Most Farmland Markets Steady

No Collapse in Midwest Land Values -- Yet

Western Corn Belt states have experienced only modest farmland price reductions from their all-time peaks, based on actual sales data from Peak Soil Indexes.

HADDONFIELD, N.J. (DTN) -- Despite serious erosion in farm incomes since 2013, farmland markets across the Corn Belt held amazingly steady this winter.

Peak Soil Index sales data through February 2016 shows six states it monitors below all-time records set in the last few years. But select counties in Wisconsin are averaging $4,361 per acre, only 2% below their high of a year ago; irrigated Nebraska farmland ran $7,055, about 4% below its 2015 peak; Minnesota crop counties averaged $5,641, off 8% from their 2014 peak; Illinois averaged $7,591, off 8% from its 2104 peak; and Indiana at $6,782 per acre recorded the steepest tumble, off 14% from its peak a year earlier.

Such adjustments so far seem modest, even miniscule, compared to the collapse in commodity prices the past three years. Overall net farm incomes (including livestock, crops and government payments) could run about 40% below 2014 levels this year, USDA estimated in February. That would be the lowest farm income level since 2002.

In contrast, good-quality Iowa farmland averaged $8,123 per acre through February, according to Peak Soil. That's down about 11% from the state's all-time high in May 2013. Buyers paid on average $138 per Iowa's Corn Suitability Rating point, down from $142 per CSI point as recently as November.

(DTN updates the most current Peak Soil farmland value trends on its Farm Finance page, under Farm Business. Charts reflecting different state trends as reported by Peak Soil Indexes rotate each week.)

Peak Soil records actual arms-length sales in each state, so they reflect many private-party transactions as well as results from real estate listings and public auctions. In agriculture, more than half of farmland sales transactions are private, for-sale-by-owner arrangements that are never advertised. Peak Soil gathers courthouse records, so it includes both private and public sales results in its indexes.

MONEY TO SPEND

Established operators who salted away significant profits in 2008-2012 have been keeping land markets afloat in the Eastern Corn Belt. What's more, interest from wealthy investors, insurance companies and real estate investment trusts remains high, farm lenders tell DTN.

"In Illinois, there's still a strong demand for land," said Aaron Johnson, executive vice president of Farm Credit Illinois. His members registered the second-highest level of new mortgages ever last year, a sign that above-average corn and soybean yields kept farmer enthusiasm for ownership robust through year-end.

Given the state of the farm economy, it would be healthy to have a 10% correction in land values, Johnson added, but that hasn't happened yet.

The shock to farmland markets typically lags farm incomes by several years: Studies by Iowa State University Economist (Emeritus) Mike Duffy show for every 2% drop in gross farm income, you'd expect cropland values to dip 1%. It's worked to forecast nearly every period in modern history except the 1970s, when Duffy believes inflation expectations distorted land markets.

Still, between 1950 and 2015, Iowa farmland averaged 11.2% annual returns including both net cash rents and capital gains, Duffy found. Over that 65-year period, farmland showed 52 years of positive returns. That's still better than the S&P 500 gains (with dividends) over history, he said.

Just last week, Murray Wise Associates reported the auction of 775 acres of high-quality Sangamon County, Illinois, land brought a total of $11,661 per acre, according to Joe Bubon, president of the auction company.

"Investors and operators alike are willing to look past current commodity prices and act on the long-term value of good land," he said.

About 200 onlookers crammed into a Knights of Columbus Hall to watch the Sangamon County aution. "We had both farmers and investors competing vigorously for this land, and ultimately, the nine tracts of land were divided among seven bidders. Interest was widespread, with a number of large investors from other areas bidding. This level of competition pushed prices higher than we've seen in a while. We had a 107-acre tract go for $13,879, and an 80-acre tract sold for $13,313 per acre," said Bubon. A tract of 109 acres sold for $12,798 per acre.

Bill Johnson (no relation to Aaron), CEO of Farm Credit Mid-America, serves borrowers in Ohio, Indiana, Tennessee and Kentucky. Mid-America's appraisers report some local areas are up, others with modest reductions, he said.

"On balance, we're seeing only a small reduction in values," Bill Johnson said.

But Paul Kanitra, president of Peak Soil Indexes, doubts farmland can defy gravity forever. "Land values have held their own much better than commodity prices. But clearly farmland lags trends in prices, interest rates and inflation expectations," he said. "I'm not particularly optimistic about farmland prices through the rest of the year."

Marcia Taylor can be reached at marcia.taylor@dtn.com

Follow Marcia Taylor on Twitter @MarciaZTaylor

(AG/SK)