2007 IOWA LAND VALUE SURVEY:  OVERVIEW

Prepared by Michael D. Duffy, agricultural extension economist, and Darnell Smith, extension associate, Iowa State University, December 18, 2007.

(This document also is available as a Microsoft Word file.)

1.0     History and Purpose of the Land Value Survey.

1.1    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 by 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 and Darnell Smith.

1.2    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.

1.3    The survey is based on reports by licensed real estate brokers and selected individuals considered to be knowledgeable of land market conditions.  Approximately 1,100 surveys are mailed each year.  Normally 500-600 completed surveys are returned.

1.4    Respondents were asked to report on more than one county if they were knowledgeable about the land markets.  The 2007 survey is based on 499 usable responses providing estimates on 668 county land values.

1.5    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.

2.0     Analysis by State.

2.1    The 2007 state average for all grades of land was estimated to be $3,908 per acre.

2.2    The increase in the state value was $704 per acre from 2006.

2.3    The percentage increase was 22 percent from 2006.

3.0     Analysis by Crop Reporting District.

3.1    The highest land values were reported for Northwest, $4,699 per acre.

3.2    The lowest land values were estimated for South Central Iowa, $2,325 per acre.

3.3    The greatest percentage increase was in North Central Iowa, 25.3  percent.

3.4    The least percentage increase was in East Central Iowa, 14.7 percent.

4.0     Analysis by Counties.

4.1    The highest value was estimated for Scott county, $5,699 per acre.

4.2    The lowest value was in Decatur county, $1,828 per acre.

4.3    The greatest dollar increase was $1,142 in Sioux county.

4.4    The greatest percentage increase was 30.3 percent reported in Floyd county.

5.0     Analysis by Quality of Land.

5.1    Low grade land in the state averaged $2,655 per acre and showed a 21 percent increase or $460 per acre.

5.2    Medium grade land averaged $3,666 per acre and showed a 21.8 percent increase or $655 per acre.

5.3    High grade land averaged $4,686 per acre and showed an increase of 22.2 percent or $851 per acre.

6.0     Major Factors Influencing the Real Estate Market.

Survey respondents listed both positive and negative factors influencing the land market.  The respondents listed multiple factors in most cases.

6.1    There were 2 positive factors listed by over 10 percent of the respondents.

6.2    Good grain prices was by far the most frequently mentioned positive factor, being mentioned by 35 percent of the respondents.  Low interest rates were mentioned by 10 percent of the respondents.

6.3   There were 3 negative factors listed by more than 10 percent of the respondents.  High input costs were listed by 25 percent of the respondents.  Land prices too high was listed by (12 percent) and a concern over how long it would last was listed by 11 percent of the respondents.

7.0     Number of Sales Compared to Previous Year.

When asked to compare the number of sales in 2007 relative to 2006, 37 percent reported more, 42 percent the same, and 21 percent reported less.

8.0     Land Sales by Buyer Category.

The 2007 survey asked respondents what percent of the land sales were sold to four categories of buyers.

8.1    The majority of farmland sales: 60 percent were to existing farmers.  Investors represented 34 percent of the sales.  New farmers represented 2 percent of the sales and, other purchases were 4 percent of sales.

8.2    Sales to existing farmers by Crop Reporting Districts ranged from 71 percent in West Central to 40 percent in South Central.

8.3    Sales to investors were highest in South Central (48 percent).  Northeast reported the lowest investor activity (27 percent).

9.0    Interpretation of the Survey Results

The 2007 survey shows the biofuel related land boom is continuing.  This year’s 22 percent increase is the largest yearly percentage increase since 1976.  The $704 increase is the highest dollar increase ever recorded.

The 2007 Iowa average land values set a record high for the fifth straight year.  Since 2000 average Iowa land values have increased by $2,051 per acre, more than a 100 percent increase over the 2000 average value of $1,857.   In just the past 5 years Iowa average land values have increased by over 70 percent.

Last year when this survey was conducted, in November, land values were just starting to rise due to the higher grain prices.  As a result there was a difference between the Iowa State University values and other Iowa land value surveys.  This year, however, the results reported here are similar to other surveys.  The Federal Reserve Board reported a 21 percent rise in Iowa land values from October to October.  The Realtors Land Institute reported a 20 percent increase from September to September.

The increases in values were evidenced across the state.  Five Iowa counties had average values over $5,000 per acre and over half the counties, 51 percent, had average land values between $5,000 and $4,000 per acre.  

