2013 Farmland Value Survey Iowa State University
The survey was initiated in 1941 and is sponsored annually by the Iowa Agriculture and Home Economics Experiment Station, 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 was conducted by Michael Duffy.
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 and selected individuals considered to be knowledgeable of land market conditions. Respondents were asked to report on more than one county if they were knowledgeable about the land markets. The 2013 survey is based on 476 usable responses providing 674 county land values estimates. The number of respondents was down 2 percent compared to last year’s survey but the number of county values increased by 2 percent.
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.
Major factors influencing the real estate market
Most of the survey respondents (88 percent) listed positive and/or negative factors influencing the land market. Of these respondents almost 83 percent listed at least one positive factor and 77 percent listed at least one negative factor. The respondents listed multiple factors in most cases.
There were 7 positive factors listed by over 10 percent of the respondents who provided at least 1 positive factor. The most frequently mentioned factor was low interest rates, mentioned by 56 percent of the respondents. High commodity prices were the second most frequently mentioned positive factor, being mentioned by 37 percent of the respondents. Other frequently mentioned positive factors included, strong farm income and economy (24 percent), land availability (15 percent), cash/credit availability (14 percent), good yields (13 percent), and a strong demand for land (11 percent).
There were 6 negative factors listed by more than 10 percent of the respondents who identified at least one negative factor. The most frequently mentioned negative factor on land values was the lower commodity prices, mentioned by 76 percent of the respondents and the weather was the second most frequently mentioned negative factor (21 percent). A closely related factor mentioned was poor yields (13 percent). The remaining negative factors were government programs (11 percent), long term interest rates (10 percent) and general uncertainty (10 percent).
Number of sales compared to previous year
Almost half, (48 percent) of the respondents reported lower sales in 2013 relative to 2012. On the other end of the spectrum, just 16 percent reported more sales and 36 percent reported the same level of sales in 2013 relative to 2012.
Land sales by buyer category
Respondents were asked what percent of the land was sold to the following four categories of buyers.
- Existing farmers represented 77 percent of the sales.
- Investors represented 18 percent.
- New farmers represented 3 percent.
- Other purchasers represented 2 percent.
Sales to existing farmers by Crop Reporting Districts ranged from 86 percent in Northwest to 63 percent in South Central.
Sales to investors were highest in South Central (27 percent). Southeast reported the lowest investor activity (12 percent).
Interpretation of survey results
The Iowa State University land value survey reported a 5.1 percent increase in Iowa farmland values. This is the ninth time in the past 10 years land values have increased. Except for 2009, the 2013 increase is the first time values have increased less than double digits since 2003.
The 2013 survey also revealed different land value changes within the state. This was only the second time in the past ten years where some counties reported lower land values than the year before. In 2009, 85 counties reported lower land values and in 2013 there were 14 counties that reported lower land values. Except for 2009 and 2013, since 2004 all county land values have increased each year.
The slowing or even reversal of the rate of increase in land values is supported by data from other surveys. The Realtors Land Institute reported land values up 9.4 percent from September 2012 to March 2013 but only up 1.2 percent from March 2013 to September 2013. The Federal Reserve Bank of Chicago reported Iowa land values up 9 percent from October 2012 to October 2013. But, the same survey reported Iowa land values decreased by 1 percent from July to October, 2013.
Other results from the Iowa State study show the changing situation with respect to Iowa farmland values. The percent of respondents who reported fewer sales than the year before was the highest it has been since 1985. With the exception of 2009, the percent of respondents who reported an increase in sales was the lowest it has been since 2000.
The 2013 survey also reveals the shift that occurred in regions of the state. For the past three years, 2010 – 2012, O’Brien County reported the highest land values in the state. In 2013, Scott County reported the highest land values. Land values in O’Brien County actually dropped the most of any counties reporting lower values. Scott County increased the most. It is interesting to note that from 1950 to 1973 Scott County had the highest land values in the state. Then from 1974 to 1977, Humboldt County had the highest land values. From 1978 to 2009 Scott County once again had the highest land values. The only time Scott County hasn’t had the highest land values was during the two boom periods covered by the Iowa State University survey.
It is important to remember that the Iowa State University survey is an opinion survey covering the time period from November 2012 to November 2013. When comparing surveys be sure to consider the time period covered. This can be especially relevant in times like these 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 weight or discount particular sales as they deem necessary. A study comparing the Iowa State University opinion survey and actual sales data in Iowa showed that the 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 it was not a difference that was significant.
Outlook for land values
The current situation with respect to Iowa land values was described by one of the respondents as being a plateau. He based this comment on his observation there had been some very strong sales in his area but there had also been some weak or no sales at recent auctions. This was a sentiment echoed by many of the respondents.
Strong and weak price sales occurring at the same time indicate a market in flux. The key question is if this shows the market is going to settle into a plateau, if it is just pausing before another takeoff in values or if the market has peaked and due for a correction.
The single biggest factor to assess land value movement is gross farm income. Any asset held in perpetuity is valued by income divided by a capitalization rate. The capitalization rate is important but income or expectations for income appear to have the major influence on land values.
A majority of the survey respondents were concerned about income. Over three-fourths, 76 percent, of the respondents cited lowers commodity prices as a negative factor affecting the land markets. Data show the rate of increase in land values slowed and commodity prices started dropping after June 2013.
In Iowa corn and soybean price movements are good indicators of gross farm income movement. There was a 33 percent drop in the Iowa average corn price from October 2012 to October 2013 and there was an 11 percent drop in soybean prices over the same time period. The November estimated price for Iowa corn was 39 percent lower than the November 2012 price. Soybean price were 11 percent lower.
The gross value added for the Iowa agricultural sector increased 28 percent from 2008 to 2012 and net farm income increased 40 percent over the same time period. Projections for 2013 are not available at the state level but the current national forecasts show that cash projections are lower but total gross income and net farm income both increase, albeit at a lower level than the past few years.
Marketing year prices for both corn dropped 12 percent from 2008 to 2009 and soybean prices decreased 7 percent over the same time. The year 2009 is significant because it was the last time land values dropped statewide in Iowa.
We are in a situation similar to 2009 where commodity prices dropped. Will commodity prices rebound as they did in 2010 or will they continue down? This is the key to which way land values will go.
There are many competing forces that will influence prices over the coming years. For now it appears there are more factors that will lead to lower prices as opposed to returning to levels of the past few years. What land values will be supported by $4.00 corn remains to be seen. Given the variances in the weather of the past few years and world economic conditions will prices settle into a trading range or will there be wide swings? The impact of this situation on land values isn’t known.
The odds are against a major collapse in land values. But, if projections of a new lower level for commodity prices hold then we should expect land values to drop. The impact of lower income and declining land values will depend on the individual situation. In the 1980s the collapse impacted almost everyone. What will happen this time will be a slower adjustment to the new price/income realities. Some people will be hard hit by the lower cash flow and income but that depends on how they are situated financially.
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, how this third golden era will end isn’t known at this time but it would appear that it will be a more orderly adjustment rather than the sudden collapse.
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.
Michael D. Duffy, retired economist. Questions?