Land prices down 1.5 percent
MONTGOMERY COUNTY – Land prices dropped for a second consecutive year in Montgomery County, but remain more than four times higher than they were at the start of the 21st century.
According to the recently released Iowa State University Iowa Land Value Survey, farmland prices dropped about 1.5 percent from $6,311-$6,232 per acre.
The decreases mirrors a statewide trend in which land values dropped 3.9 percent to $7,633 per ace in 2015.
Both state and Montgomery County land values hit a historic high in 2013 at $8,716 and $7,260 per acre, respectively.
In Montgomery County, that plateau represented the high point of a 14-year meteoric increase that started in 2000. After dropping to $1,364 an acre in 1999, the value increased to an all-time high of $1,443 in 2000, and increased every year after a minimum of $100 an acre, with one exception. Land prices actually decreased in 2009 to $3,476, down from $3,600 in 2008. However, that was followed by four consecutive increases including a $1,500 one (4,151-5,655) from 2010-2011.
Iowa State Extension Economist Wendong Zhang, who authored the land survey report, said the statewide 3.9 percent decline was not surprising.
“With the decline in corn and soybean prices, in addition to the 8.9 percent decline in farmland values in 2014, landowners and agricultural professionals familiar with farmland markets have already expected farmland values to decline this year,” he said. “The 3.9 percent decline may seem less than what many people speculated, especially given the most recent prediction from USDA that U.S. net farm income would be down 38 percent from last year.”
Zhang indicated he believes the drop in farmland prices likely will continue.
“With the decline in farm income and a possible increase in interest rates, we might see farmland values continue to recede if the forecasts for low commodity prices and the global stock recovery for grains and oilseeds are realized next year and beyond,” he said. “The Iowa farmland market appears to have peaked for the foreseeable future, and … the majority of agricultural professionals tend to think land values in their territory will either experience a modest decline of less than 5 percent or decline 5 to 10 percent next year.”
That ongoing decline will also be influenced by expected lower rent prices, attributed to the commodity price decrease and smaller profit margins for farmers.
“Rents will change with income, but they will decline slower as incomes drop,” Zhang said. “In other words, the rent tends to be sticky when facing downward pressure. How long it will take for the rents to adjust to the lower commodity prices remains to be seen. However, until they adjust, profitable production is unlikely and land values will continue to be under downward pressure.”
While Zhang said prices will continue to drop, he said its unlikely to see a farmland bubble burst similar to ones seen in the 1920s economic depression or the 1980s farm crisis.
“There are legitimate reasons to be cautious, especially with the slowing Chinese economy and potential rise in interest rates,” he said. “However, Iowa farmland values do not appear to be in a speculative bubble that caused dramatic declines in the 1980s farmland values or the urban real estate market in the mid-2000s. In the 1970s, there wasn’t steady growth in farm income before the sudden collapse of farmland values. Farmers now have accumulated substantial income during the last decade thanks to high commodity prices, and the current farmland values don’t seem to diverge too much from the economic fundamentals.”
The Iowa Land Value Survey was initiated in 1941 and is sponsored annually by Iowa State University. Only the state average and the district averages are based directly on the ISU survey data. The county estimates are derived using a procedure that combines the ISU survey results with data from the U.S. Census of Agriculture.
The survey is based on reports by licensed real estate brokers, farm managers, appraisers, agricultural lenders, and selected individuals considered to be knowledgeable of land market conditions. The 2015 survey is based on 514 usable responses providing 708 county land values estimates.