Farmland values in Iowa, the No. 1 corn and hog state, are down by 17.5 percent since the collapse of commodity prices in 2013, says an annual survey by Iowa State University. ISU researchers joined other analysts in forecasting land values will continue to fall for a couple years more in the first significant adjustment in U.S. values since the agricultural recession of the mid-1980s.
“Looking ahead, land values might continue to adjust downwards in the next year or two. This is consistent with the stagnant corn and soybean futures prices and potential rise in interest rates,” said Wendong Zhang, ISU assistant professor of economics and leader of the ISU Land Value Survey. USDA forecasts little improvement in crop prices through the end of the decade.
Farmland values are significant because real estate is 80 percent of farm assets. Falling prices pinch farm finances, especially if producers need to post collateral for a loan.
Iowa farmland values responded more rapidly to the plunge in crop and livestock prices and the punishing decline in U.S. net farm income – down 46 percent since setting a record high in 2013 – than the national average for cropland. Iowa farmland crested at $8,716 an acre in 2013, fell by 8.9 percent in 2014, by 3.9 percent in 2015 and by 5.9 percent this year, to average $7,183 an acre. By contrast, U.S. cropland values peaked at $3,020 an acre last year and declined marginally to $3,010 an acre this year, according to USDA.
Agricultural professionals, including appraisers, farm managers and lenders, taking part in the ISU survey said lower crop and livestock prices and high input costs were dragging down Iowa land values. Those factors were offset to a degree by low interest rates, high crop yields, the limited amount of land being offered for sale and strong demand.
“The land market is going through an orderly adjustment while the U.S. agricultural sector, a competitive industry, is trying to adjust to the old normal of zero, industry-wise, net profits,” said Zhang.
ISU’s estimate of the decline in land values in the Hawkeye State is in line with a Chicago Federal Reserve Bank survey of lenders, who said the value of good-quality farmland in Iowa fell by 5 percent in the year ending on Oct 1. The Chicago Fed said farmland values in its Midwestern district have fallen for four quarters in a row, “the first time for such a streak since 1986-87.” Bankers said land values would continue to fall into the winter.
With farm income down, farmland values will continue to sink through 2018, when they will be 20 percent below the peak set early this decade, said MetLife Agricultural Finance.