The latest semi-annual survey by the Iowa Farm and Land Realtors Institute shows farmland values have risen by a statewide average of 6.6% since the last survey in March of 2008. Adding that 6.6% to the 11% rise reported in March, the increase is 17.6% for the year--September 2007 to September 2008.
Land prices have risen because of record corn and soybean prices and how long the crop price strength continues will determine how long the land price increase continues, says Troy Louwagie, who directs the survey for the institute.
The latest survey, released September 16, shows a slight cooling from an annual farmland value increase of 20% or more the past few years. That's because less land is being bought this year for suburban, commercial and housing development and recreation, he says.
Land values are up 6.6% past 6 months
"We're seeing less demand for land for housing and development and a return to the more normal situation where 80% of the buyers of farmland are existing farmers," says Louwagie, a realtor for Hertz Real Estate Services at Mt. Vernon. "For a few years we saw farmers' share of purchases drop to 60% but it has gone back up in the last year."
What will be the impact on farmland from Wall Street's recent mortgage-related difficulties which have thrown several investment banking companies into mergers or bankruptcies? Louwagie says the effect is unclear.
"Farmland has been a solid investment with about a 70% appreciation in the last five years, so it would be logical to think some investors might consider putting money into farmland," he says. "But that would be unusual. Traditionally, farmers have been the prime buyers of farmland and currently farmers are in good shape financially and have the cash to buy land."
Land prices are tied to crop prices
The biggest threat to farmland prices would be if crop prices fall considerably lower. Corn futures reached $7.99 per bushel during the summer on the Chicago Board of Trade and soybeans reached $13 a bushel. Both prices have retreated since, with the December contract recently trading at $5 and soybeans at $11.
A plunge in grain prices could generate a plunge in land prices similar to the crash in the 1980s, when land declined by 70% and many farms were forced into liquidation. The difference today is the state's ag economy is in better financial shape to withstand the blow. Farms are now carrying a lot less debt than 25 years ago.
In the September 2008 realtors' survey, statewide average for high quality cropland was $5,619 per acre, up from $5,223 in March. Medium quality cropland averaged $4,528 per acre, up from $4,259 in March. Low quality cropland rose in value to $3,536 per acre from $3,345 in March.
Northeast and southwest Iowa up the most
Northeast and southwest Iowa show the greatest gain in land values since March. Northeast Iowa report an 8.5% increase and southwest an 8.7% increase. West central Iowa show an 8.2% gain and central Iowa, northwest Iowa and southeast Iowa all gained more than 6.5%. The lowest gains are north central at 4.6% and 2.7% in east central Iowa.
"The lowest gains in land value during the past 6 months were in the parts of Iowa hit hardest by the floods and wet spring conditions which caused delayed plantings, runoff and leaching of nitrogen," says Louwagie.
Iowa Farmland Values Sept. 2008
Price per acre % Change March to September
Northwest $5,823 +6.7%
North central $5,562 +4.6%
Northeast $6,071 +8.5%
West central $6,193 +8.2%
Central $6,016 +6.9%
East central $5,633 +2.7%
Southwest $5,317 +8.7%
South central $4,242 +6.9%
Southeast $5,711 +6.5%
STATE $5,619 +6.6%