2015 Farmland Value Survey Iowa State University
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. Beginning in 2014, the survey is being conducted by the Center for Agriculture and Rural Development in the Economics Department at Iowa State University and Iowa State University Extension and Outreach.
The survey is intended to provide information on general land value trends, geographical land price relationships, and factors influencing the Iowa land market. The survey is not intended to provide an estimate for any particular piece of property.
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. Respondents were asked to report for more than one county if they were knowledgeable about the land markets. The 2015 survey is based on 514 usable responses providing 708 county land values estimates.
Starting in 2015, respondents could complete the survey online or use the traditional mail copy. Online responses allowed the participant to provide estimates for up to 15 counties. Of the 514 respondents, 287 (55 percent) completed the survey online.
Participants in the survey are asked to estimate the value of high, medium, and low grade land in their county. Comparative sales and other factors are taken into account by the respondents in making these value estimates.
A new web portal has been developed this year to facilitate the visualization and analysis of Iowa farmland values by pooling data from Iowa State University, USDA, Federal Reserve Bank of Chicago, and Realtors Land Institute. The portal can be accessed at www.card.iastate.edu/farmland/. The website offers interactive charts and county maps to enhance visualization of land values over time.
Major factors influencing the real estate market
Most of the survey respondents listed positive and/or negative factors influencing the land market. Of these respondents 89 percent listed at least one positive factor and 93 percent listed at least one negative factor. The respondents listed multiple factors in most cases.
There were four positive factors listed by over 10 percent of the respondents who provided at least one positive factor. The most frequently mentioned factor was low interest rates, mentioned by 24 percent of the respondents. Strong yields was the second-most frequently mentioned positive factor, being mentioned by 15 percent of the respondents. Other frequently mentioned positive factors included, land availability (14 percent), cash/credit availability (11 percent), investor demand (5 percent).
There were only two negative factors listed by more than 10 percent of the respondents who identified at least one negative factor. The most frequently mentioned negative factor affecting land values was lower commodity prices, mentioned by 42 percent of the respondents. High input prices were the second-most frequently mentioned negative factor (12 percent). Cash/credit availability and an uncertain agricultural future was mentioned by 8 and 6 percent of the respondents, respectively.
Number of sales compared to previous year
Over half, (60 percent) of the respondents reported lower sales in 2015 relative to 2014. On the other end of the spectrum, just 10 percent reported more sales and 30 percent reported the same level of sales in 2015 relative to 2014.
Land sales by buyer category
Respondents were asked what percent of the land was sold to the following five categories of buyers.
- Existing farmers represented 76 percent of the sales.
- Investors represented 20 percent, of which individual investors were 15 percent.
- New farmers represented 3 percent.
- Other purchasers represented 1 percent.
Sales to existing farmers by Crop Reporting Districts ranged from 82 percent in Northwest and West Central to 55 percent in South Central.
Sales to investors were highest in South Central (30 percent). Northeast, Northwest, and Southeast reported the lowest investor activity (11 percent). Central and East Central reported slightly higher percentage of land sales to entity investors.
Respondents by Occupation
The 2015 Iowa land value survey asked a new question regarding the main occupation of the respondent. Additionally, this was the first year the land value survey was made available online in addition to using the traditional mail copy.
In total, 514 agricultural professional completed the survey, providing 708 county land value estimates. Of these respondents, agricultural lenders represented the largest group, accounting for 38 percent of all respondents. Farm managers (16 percent), appraisers (14 percent), and those in agricultural sales (14 percent) were the next three largest groups.
Land Quality and Corn Suitability Ratings
To gauge how each respondent defined high-, medium-, and low-quality land for their county, we asked them to provide opinions on estimated average CSR (Corn Suitability Rating) and CSR2 points for high-, medium-, and low-quality land.
Results show that agricultural professionals have adapted to CSR2. Approximately 60 percent of participants provided at least one CSR2 estimate for the corresponding land quality classes. The estimated average CSR2 statewide for high-, medium-, and low-quality land is 83, 71, and 59 points respectively, while the statewide average CSR for these three land quality classes are 79, 67, and 55, respectively.
In addition, respondents ranked high-, medium-, and low-quality land based on relative conditions in their region. For example, the average CSR2 for high quality land in the South Central district is 71, comparable to the CSR2 for low-quality land in Northwest district at 67. Reported changes from CSR to CSR2 are consistent with actual statistics from Iowa State University agronomists.
This year’s survey provided estimates for distribution of quality of land purchased by buyer types. Results show that the land quality distribution by farmers and investors were not significantly different: roughly half of the land they purchased was high-quality land, followed by roughly a third of medium-quality land. Although South Central reported a higher percentage of investor demand, the quality they bought is slightly lower than what farmers bought.
Interpretation of survey results
The Iowa State University Land Value Survey reported a 3.9 percent decrease to $7,633 in Iowa farmland values from November 2014 to November 2015. This represents a modest decline in Iowa farmland values and the first time that land values have decreased two years in a row since 2000. However, despite continued downward pressures on farm income and farmland prices, current Iowa farmland values are still more than double what they were 10 years ago, 75 percent higher than the 2009 values and 14 percent higher than the 2011 values.
