Average Iowa farmland value is now estimated to be $7,633 per acre after a second consecutive year of decline.
Per-acre value declined $310, or 3.9 percent, since last year’s survey. Farmland values have now fallen almost 13 percent from the historically high 2013 values, according to the Center for Agricultural and Rural Development at Iowa State University and Iowa State University Extension and Outreach.
Iowa’s farmland market appears to have peaked for the foreseeable future — with stagnant commodity prices, a declining farm income forecast, a slowing Chinese economy and a potential increase in interest rates — and seems to continue drifting sideways to slightly lower, said Dr. Wendong Zhang, assistant professor of economics at Iowa State, who led the survey this year.
“It will most likely be an orderly adjustment as opposed to a sudden bubble burst,’’ he said Monday. “Most farmers will be able to weather the storm as the market prices find a new equilibrium, but farmers and landowners who bet on the high commodity prices lasting and aggressively expanded or borrowed heavily will face significant problems in the months ahead.”
To compare, Nebraska’s agricultural land values fell 2 percent for the year ending Feb. 1, according to a University of Nebraska-Lincoln survey released in June. The average value for all ag land fell $65 per acre to $3,250.
Iowa farmland values hit a historic peak of $8,716 per acre in 2013 but declined 8.9 percent, to $7,943, the following year. The drop in value this year is smaller than that of last year but now marks the third time values have fallen since 2009.
Zhang said the 3.9 percent decline might seem less than what many people speculated, but it is not out of line, given a mix of factors, including a lot of cash in hand for many farmers, market expectation of this decline early on, robust livestock returns and strong recreational demand.
Despite decreasing again, farmland values are still more than twice the reported values from 10 years ago and almost 14 percent higher than 2011 values.
For the third year in a row, Scott and Decatur Counties reported the highest and lowest farmland values, respectively. Decatur County reported a value per acre of $3,514, a drop of $73, or about 2 percent, from last year’s report. Scott County reported the highest value at $10,918 per acre, but values there declined about $700 per acre, a larger drop than this year’s statewide average and just over 6 percent from last year.
In southwest Iowa, Pottawattamie County land value dropped 2.17 percent to $8,261 per acre. Mills and Fremont Counties land dropped 1.26 percent to $7,645 and $6,740, respectively.
In the west-central district that includes Harrison, Monona and Woodbury Counties, values were down more than 3 percent. Harrison County land was down 3.07 percent, to $7,687 per acre. Monona County dipped 4.09 percent, to $7,054. Woodbury County dropped 3.97 percent, to $7,298.
Zhang said the primary reason for the drop or slowdown in land values is the drop in net farm income. The decline in farm income and a possible increase in interest rates might see farmland values continue to recede if the forecasts are realized next year and beyond for low commodity prices and the global stock recovery for grains and oilseeds, he said.
Commodity prices appear to have moved to a new plateau, and the high-profit-margin era for row crop production has ended, Zhang said. It appears prices will stabilize somewhere in the mid- to upper-$3 range for corn and the upper $8 to lower $9 range for soybeans, he said.
Costs of production, especially rents, have increased considerably over the past several years. Higher commodity prices led to higher incomes, which led to increases in rents. Under low-to-negative profit margins, farmers are trying to lower costs in a variety of ways.
Iowa farmers made record income over the past several years, and some farmers appear to have saved it or paid down existing debt, but other farmers appear to have parlayed the income into more debt with additional land and new machinery and buildings.
Zhang said there is a concern for some producers over possible financial difficulties because of continually declining income and accumulation of debt from banks and other sources.
Since 1910 Iowa farmland values have averaged a 4.9 percent increase per year. Farmland values have increased 73 percent of the years, decreased 25 percent of the years and remained unchanged for three years between 1910 and 2015. Farmland has historically been a fairly robust investment that generates relatively stable returns.
There have been three “golden” eras for Iowa land values over the past 100 years. The first one ended in a long, drawn-out decline in values from 1921 to 1933. The second golden era ended with a sudden collapse from 1981 to 1986. The third golden era appears to have ended with an orderly adjustment as opposed to a sudden collapse, Zhang said.
Land values were determined by the 2015 Iowa Land Value Survey, which was conducted in November. Results from the survey are similar to results by the U.S. Department of Agriculture, the Federal Reserve Bank of Chicago, and the Realtors Land Institute.
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