Library Categories

 

Land value drops in ’09

The average value of an acre of farmland in Iowa declined in 2009 for the first time in a decade, according to the annual survey by Iowa State University Extension. It shows the statewide average as of Nov. 1, 2009, was $4,371 an acre, down 2.2% or $97 from November 2008.

The last time the state average dropped was 1999, when the survey reported $1,781 an acre, or $20 less than in 1998. In the decade since 1999, owners of Iowa farmland have watched their holdings rise in value by 145% on average.

Farm values are a barometer of the financial health of Iowa agriculture, notes Mike Duffy, the ISU Extension economist who conducts the annual survey of farm realtors, ag lenders and others knowledgeable of Iowa land values. Farmland is the largest single asset in the state.

Sharp rises in land values during the 1970s and again from 1999 through last year were a sign of rising income for farmers. In 2009 tightening margins due to the drop in crop and livestock prices, and increased production costs caused land prices to slip. The hike in costs was an important part of the decrease in returns.

Duffy says the decrease in 2009 land values in ISU’s survey may contain some good news compared to other surveys that look at land values in Iowa. The 2.2% decline covers sales for the period between November 2008 and November 2009. It compares with a 7.6% decrease reported by the Realtors Land Institute for a survey covering the period from September 2008 to March 2009, and a 7% decrease from October 2008 to October 2009 reported by the 7th District of the Federal Reserve Board. That report included an increase of 4% from July to October 2009.

Key Points

• Average value of Iowa farmland declines 2% in 2009.

• This is first decline in Iowa’s statewide average since 1999.

• Last five years had double-digit percentage increases.

Decrease may be over

“The decrease in land values appears to have stopped,” says Duffy. “The situation has stabilized, but for how long is unknown. I think if we’d have conducted our survey in mid-2009 rather than in November, we’d have seen an even bigger drop. We’re in a holding pattern now on land values as people wait to see what the economy does before they bid more aggressively on land.”

The decline in land values for 2009 wasn’t a surprise. Looking at the drop in crop prices and poor livestock profits, particularly hogs and dairy, the 2% average decrease in farmland value wasn’t as great as Duffy anticipated. He thought the drop in Iowa’s average value for land might be 5% or so for 2009.

The value of corn production in Iowa increased 64% from 2006 to 2007, but decreased 15% from 2007 to 2008, based on year-end summaries by USDA. The value of the soybean crop increased 40% two years ago and then decreased 9% last year. Year-end reports for 2009 will likely show additional declines in total crop income based on crop prices and the difficult fall harvest.

While land values on average for Iowa declined slightly in 2009, ISU’s survey shows that 14 counties had increases. Those counties included several in east-central Iowa, an area hard-hit by flooding in 2008, which depressed land prices there. So east central was more likely to rebound and see growth in 2009.

Of Iowa’s nine crop reporting districts, northwest Iowa had the highest average value at $5,364 per acre in 2009. The lowest average was the south-central region at $2,537 per acre. The east-central district had the only increase over 2008, up 1.1% in 2009.

The highest county average was Scott County at $6,361 per acre, up 0.8% from last year, when it also was the highest. Decatur County was lowest at $1,957 per acre. Lyon County led the state with the largest dollar increase at $237 per acre, while Allamakee County had the largest percentage increase at 5.7% for 2009. The greatest dollar and percentage decreases were $384 and 6.6%, both in Black Hawk County.

Farm values in central Iowa, centered around Des Moines, suffered the steepest decline of 2009, a 4.8% slip from 2008. Duffy attributes that to the cooling of commercial development in the urbanized areas in Dallas, Polk and Story counties.

Demand for quality land

The trend toward greater demand for higher-quality land continued in 2009. Low-grade land in the state averaged $2,884 per acre, a decrease of $83, or 2.8%, from the 2008 survey. Medium-grade land averaged $4,076 per acre, a $119 decrease, or 2.8% less. High-grade land averaged $5,321 per acre, a decrease of $60, or 1.1% less than in 2008.

The number of land sales in 2009 was lower than in 2008. While the survey found a major decrease in the amount of land sold during 2009, the percentage of land being purchased by existing farmers rose, correlating with a decline in land purchases by investors.

As high as land prices have been the last few years, reaching $4,468 per acre in 2008 for the Iowa average, they still fall short of the inflation-adjusted record of $5,734 per acre (in 2009 dollars) set in 1979.

About 1,100 surveys are mailed each year. Values are reported as of Nov. 1, and in 2009, 457 usable surveys were returned, providing 571 individual county estimates, including land values in nearby counties if respondents have knowledge of values there.

• More information on the 2009 survey including county-by-county farmland values, and an archive of past survey results, are at www.extension.iastate.edu/landvalue.

So much uncertainty!

Where land prices will go in the next few years is hard to predict, says ISU Extension economist Mike Duffy. Forecasts for corn prices below $4 per bushel point to a continued plateau for land prices. But if inflation heats up as many people think it will, farmland values will rise as land reverts to its historical role as a hard asset — a place to safely invest money and earn a good return.

For five years prior to 2009, Iowa land values had double-digit increases. Iowa land rose 22% in 2007 and 14% in 2008. Then in 2009, oil prices fell, ethanol fell, corn prices fell and crop input costs soared. Looking ahead to the next few years, Duffy doesn’t foresee a land-value collapse like the one in the mid-1980s. But he doesn’t see a return to the double-digit increases either.

“Land is in a holding pattern now,” he notes. “There’s so much uncertainty — oil prices, wars, interest rates, global weather, crop prices, returns to livestock producers, legislation and a myriad of other factors affecting the economy and land prices. Two years ago, who would have thought the government would end up owning a big chunk of General Motors?”

WAL0110P7.jpg

2009 SURVEY: Top three numbers are estimates of average dollar value per acre for high-, medium- and low-grade farmland on Nov. 1, 2009. The survey also shows the district average and percentage change from 2008.

This article published in the January, 2010 edition of WALLACES FARMER.

All rights reserved. Copyright Farm Progress Cos. 2010.