The 2015 survey revealed different conditions within the state. Only one crop reporting district, Northwest, reported a modest increase in land values, (0.7 percent), while North Central showed a 6.7 percent decrease. Additionally, seven counties reported higher land values in 2015 relative to 2014. This year’s survey also revealed different patterns in land values across different land quality classes: while state-average values for high-quality land decreased 5 percent, there was only a mild 0.9 percent decline for low-quality farmland values. In addition, the Southwest (5.4 percent) and Northwest (2.6 percent) districts also reported an increase in low-quality land values. This is likely a combined result of robust livestock returns, strong recreational demand, and higher government payments from conservation programs such as the Conservation Reserve Program (CRP). In general, the results from the 2015 Iowa State University Land Value Survey match results from other surveys. The Federal Reserve Bank of Chicago reported Iowa land values down 1 percent from October 2014 to October 2015. The same survey reported Iowa land values decreased by 1 percent from July to October, 2015. The USDA reported Iowa farmland values down by 5.9 percent from June 2014 to June 2015. The Realtors Land Institute reported land values down 7.6 percent from September 2014 to March 2015 but only down 3.7 percent from March 2015 to September 2015.
There were several new features added to this year’s survey. A few of the highlights are: an online version, in addition to the traditional mail copy, was made available. Of the 514 respondents, 287 (55 percent) completed the survey online. Second, respondents were asked to predict how the land values in their territory would change next year and five years from now. Seventy-seven percent of the participants predicted the land values in their territory would continue to fall over the next year, while the remaining 23 percent thought land values would increase or stay the same in their territory over the next year. When asked to predict land values five years from now, 48 percent predicted land values would increase or remain the same. Third, this year’s survey asked about the main occupation of respondents, with agricultural lenders, appraisers, farm managers, and those in ag sales making up the bulk of the respondents. Finally, to gauge how each respondent defined high-, medium-, and low-quality land for their county, we asked for estimated average CSR (Corn Suitability Rating) and CSR2 points for all land quality classes. Results show that agricultural professionals have adapted to CSR2. About 60 percent of participants provided at least one CSR2 estimate for the corresponding land quality class.
The Iowa State University survey reports on sales in the Iowa farmland market. The percent of respondents who reported fewer sales is the second highest recorded to date at 60 percent, which is the same percentage as in 2014. Additionally, 76 percent of all farmland purchases were to existing farmers.
It is important to remember that the Iowa State University survey is an opinion survey covering the period from November 2014 to November 2015. When comparing surveys be sure to consider the period covered. This can be especially relevant in times when the land values are not exhibiting a uniform change.
An opinion survey is just that. It represents the collective opinion of the survey respondents. Most of the respondents will use actual sales to formulate their opinions but each person can choose to weigh or discount particular sales as they deem necessary. A study led by Dr. Mike Duffy comparing the Iowa State University opinion survey and actual sales data in Iowa from 2000 to 2011 showed that differences were not statistically significant. Some years the opinion was higher and vice versa. For some counties the differences were greater in one year and less in another. So, even though the opinion survey averaged higher than the sales, the difference was not statistically significant.
Outlook for land values
The results of the 2015 Iowa State University Farmland Value Survey are 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. 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. However, I would argue that the 3.9 percent decline is not out of line due to a mix of factors. First, despite the sharp decline in corn and soybean prices, many farmers still have a lot of cash in hand accumulated from the golden 2000s. Second, it was widely accepted among farmers and landowners at the start of 2015 that commodity prices, farm income, and profit margins probably wouldn’t improve much over the year, and arguably the farmland market has already capitalized these expectations. Therefore, the downward pressures did not cause a panic market reaction. Finally, despite the weakening agricultural exports, especially from China, the U.S. economy is still more robust than many other countries across the globe. Of particular interest to farmland markets, the livestock sector still saw strong growth, recreational demand is on the rise, and high CRP payments are boosting the values of pastureland, timberland, and low-quality cropland.
The primary reason for the drop or slowdown in land values is the drop in net farm income. Land values are determined by the income and the interest (discount) rate used. Net farm income has been at record high levels the past few years and interest rates have been at record low levels. This combination produced record high farmland values over the past decade. In August, the USDA forecast net farm income to be down 26 percent for 2013-2014 and down another 38 percent for 2014-2015, which is a direct result of the sharp decline in corn and soybean prices. The forecast net farm income for 2015 would be the lowest since 2006.
A simple regression analysis with farmland values as a function of net farm income shows a one percent decrease in income will produce approximately a one-half percent decrease in farmland values. This relationship is not exact or immediate but there is an extremely strong relationship, which indicates what will happen to land values with a change in income.
Interest rates are also an important determinant of farmland values. The Federal Reserve Board had long discussed the end of the low-interest era, but the global economic slowdown has postponed these efforts for now, and perhaps into the foreseeable future. The current 10-year Treasury bond rates averaged 2.12 percent during the first three quarters of 2015 - lower than the 2.54 percent average rate during 2014. Some people feel that interest rates are more important than net income in determining farmland values; putting these arguments aside, the Federal Reserve Board will likely raise interest at a slow rate as opposed to an immediate increase.
