Minding Ag's Business

Outside I-States, Land Correction Tame

Yes, over-heated farmland values are beginning to wilt, much like volatile markets in Las Vegas and Phoenix retreated after the last housing market collapse in 2008. It's the old rule--the bigger the rally, the harder the fall:

--Average Illinois farmland tumbled 8% in calendar 2015, according to the Illinois Society of Professional Farm Managers and Rural Appraisers, the second year in a row of a decline.

--According to the most recent Iowa Realtors Land Institute survey, Iowa's average tillable farmland has fallen 22% from its peak in March 2013. That's a plunge from $8,690/acre three years ago to $6,732/acre on March 1, 2016. Prices in the past year slipped an average of 8.7%, the realtors estimate.

--The Peak Soil Iowa Farmland Index published by DTN shows a smoother glide path. It is based on a 30-day moving average of actual sales transactions, adjusted for a Corn Suitability Rating of 60 for average land quality. Through the end of March, it pegged CSR 60 land at $8,055/acre, a mere 12% reduction from the 2013 all-time peak, but virtually no change from a year ago. (DTN subscribers see the Farm Finance page for the weekly rotating charts of the six Midwest states we monitor.)

Appraisers contend that "hot" land markets will be quickest to cool when corrections occur. But outside that bellwether corn states of Iowa, Illinois and perhaps Indiana, many Midwest locales are holding their own, other land experts contend.

A study by Louisville-based Farm Credit Mid-America appraisers recently analyzed 4,000 land sales from 2015 and compared them to over 100,000 land sales in their proprietary historical database. The study's timeframe focused on calendar 2015, so wasn't as recent as the Iowa Land Institute study.

Three of the four states in Mid-America's territory actually showed slight gains in calendar 2015; only Indiana showed a decline of 3%. Gains were 3% for Kentucky, 2% for Tennessee and 0.2% for Ohio.

"We were very relieved," says Dennis Badger, vice president for collateral risk management of Mid-America and the region's head appraiser. "The stock market fluctuates on a daily basis but companies have stable values. Farm real estate is much the same. Just because operating income hits a bad year doesn't deteriorate the inherent value of land. People purchase it based on anticipation of future benefits, not current income."

A neutral market, with neither too many sellers nor too few buyers, is helping keep values stable.

Inventory is rather limited at the moment, Badger adds. "Unless they have to sell, we're not seeing a lot of property hit the market," he says. "In that vein, individuals aren't in the same position to buy at prices we saw several years ago."

When land is turning the corner either higher or lower, appraisers may have more accurate opinions of how sharply the correction happens than property owners themselves, Badger says, so some observers take USDA's annual 50-state farmland survey with a grain of salt.

"There's objectivity to our benchmarking system," he says.

Badger says it's premature to predict what land markets will do over the long-term, but he expects stable to slight reductions in most Grain Belt farmland over the next 12-24 months.

After that, "we don't know what will happen with the weather, the global economy or the value of the dollar," all things that affect U.S. farm profitability, he says. "But I can't see significant gains or declines of even 5% or even 10% [in the near term]. Things are stable."

Follow Marcia Taylor on Twitter @MarciaZTaylor


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