Farmland values drop for first time in years
Iowa farmland has declined in value 5.4 percent since September, according to a survey conducted by the Iowa chapter of Realtors Land Institute.
The value of farmland declined 8.4 percent in southeast Iowa, the most out of the nine reporting districts. The drop in farmland value comes on the heels of a modest increase in farmland value of 1.2 percent from the prior six-month period from March 2013 to September 2013.
The survey divides farmland into three quality levels – high, medium and low. For southeast Iowa, the value of high quality cropland went from $11,402 an acre in September to $10,698 in March, a drop of about 6 percent. Medium quality land dipped from $8,044 to $7,216, or 10 percent. Low quality land fell from $4,500 to $4,016, or 11 percent.
Before 2013, the value of Iowa farmland was on a meteoric rise. In the spring of 2011, farmland values were nearly 20 percent higher than they were just six months earlier. At that time, the value of an average acre of farm ground was $5,708. The value of land increased 13 percent from the spring to the fall of 2011, and climbed another 11 percent in the six months after that. Since then, the increases in value came back down to earth and, as Thursday’s report shows, have given way to decreases.
Kyle J. Hansen, author of the report, said a number of factors are to blame for the decline in farmland values in recent months. The value of farmland closely follows the value of the crops grown on it, so naturally when commodity prices dip, the value of land dips with them. While commodity prices are not what they used to be, input costs are still rising, which is making farming a little less lucrative than it was in the recent past. Hansen also mentioned uncertainty about government regulation exerts a downward pressure on land values.
At the same time, he said a few factors were keeping farmland values from dropping too far. He said the livestock market is still strong, which in turn makes the land for the livestock more valuable. A fear of inflation may also cause investors to put their money into tangible goods such as land.
Ryan Drollette, farm management specialist at the Johnson County Iowa State University Extension Office, said the price of corn and beans had been rising steadily for years until 2012 when prices peaked for both commodities. According to United States Department of Agriculture figures from that year, the season average price for corn was slightly under $7 per bushel, while the average price of soybeans was just shy of $15 per bushel.
“In the last 10 years or so, beginning in the early 2000s, we’ve seen record profits from crop production,” Drollette said. “Farmers who grow corn and beans have had the potential to make significant profits in that time, which is one of the contributing factors that have boosted land values in the last few years.”
Drollette said the prices in 2012 were especially high because of the drought that affected much of the Midwest. The drought caused a drop in production, which resulted in higher prices because the demand remained constant.
The following year, 2013, was not as kind to farmers in terms of commodity prices. Drollette said the price of corn was sitting at about $5.50 per bushel in May 2013, while soybeans were at about $13 per bushel. Commodity prices had dropped even further by September when they were $4.50 for corn and $12.50 for beans.
Prices have rebounded somewhat in the past few months. Drollette said corn is selling at around $5 per bushel and beans are back to $13 per bushel.
Drollette said the scarcity of available land prevents the price of farmland from dropping too much. He said there was a push to turn marginal pasture land into row crops when commodity prices were through the roof, but that’s not likely to happen now. He said the price of inputs and the leveling off of commodity prices has, for most farmers, put the kibosh on spending money to till and seed pasture.
Drollette said it’s possible farmland values could continue their slide in the short term. He doesn’t think land values will drop as precipitously as real estate values did in 2008-2009.
“We could see land values eventually increase again, but for the near future, I see them stabilizing or decreasing, to be more in line with market norms.”
The Iowa Farm & Land Realtors farmland value survey has been conducted in March and September every year since 1978. Participants in the survey are specialists in farmland and are 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 March 1. These estimates are for bare, unimproved land with a sale price on a cash basis.