Iowa farmland values drop 11.3% since last September

Iowa farmland values drop 11.3% since last September

Realtor's survey cites low crop prices as chief reason for decline in land values.

Farmland values have declined a little over 11% as a statewide average from September 2014 to September 2015, according to a survey released Sept. 23 by the Iowa Chapter of Realtors Land Institute. The survey shows the average acre of tillable farmland in Iowa was worth $7,095 on Sept. 1, down 11.3% from the same time a year earlier. Declines were posted across all nine Iowa crop reporting districts, with the largest drop of about 15% in northeast Iowa.

REVENUE SLIPPING: With corn and soybean prices dropping, so has farm revenue. As revenue declines, land prices follow. "You can't pay high prices for land or have steady or increasing land values when net revenue from farming is decreasing," notes Iowa realtor Kyle Hansen.

Factors contributing to the decline in farmland values include lower crop prices and increasing interest rates, said the survey respondents. Other factors include lack of stable alternative investments, less cash on hand and a limited amount of land offered for sale. This survey is conducted twice a year, on September 1 and March 1.

Decrease is 3.7% in cropland values since March 2015
For the past six months the decrease in cropland values was only 3.7% as a statewide average. That March 2015 to September 2015 decline, combined with the 7.6% decrease reported for the previous six months indicates a statewide average decrease of 11.3% from September 2014 to September 2015. 

All nine Iowa crop reporting districts showed a decrease in average farmland value for the past six months. The districts varied from a 1.9% decrease in the west-central district to a 5.4% decrease in the south-central district since March 2015. These estimates are for bare, unimproved land with a sale price on a cash basis.

Decline in land values over the past year isn't surprising
Kyle Hansen, a real estate broker for Hertz Farm Management and chairman of the survey committee, says the results showing an 11.3% decrease in land values over the past 12 months was not surprising. "Land values are closely tied to the net revenue generated by what is able to be produced on that land," he notes. "Commodity prices are still the major factor in establishing land values."

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The farmland market has continued its downtrend since the spring of 2013, when corn and soybean prices peaked. "And although farmers make up nearly 80% of the land buyers, the reduced land values are creating purchasing interest from non-operating landowners and investment buyers," says Hansen.

Looking at the high-to-low range in land values reported in this survey, high quality cropland averaged $11,339 an acre as of Sept. 1, 2015. That was for the northwest Iowa crop reporting district. The low end was $3,221 an acre for low-quality cropland in south-central Iowa. That's a wide range for the state of Iowa, but it attests to the ability of the land to produce crops. The high quality land has retained its value much more than the medium and low quality land.

Survey participants are ag professionals who know farmland
The full survey summary is available at rlifarmandranch.com. Participants in the survey are specialists in farmland such as real estate agents, farm managers, bankers and other ag lenders. They were asked for their opinions about the current status of the Iowa farmland market. Participants were asked to estimate the average value of farmland as of Sept. 1, 2015.

This survey has been conducted in March and September since 1978 by the Iowa Chapter of the Realtors Land Institute, an affiliate of the National Association of Realtors. The survey is organized for realtors who specialize in farm and land sales, management, development and appraisal. The complete survey results are available for download at  link-line.com/justinstory.asp?StyID=18073

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For farm management information and analysis visit ISU's Ag Decision Maker site extension.iastate.edu/agdm; ISU Extension farm management specialist Steve Johnson's site is at extension.iastate.edu/polk/farm-management.

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