It’s no secret that northwest Iowa has some of the finest farmland in the entire state.
According to the most recent Farmland Value Survey from Ag Decision Maker, a publication from Iowa State University Extension and Outreach, 45 percent of the land surveyed in northwest Iowa was rated as high quality, 38 percent was rated as medium quality and only 17 percent was rated as low quality.
However, throughout the state as a whole, farmland values are on somewhat of a consistent downward trend. In 2018, the average value in the state for all quality land was an estimated $7,264 per acre as of November 1, according to the Farmland Value Survey. That is down $62, or 0.8 percent, per acre from November 2017. Although the decline is slight, it is the fourth consecutive year of decline in the last five years.
Farmland values have fared better in that span of five years in northwest Iowa. On average, farmland in this part of the state is worth an estimated $9,311 per acre, with high-quality land going for much more. However, over five years, land values in northwest Iowa have still decreased in total.
So, it is clear that northwest Iowa is blessed with excellent land. But what factors determine how much land is worth? The Farmland Value Survey provides a wealth of information on this, but it’s also useful to consult other sources to get an even better picture.
Here are some commonly referenced factors that influence whether farmland values increase or decrease year-to-year.
Positive factors on farmland value
According to respondents of the Farmland Value Survey, limited land supply played a very large role in helping to positively influence farmland values. That factor was mentioned by 23 percent of the survey’s respondents.
Other factors were strong yields (13 percent) and low interest rates (12 percent). The other positive influences respondents provided were cash and credit availability (9 percent), strong demand (7 percent) and investor demand (6 percent).
Negative factors on farmland value
Multiple negative influences were mentioned frequently by the survey’s respondents. The most frequently provided negative influence on farmland values was lower commodity prices, mentioned by 36 percent of respondents. Higher long-term interest rates were mentioned as a negative factor by 18 percent of respondents. Other negative influencing factors included recent tariffs on U.S. soybeans, pork and other products (9 percent); cash credit availability, higher input costs, uncertainty regarding agriculture’s future and weather. Each of those last few reasons were mentioned by a range of four to six percent of survey respondents.
Now that you have heard what that survey has to say about land value, let’s take a closer look at some of the factors that influence farmland values.
Supply and demand
Farmland values throughout the country as a whole are not dropping as steeply as some who watch commodity prices might expect. Many experts, including those at Iowa State, have cited the law of supply and demand as an explanation for this fact.
Several real estate brokers, analysts and other experts explained this in a Successful Farming article. Not much land is for sale, so demand for what is available has remained high enough to keep prices from plummeting.
In Iowa, the Farmland Value Survey backs up this hypothesis. Thirty-four of survey respondents reported fewer land sales in 2018 than in 2017, 38 percent reported the same number of sales and only 28 percent reported more land sales.
Some farmers have saved for opportunities
Stephen Nicholson, a senior analyst for grains and oil seeds at Rabobank, tells Successful Farming that some farmers have been saving cash. This, he says, allows them to be in positions to buy when land does go up for sale.
Farmers are also the ones buying the land from each other in many cases. Speaking with Progressive Farmer, Steve Bruere, president and CEO of People’s Company, said he is always watching the percent of farmer buyers in the market. If those percentages stay in the 70-80 percent range, Bruere says prices will remain stronger.
These farmer buyers are looking at the long-run, Bruere explains. That is why they are willing to pay a higher price for the land.
Could farmland values decrease more?
Many analysts and experts will say that, yes, farmland values could decrease more, especially if grain prices go in the wrong director for too long.
Another factor to watch is whether more farmers begin to feel financial stress, Nicholson tells Successful Farming. If more farmers are starting to sell their land, rather than buy up land that goes on the selling block, then it could be a reason for concern that land prices could start to fall more.
At least recently, according to Progressive Farmer, very few farmland sales in Iowa have been due to financial stress. Only three percent of sales in 2018, to be exact, were classified as financial stress sales. But that could change in 2019, and an increase in distressed sales is something Progressive Farmer says experts are on the lookout for in the coming year.
Other factors that can influence farmland value
There are several other influencing factors that can affect the value of farmland. These include investment from those not directly involved in farming of the land; interest lates that, when low, have allowed for even better deals on land purchases; the amount of regulation facing farmers; and global trade conditions.
These are just to name a few. It takes seasoned expertise to get a handle on farmland values.
Secure your financial future
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Those services include analysis of lease options, working with your current farm operator, annual farm reviews and budgets, government program recommendations, conservation and land improvement support and much more.
We can also develop crop plans for every season, recommend implementations, offer crop scouting services and much more as part of our agricultural consulting offerings.
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