Iowa farmland values drop for third year in a row

Iowa farmland values drop for third year in a row

Farm Management Friday: ISU's annual land value survey shows a 5.9% decrease from November 2015 to November 2016.

The average value of farmland in Iowa has declined for the third year in a row, the first time this has happened since the 1980s farm financial crisis. The statewide average is now estimated to be $7,183 per acre. That’s a decline of $450, or 5.9%, since November 2015, according to Iowa State University’s annual survey. The survey was released Dec. 13 at a press conference at ISU in Ames.

TAKING A TUMBLE: The latest survey of Iowa farmland values by Iowa State University shows a decline for the third straight year. The statewide average value has dropped 5.9% in the past 12 months, to $7,183 per acre. At its historic peak in 2013 Iowa’s average farmland value was $8,716 per acre.

Farmland values hit an historic high in 2013, but have steadily declined since then. The statewide average value for an acre of farmland is now about 17.5% lower than in 2013. Despite land values tumbling, chances are low that Iowa will face a replay of the devastating farm financial crisis of the 1980s, says Wendong Zhang, an ISU Extension economist who leads the university’s annual farmland survey.

ISU’s results are consistent with those of other surveys
The 2016 Iowa State University Land Value Survey was conducted in November by the Center for Agricultural and Rural Development (CARD) at ISU and by ISU Extension. Results from the survey are consistent with results from surveys conducted by the Federal Reserve Bank of Chicago, the Realtors Land Institute and USDA.

The $7,183 per acre, and 5.9% drop in value, represents a statewide average of low-, medium-, and high-quality farmland, says Zhang. The annual survey also reports values for each land quality type, crop reporting district, and all 99 counties individually.

Average farmland values hit a historic peak of $8,716 per acre in 2013, but declined 8.9% in 2014, 3.9% in 2015, and have now fallen an additional 5.9%. “The golden era of phenomenal, yet abnormal, growth in farm income and land values, as we saw from 2006 to 2013, is already behind us. The land market is going through an orderly adjustment while the US agricultural sector, a competitive industry, is trying to adjust to the old normal of zero industry-wise net profits,” says Zhang.

Iowa farmland values drop for third year in a row

Concern for landowners and farmers with too much debt
“For a pessimist, there are reasons to worry, especially for landowners and/or farmers who are over-leveraged. For an optimist, this decline is still modest and the probability of a replay of the 1980s farm crisis is low,” says Zhang. He says the likelihood of another farm crisis occurring is low due to steady farm income accumulation before this current downturn. Also, farmers today have a stronger government farm financial safety net, and an overall lower debt level in the ag sector.

Starting in 2004, several factors, including the ethanol boom and historically low interest rates, drove five consecutive years of double-digit growth in average farmland values. By 2008, average values were almost 70% higher than 2004, and by 2013, average values were over 230% higher than 2004 values. While they have declined three years in a row now, average farmland values are still 173% higher than 2004.

Looking ahead, land values may continue to adjust downward
The decline didn’t come as a surprise for some—in November 2015, over 75% of ISU Land Value Survey respondents thought land values in their territory would continue to decline in 2016. The majority predicted the decline would be either less than 5% or between 5% and 10%, which is consistent with the 5.9% decrease reported by the 2016 ISU survey.

“Looking ahead, land values might continue to adjust downwards in the next year or two,” says Zhang. “This is consistent with the stagnant corn and soybean futures prices and potential rise in interest rates. However, many respondents to our ISU survey say they are hoping for the market to rebound in 3 or 4 years.”

Land values by county. All 99 counties in Iowa show a drop in average land values this year. For the fourth year in a row, Scott and Decatur counties have the highest and lowest farmland values, respectively. Decatur County has a value per acre of $3,443 which is a loss of $71, or about 2%, from last year’s report. Scott County has a value of $10,335 in 2016. That’s a decrease of $583 per acre, or about 5.3%.

Plymouth and Sioux counties have the largest dollar decrease in values at $747 per acre, and Monona County has the largest percent decline in values, 8.4% in 2016. Decatur County shows the smallest dollar decrease, $70 per acre, and Decatur, Appanoose, Wayne and Lucas counties all have the smallest percent decrease in average values, at 2%.

Iowa farmland values drop for third year in a row

Land values by district. All nine crop reporting districts in Iowa show a loss in average land values in 2016. The highest average land values are in the Northwest district, at $9,243 per acre. The lowest average values are in the South Central district, at $4,241 per acre.

The largest district-wide decrease in value is in West Central Iowa, where the survey shows a drop of 8.7%, bringing farmland values there down to $7,358 per acre. The smallest decrease is in the Southeast district, at 2.6%, bringing values there to $6,716 per acre.

Values by land quality. Low-quality land in the Southwest and South Central districts were the only areas to show an increase in average values, with gains of 2.9% and 5.2%, respectively. Zhang says the increase is due to strong recreational demand and high Conservation Reserve Program payments. Statewide, low-quality land declined the least, at $169 per acre, or 3.5%. Medium-quality land declined $422 per acre, or 5.9%.

High-quality land statewide declined the most per acre, losing $606, or 6.5%, of its value. The statewide average values for low-, medium-, and high-quality land are now $4,665 per acre, $6,705 per acre and $8,758 per acre, respectively.

Factors that are influencing farmland values today
The most common positive factors influencing land prices noted by survey respondents are low interest rates, strong crop yields, limited land supply, and strong demand. The most commonly cited negative influences are lower commodity prices, high input prices, livestock losses, weak cash rental rates, and a weakening global economy and stock market returns.

The ISU land value survey began in 1941, the first in the nation, and is sponsored annually by ISU. The survey is typically conducted every November and results are released mid-December. Only the state average and district averages are based directly on the ISU survey data. The county estimates are derived using a procedure that combines the ISU survey results with data from the Census of Agriculture.

For more information, visit ISU’s new Land Value online portal
The ISU Land Value Survey is based on reports by ag professionals knowledgeable of land market conditions such as appraisers, farm managers, ag lenders and actual land sales. The survey is intended to provide information on general land value trends, geographical land price relationships, and factors influencing the Iowa land market. The 2016 survey is based on 518 usable responses providing 711 county land values estimates, and 48% of the respondents answered the survey online.

CARD offers the new ISU web portal at http://www.card.iastate.edu/farmland/. It includes visualization tools, such as charts and interactive county maps, allowing users to examine land value trends over time at the county, district and state levels. “I also encourage people to tweet their questions regarding the survey and Iowa farmland market questions in general, using the hashtag #ISUlandvalue,” says Zhang.

TAGS: USDA Marketing
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