The percentage increases in values was similar to the dollar increases.  Almost a fifth, 19, of the counties reported increases over 25 percent and over half, (59 percent) of the counties reported increases between 20 and 25 percent.
One observation is that the percentage increases in values were not as strong in the counties and crop reporting districts along the rivers.  This reflects the recent, relative changes in the crop price basis that have occurred in Iowa.  The river counties used to have the narrowest basis between local and gulf port corn prices due to transportation costs.  Now, however, with more localized demand from the ethanol plants the differences in basis has shifted.

The respondents to the 2007 survey indicated that biofuel demand and related ramifications are the driver in the increase in land values.  Higher grain prices and overall agricultural outlook were mentioned by over half the respondents as positive factors. 

There were two specific concerns identified by the respondents.  The first focused on the current land values and how long this can last.  The second major concern was over increases in input costs.  Farmers have seen an increase in profits but the higher land values and rents, coupled with higher seed and fertilizer prices have dampened the profit potential considerably with increased cash flow requirements.

Comments received on some of the surveys reveal a difference of opinion with respect to the current situation and how long it might last.  Some expressed a great deal of concern that the land values were too high and that the market might be due for a correction.  On the other hand some said the naysayers were overreacting and that the market was continuing to show strength with significant interest. 

Regardless of the point of view it is an exciting time in agriculture especially with respect to the land market.  This year 37 percent of the respondents reported more sales than last year.  This is the highest percentage reporting more year-to-year sales since 1988, when we were just starting to come out of the farm financial crisis. 

We are seeing more sales at auction.  One appraiser jokingly said he estimated the land value using the income appraisal method and then added $1,000.  He went on to say, however, that their recent appraisal approach was to use auction sales to let the market determine land values.  There have been reports that some auctions were terminated because the minimum price was not met but recent auction reports indicate there is still a strong market.

Many respondents reported more existing farmers were purchasing land.  However, the percentages of purchases by existing farmers and investors were essentially unchanged from a year ago.  Overall, 60 percent of the purchasers were reported to be existing farmers and 34 percent were reported to be investors.  Farmer purchases have been on a steady downtrend.  A decade ago existing farmers represented almost three-fourths of the purchases.  Existing farmers as a percentage of purchasers reached a low of just 56 percent in 2005.

So where do we go from here?  A farmer, after he had attended a recent auction, commented there were a thousand different economies when it came to the agricultural land market.   He was spot on with that comment.  Each person is different, each financial situation is different and everyone views the world from their own perspective.  

Will the land market crash?  How high will land go?  How can anyone afford to pay that much for the land?  Have we really entered a new golden era that will finally give agriculture lasting profits?  What will be the impact of a weakening dollar, of the new farm bill, of the subprime mortgage debacle? 

These are just some of the questions.  There are as many different answers as there are people answering them. 

My general feeling is that the land market will remain strong for at least the next five years.  We have seen a fundamental shift in demand for corn due to ethanol production.  I don’t think this demand will diminish in the near future.  Will ethanol be able to move from being an additive to a substitute fuel is a question?  There are technologies being developed to use alternative sources for ethanol.  But, most of these would involve using the same land that is being used for corn, so, even if the alternative sources do become commercialized, the demand for the land will remain strong.  What will have a negative impact will be if the new generation ethanol (or whatever fuel it may be) is developed from something other than the agricultural products we do or could produce.

Additionally, the farm bill is a major uncertainty at this time.  Corn and soybean prices have moved beyond the level of support that came with previous farm bills but the provisions of the farm bill will still influence agriculture and land values.

The overall strength of the economy and the full impact of the subprime situation could have spillover effects in the agricultural land market.  This is especially true with respect to recreational demand. 

The international situation will also have an impact on agricultural land values.  This is especially true with respect to petroleum.  We have developed an agriculture that is dependent upon fossil fuels.  As the price of these fuels continues to rise, so too will the costs of production.  Increasing costs of production was identified as the number one negative factor facing the land market.  Rising fuel prices and the subsequent increases in related input prices (fertilizers and pesticides) could significantly cut profit margins which will negatively impact land values.

The value of the dollar and international production will also impact Iowa land values.  Changes in production anywhere in the world will affect price changes in Iowa.  The shift to ethanol has not removed us from the vagrancy of the international markets.

The world of agriculture as we know it here in Iowa has changed.  Where the changes will settle out and when is not known.  In the meantime there are new opportunities for people.  With opportunities come challenges.  Some will make money and some won’t.  There truly are a thousand different economies when it comes to the agricultural land market.

Table 1. Recent Changes in Iowa Farmland Values

Table 2. Average Value Per Acre of Iowa Farmland Listed by Crop Reporting Districts and Grades of Land