect that,” says Bruere.

Hansen expects farmland values will likely continue to drop over the next year, possibly 6% to 10%, depending on the 2016 crop. “This coming fall’s harvest will be telling, for commodity prices,” adds Bruere.  

Iowa farmland values continue to decline

Iowa Realtors Land Institute survey of farmland values in dollars per acre, March 2016

Despite the fall in land values of 8.7% from March 2015 to March 2016, most buyers of land in the past year should still be in fairly good financial shape, since lenders required at least 45% down payments, notes Hansen. He says 75% of buyers of land are farmers, and they plan to use the land to grow crops. “They’re buying land as a long-term asset. They want to own land and keep it in their family.”

Iowa State University conducts its annual farmland value survey around November 1 each year. The results of that survey released this past November showed Iowa farmland values down 3.9% for the year, to $7,633 an acre.

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