Iowa farmland values tumble for third year in a row

Iowa's average farmland value declined for the third year in a row, down 5.9 percent to $7,183 an acre over the past year. It's the first time since the 1980s farm crisis that land values have fallen three straight years, according to an Iowa State University report released Tuesday.

Despite values tumbling, chances are low that Iowa will face a replay of the devastating farm crisis, said Wendong Zhang, an ISU assistant economics professor who leads the university's annual farmland survey.

Average Iowa farmland values are now 17.5 percent lower than the historic high set in 2013 at $8,716 an acre.

Values dropped $449 per acre over the past year.

“For a pessimist, there are reasons to worry, especially for landowners … or producers who are over-leveraged," Zhang said. "For an optimist, this decline is still modest, and the probability of a replay of the 1980s farm crisis is low.”

Iowa farmers should be in a stronger position, Zhang said: Farmers beefed up their bank accounts during the boom before the downturn; government safety nets are stronger; interest rates remain historically low, even with an expected increase this month; and farmers have lower overall debt levels than three decades ago.

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Bill Northey, Iowa's secretary of agriculture, said he believes Iowa will avoid a 1980s-level crisis, but the lingering downturn has been difficult for many farmers.

"There are some producers that are really struggling," Northey said. "I imagine there will be farmers farming less ground next year … and maybe some that won't be able to farm."

Iowa farmers are aggressively cutting costs so they survive a slump that's been driven by strong worldwide production, he said.

U.S. farm income is projected to be $66.9 billion this year, 46 percent below record profits in 2013, the year following a devastating drought that drove commodity prices to new highs.

Since then, corn prices have tumbled close to 60 percent and soybeans, about 40 percent. At the same time, seed, herbicide, farmland rents and operating costs have been slow to decline, squeezing producers.

Iowa livestock producers have struggled as well, Zhang said.

"While corn and soybean prices continue to fall short of production costs, livestock producers faced a tougher environment in 2016 with hog, cattle and dairy prices all down by at least 30 percent compared to two years ago," he said.

Iowa farm income dropped nearly 42 percent from its 2011 high to about $5.6 billion last year.

Northey said Iowa farmland values have held up well compared with declining profits.

The reason, say Zhang and others, is the supply of farmland is limited and interest remains strong.

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Steve Bruere, president of Peoples Co., a Clive farm management and brokerage, said investors have raised millions of dollars nationally to invest in farmland. But they've sat on the sidelines because prices haven't declined enough to get the "4-percent-plus" returns they want.

Bruere said he's seen more farmland sales activity in December than November, with stronger yields turning expected losses into gains, even if they're narrow.

"There's a little more optimism than there was a year ago — or even four months ago before harvest began," Bruere said.

Mark Gannon, owner of Gannon Real Estate in Des Moines, said he expects some farmland rents to drop 10 percent this year, but leases for highly productive lands aren't following suit.

"We’ve had good yields and that’s held the rents up, and land prices too," Gannon said. "Gross incomes have held up better than expected."

Iowa's average farmland value is still 173 percent higher than 2004, when prices began to climb, thanks to the ethanol boom, historically low interest rates, drought and other factors.

Northwest Iowa had the highest average value at $9,243 an acre, dropping 4.6 percent, and south central Iowa had the lowest value, $4,241 an acre, falling 3.6 percent.

“Looking ahead, land values might continue to adjust downward in the next year or two,” Zhang said. “This is consistent with the stagnant corn and soybean futures prices and potential rise in interest rates."

In the farm crisis, still Iowa's worst recession after the Great Depression, farmland values declined five straight years, plummeting a total of 63 percent to $787 an acre from 1981 to 1986, ISU data shows.

The university surveyed about 520 ag brokers, appraisers, farmers and other professionals, looking at changes to farmland values between November 2015 and last month. The statewide average represents values for low-, medium- and high-quality farmland in Iowa.

Zhang said the survey results are consistent with results from the Federal Reserve Bank of Chicago, the Realtors Land Institute, and U.S. Department of Agriculture.