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. The Iowa farmland market appears to have peaked for the foreseeable future, and we may expect to see the Iowa farmland market drifting sideways.
In the 2015 Iowa Land Value Survey, over 75 percent of all respondents said farmland values in their territory would continue to decline next year, but only six percent of all respondents said values would decrease 10 percent or more. 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. The predictions of land values five years from now yield a more mixed picture: 32 percent and 17 percent of respondents predicted land values would go up or stay the same, respectively, while 19 and 18 percent of respondents projected land values would decrease 5 to 10 percent or decrease more than 10 percent five years from now, respectively. Based on estimates from Iowa State University Soil Management and Land Valuation conferences, the margin of error in the forecasts of agricultural professionals is larger when projecting values for a distant future as opposed to the months ahead.
Commodity prices appear to have moved to a new plateau, and the high-profit-margin era for row crop production has ended. It appears prices will stabilize somewhere in the mid- to upper-$3 range for corn and the upper-$8 to lower-$9 range for soybeans. Obviously the prices will move with supply and demand changes, however, based on current futures prices, these appear to be the likely long-term ranges. Unfortunately, the current projections show a loss at these prices. Preliminary Iowa State University cost of production estimates for 2016 indicate a loss of about $2 per bushel for soybeans and more than $.50 per bushel for corn with average costs and yields.
Costs of production, especially rents, have increased considerably over the past several years. Higher commodity prices led to higher incomes, which led to increases in rents. Under low to negative profit margins, farmers are trying to lower costs in a variety of ways. Rents will change with income, but they will decline slower as incomes drop. 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.
Iowa farmers made record income over the past several years, and a major question is what they did with that income. Some farmers appear to have saved it or paid down existing debt, but other farmers appear to have parlayed the income into more debt with additional land and new machinery and buildings, etc. There is a concern for some producers over possible financial difficulties due continually declining income and accumulation of debt from banks and other sources. It appears most farmers will be able to weather the storm as the market prices find a new equilibrium, but farmers and land owners who bet on the high commodity prices lasting and aggressively expanded or borrowed heavily will face significant problems in the months ahead.
Some of the survey respondents reported strong auction sales where existing farmers were aggressively bidding for neighboring properties or some other particularly desirable parcel. These buyers appeared to have the money and to that extent they will provide support for the land market. As the survey indicated, existing farmers still account for the majority of the land purchased in Iowa, and robust livestock returns, strong recreational demand, and high CRP payments drove the increases in land values in the Northwest and South Central districts.
Many people are concerned about a potential farmland bubble burst, or a replay of the 1920s economic depression or 1980s farm crisis. There are legitimate reasons to be cautious, especially with the slowing Chinese economy and potential rise in interest rates. 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. There wasn’t irrational buying and selling in a panic and the demand for U.S. crop and livestock products is still very strong. The downward pressures on farmland values likely will continue to play out next year and beyond, but it will more likely be a rational and modest correction as opposed to a sudden change.
It is not possible to say where the farmland values will stabilize, however, the odds of commodity prices collapsing, a sudden stoppage of the Chinese economy, interest rates rapidly increasing, and/or land values collapsing are not high. The odds are not zero, but it doesn’t appear these events will occur in the foreseeable future.
A more likely scenario is that farmland values will return to more normal changes experienced over the past century. Since 1910 Iowa farmland values have averaged a 4.9 percent increase per year. Farmland values have increased 73 percent of the years, decreased 25 percent of the years and remained unchanged for 3 years between 1910 and 2015. Farmland has historically been a fairly robust investment that generates relatively stable returns, and the Iowa farmland market seems to continue drifting sideways to slightly lower.
There have been three ‘golden’ eras for Iowa land values over the past 100 years. The first one ended in a long, drawn-out decline in land values from 1921 to 1933, the second golden era ended with a sudden collapse from 1981 to 1986. The third golden era appears to have ended with an orderly adjustment as opposed to a sudden collapse.
More details of the survey can be accessed at www.card.iastate.edu/farmland/.
2014 Iowa Farmland Value Survey -- Extension web site dedicated to the ISU Land Value Survey, including information from the 2014 news conference and the presentation by Dr. Mike Duffy.
2013 Iowa Farmland Value Survey -- Extension web site dedicated to the ISU Land Value Survey, including information from the 2013 news conference and the presentation by Dr. Mike Duffy.
2012 Iowa Farmland Value Survey -- Extension web site dedicated to the ISU Land Value Survey, including information from the 2012 news conference and the presentation by Dr. Mike Duffy.
2011 Iowa Farmland Value Survey -- Extension web site dedicated to the ISU Land Value Survey, including information from the 2011 news conference and the presentation by Dr. Mike Duffy.
2010 Iowa Land Value Survey -- Extension web site dedicated to the ISU Land Value Survey, including information from the 2010 news conference and the presentation by Dr. Mike Duffy.
Wendong Zhang, extension economist, 515-294-2536, email@example.com