A survey of realtors in Iowa confirms what farmers, auctioneers and others have been saying in recent months—a decade of rising farmland values in Iowa is over. The value of Iowa's farmland has declined 7.6% since September, according to the results released March 10 by the Iowa Farm & Land Chapter of the Realtors Land Institute. A spokesman for the realtor's organization says this is the first half-year drop in Iowa land values in 10 years. The 7.6% decline is a statewide average that includes high, medium and low-quality cropland.
Combining this 7.6% decrease with the 6.6% increase reported in September 2008 indicates a statewide average decrease of 1% for the 12 month period from March 1, 2008 to March 1, 2009. All nine crop reporting districts are showing a decrease in land values in this latest survey. The districts vary from a 2.5% decrease in Southeast Iowa to a 14% decrease in West Central Iowa for the September 2008 to March 2009 period.
Low grain and livestock prices hurt
"The drop in commodity prices, higher input costs for farmers, a depressed market for livestock producers and a volatile economy and uncertainty in the stock market have all contributed to the decrease in farmland values," says Troy Louwagie of Hertz Real Estate Services. A realtor himself at the Hertz office in Mt. Vernon, Iowa, Louwagie manages the survey for the Iowa chapter of the realtors' organization and helps compile and interpret the results.
Positive factors currently affecting the land market are low interest rates, well capitalized farmers, strong farm profits in 2007 and 2008, lack of alternative investments and a short supply of listings.
The Iowa Farm and Land chapter has been conducting the statewide survey twice a year since March 1978 and September 1978.
Land values are economic indicator
In 2007 Iowa farmland values rose by 20%, bolstered by rising corn prices which were riding the high demand for ethanol. However, the boom in corn prices burst late last summer when commodity speculators, who had driven corn prices to a record $8 per bushel, got out of the market.
Farmland values are a key indicator of economic conditions in Iowa, notes Louwagie. He spoke at the realtors' conference in West Des Moines where the survey results were announced. Falling land prices can have a ripple effect through the economy as farmers react by spending less on farm machinery and on other things.
All classes of cropland have declined
According to the March 2009 survey, the per acre state averages for high, medium and low-quality crop land all declined. High-quality land dropped from $5,619 per acre in September 2008 to $5,297 as of March 2009—which is down 6%. Medium-quality land dropped from $4,528 to $4,196 per acre, down 7%. Low-quality dropped from $3,536 to $3,201 per acre, down 9%.
The survey is based on the responses of 200 farm real estate agents, appraisers and farm managers polled in Iowa. One of those people is Sam Kain of Farmers National Company, who is a realtor in the company's West Des Moines office. Kain, who handles land sales statewide, says the results don't surprise him.
"We were due for a correction in land values," says Kain, "However, I think this year and next will be stable for land prices." Kain and other realtors don't foresee a crash in land values occurring, such as happened during the mid-1980s. They point out that farmers don't hold nearly as much debt now as they did back in the farm financial crisis of the 1980s. Also, the realtors look at the worldwide demand for grain for both food and fuel to continue strong for the foreseeable future.
Struggling ethanol industry has effect
The decreased land values in this latest Iowa survey were greatest in west central, northwest and north central Iowa. The land value decline during the past six months was 14% in west central, 12% in northwest and 10% in north central. Those are the areas where most of Iowa's ethanol manufacturing is located.
The ethanol industry has struggled during the past six months as the sharp crash in the price of crude oil has pulled down the price of ethanol, and thus the price of corn. Lower priced crude oil has also made ethanol less competitive with gasoline at the retail pump.
Louwagie says farmers are tending to be the strongest buyers of farmland. More than 70% of recent sales of land have been to neighboring farmers, he notes. Some realtors at the conference said that with crop prices down and the cost of fertilizer, seed and other crop inputs up for 2009, farmers are less willing to bid land prices up as high as they were in 2008.
"At the same time, with the stock market falling and not very attractive as an investment, land is a good alternative for farmers who are looking for a place to invest their money," says Randy Hertz of Hertz Farm Management at Nevada in central Iowa. "Farmland can earn farmers a return on their money by providing income each year, whereas the stock market isn't doing that right now."