Iowa farmland values declined by 5.4% in the six months ending March 1, according to the latest statewide survey by the Iowa Realtors Land Institute. That figure represents tillable cropland, and it's the first time the statewide average for cropland prices has dropped since 2009.
The realtor group conducts its survey twice a year, in September and March. The latest results, released March 27, 2014 are an indication farmers may feel a softer than expected landing from the current downturn in crop prices and a softer ag economy.
Survey responses show a statewide average decrease of 5.4% in cropland values for the September 2013 to March 2014 period. Combining the 5.4% decrease with the 1.2% increase reported in September 2013 indicates a statewide average decrease of 4.2% for the entire year—from March 1, 2013 to March 1, 2014.
All Iowa districts are showing a decline
All 9 crop reporting districts show a decline in land values the past 6 months. The districts varied from a 2.1% decrease in southwest Iowa to an 8.4% decrease in southeast Iowa.
Kyle Hansen, president of the Iowa Realtors Land Institute and a real estate agent with Hertz Farm Management at Nevada, Iowa, says factors contributing to the decline in land values include lower corn and soybean prices, higher input costs, increasing interest rates, uncertainty of government regulations, and uncertainty in the U.S. and world economies. Positive factors for land values are a limited amount of land offered for sale, strong livestock market, renewed interest from investors, lack of stable alternative investments, cash on hand, and fear of inflation.
Demand is strongest for high quality land
The survey reports land values for three different categories—high, medium and low quality cropland. "The medium and low quality land as of March 1, 2014 is showing a softer market value than the overall 5.4% decline for all tillable cropland statewide," says Hansen. "However, demand for higher quality land is still strong. Our survey shows high quality land is hanging in there fairly steady to just slightly lower than its value of last September."
The average price of high-quality Iowa cropland is $11,104 per acre as of March 2014, down 4.9% from last September.
Predictions for land values were for steeper declines to be expected—until recent weeks when corn and soybean prices firmed up, says Mike Duffy, an ISU Extension economist who studies the farmland market. "Late last summer many farmers began getting cautious and thought the sky would fall with a big decline in crop prices coming ahead," he adds. "We're now starting to see this isn't going to happen."
Recent crop price rise helps stabilize land values
Hansen had expected farmland prices to fall as much as 10% during the past six months. But in recent weeks, corn and bean prices have inched up, due in part to the political uncertainty in Ukraine, a major grain producer and exporter. The rise in crop prices has helped stabilize land prices. Corn sold for $4.50 in February in Iowa, up 13 cents from December but down from about $7 a year earlier.
Dennis Reyman, farm manager and appraiser for Stalcup Ag Service at Storm Lake, says the March 2014 survey results came in about as expected. "It shows land values down about 4% for northwest and west central Iowa and down 7.2% for north central Iowa, where they've experienced two straight years of difficult growing conditions," he says. "Most of the land value drop in the last six months occurred through the middle of winter and began occurring sooner in north central Iowa than in western Iowa. As corn and soybean prices have improved, land values have firmed up since mid-winter."
Land values are still nearly double those of 2010
Reyman adds, "Land values have trended similar to crop conditions in 2013 with better conditions the farther west you go. Good land in a strong area can still sell as well as it did earlier in 2013 but there might only be two bidders instead of 4 or 5 making it happen. Lower quality or irregular land will sell for less than in 2013 in most situations. There is demand and ability to own land, but buyers are a little more picky than a year or two ago."
The 5.4% dip in land values as a statewide average during the last 6 months came as a relief, says Hansen. "It says the market is responding to what's happening with commodity prices. It's healthy. It's good to see things fluctuate up and down, so we know things are not potentially in a bubble."
Despite softening prices Iowa's land values are still nearly double those of 2010, when tillable land sold for an average of $4,268 per acre.
Have Iowa farmland values already peaked?
ISU's Duffy expects land prices to hold relatively steady or perhaps drop slightly in the year ahead. "I think we probably have seen the peak," he adds. "Whether or not it is a temporary drop and then a return to going back up will depend on what the weather and crop prices do in 2014."
This survey released March 27 was conducted among farm realtors who are specialists in farmland sales. Survey respondents estimated the amount of land available for sale was down 25% from 2013. That can be attributed partly to lower grain prices. Some realtors say they believe sellers' expectations are still in the spring of 2013, while buyers clearly understand that land values have now softened because farmers are getting lower crop prices.
Much of land being sold is by retiring farmers
As in previous years a large portion of land sales are being sold by retiring farmers and people who inherited farmland. Survey respondents estimated 5% to 35% of farmland buyers are investors rather than farmers, which is comparable with previous years.
For the six months ending last September, cropland prices rose 1.2%, but realtors point out the increase came last spring, before corn and bean prices began to decrease in the summer.
This realtor survey also covers pasture and timberland. The value of those acres rose during the last six months in most parts of the state, driven by stronger livestock prices and demand from hunters, says Hansen. Biggest gains were in southwest Iowa where pastureland prices increased by 9.7% and timberland prices rose 28% in the past six months.
To view results of this latest survey, listed by crop reporting district in Iowa for various classes of land, visit the Ag Decision Maker website and click on Farmland Value Survey, File C2-75.