Iowa's average farmland value declined 0.8% to $7,264 per acre from 2017 to 2018, according to the Iowa State University Land Value Survey. The survey attributes the decline to lower commodity prices, higher interest rates and trade disruptions, particularly with China.
With these types of surveys, I've always found some of the most interesting nuggets don't make it into the press releases. The real take-aways are buried deep in academic text. The top line of the survey -- a less than 1% decline in values -- makes headlines. But what I find more interesting is the perspective the author, Wendong Zhang, includes seven pages into the report.
"To put this recent, modest drop in Iowa land values into perspective, the current value of $7,264 per acre is still eight percent higher than 2011 values, and 63 percent higher than 10 years ago. Considering the downward pressures from both the declining farm income and rising interest rates, the farmland values in Iowa and across the Midwest are still remarkably stable," he wrote.
Zhang cites five reason why land prices are holding steady despite the pummeling commodity prices have taken over the past few years.
"First, the farmland market has always been a thin market with few farmland sales, but the past five years the farmland market has been extremely tight—for five consecutive years, more respondents to the ISU Land Value Survey reported less sales in their county compared to the previous year," he said.
Only 28% of the survey's respondents -- who are mostly bankers, land appraisers, farm managers, etc. -- reported higher sales activity. Thirty four percent report less land on the market, while 38% say it's about the same as last year. Lower supply of land on the market tends to help buoy prices.
Second, Zhang cites the 2017 Iowa Farmland Ownership and Tenure Survey, which shows 82% of land is fully paid for and 29% is owned primarily for family or sentimental reasons. He argues is this part of the explanation for limited sales and it's unlikely to change even if the farm income picture continues to erode.
Next up is exceptional crop yields in 2018, which help reduce production costs on a per-bushel basis while alleviating downward pressure on farm profits and land values. USDA estimates the state's farmer will harvest an average 198 bushel per acre corn crop and 58 bpa soybean crop.
And while interest rates are on the rise, they're significantly below historical averages and well below pre-recession levels. Zhang's study notes that from 2006 to 2014, farm real estate loan rates declined by nearly 300 basis points. They've only increased 100 basis points since 2014.
Finally, he cites ISU cost of production estimates for corn and soybeans. Those came in at $3.60 and $9.46 per bushel respectively.
"Despite continued declines in commodity prices, the corresponding drop in production costs have resulted in breakeven or positive production margins for many producers this year, which has a positive impact on farm income and asset values."
All considered, Zhang makes a compelling case for why Iowa's farmland values stayed relatively stable in 2018.
Here are a couple of other interesting tidbits:
-- As you would expect, lower quality land saw a larger average decline, 1.7%, than medium and high quality land, which fell by 0.7% and 0.8% respectively. But when you break it down by crop district, five of the state's nine districts actually saw increases. South Central Iowa led the way with a 3.8% increase. Why would a regions with the lowest average price for farmland, like Iowa's South Central district, be showing such strong gains? Why is the land market in the state's northwest such a hot commodity?
It all comes down to the local market.
"For example, the strong demand by livestock producers for top quality grounds is behind the continued increases in counties like Sioux and O'Brien, and the stronger recreational demand due to improved general economy help explain the hikes in low-quality land in South Central and Northeast Iowa," Zhang wrote.
-- Who's buying? According to the survey, the majority of farmland sales, 72 percent, were to existing farmers. Investors represented 21 percent of land sales, while new farmers bought 5% of the land, and other purchasers acquired 2%.
-- Who's selling? "The majority of farmland sales, 52 percent, were from estate sales, followed by retired farmers at 23 percent. Active farmers account for 15 percent of sales, while investors accounted for eight percent." The small, but substantial, percentage of sales by active farmers is indicative of some of the financial stress farmers balance sheets are facing. It will be interesting to see what that number looks like next year.
If you'd like to read more on Iowa State's survey, you can find the full study as well as a number of maps and graphs here: https://www.card.iastate.edu/…
Katie Dehlinger can be reached at Katie.firstname.lastname@example.org
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