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Land quality perceptions in expert opinion surveys: evidence from Iowa

pdf fileAgDM Newsletter
August 2017

Many land grant universities across the Midwest, the U.S. Department of Agriculture (USDA), the Federal Reserve Bank system, and many agricultural professional associations conduct annual or quarterly opinion surveys to gauge the pulse of the farmland markets. However, little is known regarding how survey respondents perceive the land quality or how land quality is defined in these opinion surveys of land values. In particular, how land quality is defined, and how the question is posed, varies significantly across the opinion-based surveys. This article analyzes how the respondents to opinion-based surveys perceive land quality in their answers to land value questions, and it is a summary of a forthcoming article in the Journal of American Society of Farm Managers and Rural Appraisers.

Land quality questions in expert opinion surveys

Table 1 shows how land quality questions are presented in opinion-based surveys of land values throughout the Corn Belt. For example, quality definitions range from statewide pre-specified ranges of crop yields in the Illinois Farmland Value Survey, to pre-specified ranges based on Land Capacity Classifications in the Nebraska Real Estate Market Survey, to subjective average crop yields reported by respondents, such as in surveys conducted by Ohio State University and Purdue University. In contrast, USDA solicits land value estimates from producers for a spatially delineated parcel, while the Federal Reserve Bank of Chicago does not offer specific land quality definitions. Given the substantial variability across the surveys, we use Iowa State University Land Value Survey as a case study to offer some insights on how these land quality questions are perceived by agricultural professionals.

table 1

Land Value Survey, CSR and CSR2

Sponsored annually by Iowa State University (ISU) Extension and Outreach and ISU Center for Agricultural and Rural Development (CARD), the Iowa State University Land Value 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. The Iowa Land Value Survey is the only consistent data source that provides an annual land value estimate for each of the 99 counties in Iowa (Zhang 2015a).

Participants in the survey are asked to estimate the value of high, medium, and low quality land in their county as of November 1st each year. These individual land value responses are used to calculate not only average land values at the crop reporting district and state level, but also district and state level estimates for high, medium, and low quality land.

Figure 1 presents the land quality questions from the 2015 Iowa Land Value Survey. In particular, we asked their estimates of average CSR and CSR2 for high, medium, and low quality land for a particular county. The corn suitability rating (CSR), and updated CSR2 system are soil productivity ratings for Iowa soils ranging from a low of five to a high of 100. The values are used in disseminating individual real estate property taxes, but may also be used as one factor in figuring farmland indexes such as land values and cash rents. Survey respondents who provided estimates are given their past year’s estimates as a reference.

figure 1

Land quality perception differences across crop reporting districts

The USDA divides Iowa into nine crop reporting districts (CRD). The CRDs contain approximately the same number of counties; and, for the most part, they have similar land quality and land use patterns. Table 2 shows the average and standard deviation for each CRD and for both the CSR and CSR2 responses.

Table 2 illustrates the difficulty with using specific yield ranges or soil quality measures to define high, medium, and low quality land for all farmland in Iowa. Our results seem to suggest that agricultural professionals perceive high, medium, and low quality with respect to their area or district. Note that the average CSR2 for high quality land in the Southwest and South Central districts are less than the average CSR2 for the medium quality land in Northwest district. In addition, comparing across the districts shows a difference of 19 percent between the high and low CSR for the high quality land. Comparing medium quality land there is a difference of 28 percent between the high and the low average CSR. Low quality land shows a difference of 39 percent between the high and low CRD values.

table 2

Practical implications for producers and agricultural professionals

Some surveys, like the one conducted by the University of Illinois, provide explicit and common crop yield ranges for the respondents in completing the survey. Other surveys simply use a high, medium, and low quality or some other opinion categorization rather than a specific measure. While the land value for different land quality classes are commonly used by agricultural professionals, there is no clear evidence on how land quality is subjectively defined or perceived by the respondents in many of these opinion surveys. To our knowledge, this paper provides the first empirical evidence on land quality perceptions in opinion surveys using the ISU Land Value Survey as the case study.

This paper has several important implications for professional farm managers, rural appraisers, agricultural consultants and investors, as well as those interested in the farmland market. Importantly, we find that the perceptions of land quality vary significantly across regions - the average soil productivity measure in southern Iowa for high quality land is lower than that for medium quality in northwestern Iowa. The wide spread in the average value between regions suggests that if a specific range for each of the land classes is pre-specified, the ranges would have to be wide or tailored for specific regions. This finding sheds light on the interpretation of land quality and land value for all opinion-based surveys.

In particular, our analysis suggests that land quality, even not explicitly specified in opinion surveys, tends to be perceived relative to a specific region as opposed to conforming to uniform statewide ranges of crop yields or soil quality indexes. Practically, this mean that agricultural professionals are encouraged to employ region-specific soil quality values for high, medium, and low quality land classes, and explore spatial variations in the marginal contribution of land quality improvement in land values.

In addition, we find that the majority of agricultural professionals who responded to the survey have a quantifiable measure in mind when they make the distinction among land classifications. This suggests that a soil quality index, such as CSR and CSR2 employed in Iowa, is a salient measure used by agricultural professionals when evaluating farmland market trends and individual investment opportunities. This finding is consistent with the fact that farmland auctions highlight average CSR2 or other soil quality index as one of the most important characteristic for a farmland parcel for sale.

Wendong Zhang, extension economist, 515-294-2536, wdzhang@iastate.edu
Michael D. Duffy, retired economist. Questions?