Sep 20, 2014
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March 2014 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

Land Pros Report 5% Slip in Iowa Farmland Values

Mar 27, 2014

Mike Walsten

The average value of an acre of Iowa farmland slipped 5.4% from September 2013 to March 2014, according to the semi-annual survey conducted by the Iowa Chapter of REALTORS Land Institute (RLI). Combining the 5.4% six-month decline with the 1.2% increase reported in the six months preceding Sept. 1 indicates a statewide average decrease of 4.2% for the year ending March 1.

"The decline reported by the survey is the first six-month decrease and annual decline since 2009," reports Kyle Hansen, Hertz Real Estate Services, Nevada, and survey coordinator. "The September survey showed a few crop reporting districts reporting declines in farmland values. But this is the first to show a decrease on a statewide basis since 2009," he adds.  

All nine crop reporting districts showed decreases during the past six months. The districts varied from a 2.1% decline in southwest Iowa to a 8.4% decrease in southeast Iowa. The survey found an acre of high-quality Iowa cropland averaged $11,104 on March 1, down 4.9% from Sept. 1. The value of an acre of medium-quality cropland averaged $8,323, according to the survey, down 5.6% from Sept. 1. The survey found an acre of low-quality cropland fell 6.1% from Sept. 1 to a statewide average of $5,432.

The survey found the value of pasture land and timber land rose compared to six months earlier. The gains reflect a rising demand for grass for cattle operations, renewed interest in hunting and fishing land by urbanites and demand from conservation agencies developing public recreational areas. The value of pasture rose 2.2% to $2,736 an acre while the value to timber rose 2.6% to $2,268 an acre. Leading gains was the southwest crop district which saw the average value of pastureland rise 9.7% over the past six months and the value to timber ground surge 28%.

Factors contributing to the decrease in farmland values include, according to survey responses: lower commodity prices, higher input costs, government regulation uncertainty and uncertainty of the U.S. and world economy. Positive factors cited include: low interest rates, limited amount of land offered for sale, strong livestock market, renewed interest from investors, lack of stable alternative investments, cash on hand and fear of inflation.

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Rate of Increase in Value of Illinois Farmland Flattens

Mar 20, 2014

According to presentations made at the Illinois Land Values Conference, hosted by the Illinois Society of Profressional Farm Managers and Rural Appraisers, the rate of increase in the value of Illinois farmland has flattened and lower grain prices are to blame.

"Simply put, farmland earnings are important and have been the driver on prices paid for farmland over the past few years," says Dale Aupperle, AFM, ARA, Heartland Ag Group, LLC, Forsyth, IL, and overall chair of the annual Land Values and Lease Trends project managed by the Society. "Sharply lower grain prices have diminished earnings projections and put the brakes on the uptrend in farmland values."

Joining Aupperle in the presentation was Gary Schnitkey, Ph.D., University of Illinois College of Agriculture, Consumer and Environmental Sciences, Urbana, IL. He told the group that prices paid for corn are now near $4.30 per bushel. "Prices were consistently above $5.00 from 2010 through midsummer last year. Current expectations are for lower prices into 2014."

He noted that crop insurance provided farmers with a substantial amount of cash in 2012 and 2013. "Those funds are no longer coming in," he said."Experts are forecasting farmland returns to drop by up to 20 percent."

Aupperle explained that the trendline on farmland values has been upward for decades and has seen significant interruptions in the pattern three times.

He said there was a 50 percent correction in farmland values from 1980 through 1987, the period of the Farm Crisis. "This was after farmland rose nearly 500 percent from 1982. This one was a bubble."

The next period was 1998 through 2001 when there was a 15 percent correction "after an 11-year uptrend from 1997 with values rising by 92 percent," Aupperle said. "The last period was in 2008-2009. Values went sideways for a year after doubling in value from 2001."

"Perhaps history gives us some guidance for our current thought processes,"he continued. "It doesn't look like a bubble to us. A more normal time for farmland prices may be in store for the next several years. Commodity prices have led to this situation."

In presenting their summary to the group, the two cited the 2014 Illinois Land Values and Lease Trends Report. This is a composite of reports from around the state on land sales and lease trends occurring in Illinois during 2013.

They noted that all categories of farmland, determined by Productivity Increase, saw minor drops in values during the year: Aupperle explains that Excellent land was down 2 percent -- "With less land available but very willing buyers"; Good land was down 3 percent -- "Increased input costs are a concern;" Average land was down 4 percent -- "Buyers are likely to be neighbors in the community;" Fair land was down 7 percent -- "Popular category as land mix attracts residential, recreational and non-farm uses."

Aupperle said that Recreational land was steady-to-stronger across the state and there was some activity in Transitional land near the metropolitan areas.

Local farmers are still the primary buyers with estate sales leading the way in reasons for selling as well as bringing properties to the market. Public auctions (43 percent) led the list of methods of selling followed by private treaty (36 percent), sealed bid (11 percent) and multi-parcel auction (10 percent).

Cash Rents Have Stabilized
Cash Rents have stabilized, Schnitkey said. "Rents are slightly off the highs in 2013. This occurred because of the drop in commodity prices. We could be facing more cash rent declines if commodity prices are low in the fall this year.

"Assuming a price of $3.50 for a bushel of corn and $10 for a bushel of soybeans, 92 percent of our respondents expect cash rents to drop $10 or more per acre and no one expects to see rents to increase," he noted.

"We are carefully watching the influence of commodity prices, weather and yields, interest rates, net farm income, the value of the dollar, alternative investments, ethanol, and long term inflation among many other factors. Each will play a role in land values," Aupperle concluded.

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