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Iowa Farmland Value Declines for Third Year in a Row; First Time Since 1980s
Farmland values continue to slide in the top corn producing state. Iowa State University’s (ISU) annual Land Value Survey found that Iowa farmland has declined for the third year in a row to $7,183 per acre. This is the first time that farmland values in Iowa have declined three years in a row since the 1980s farm crisis.
However, this isn’t an indicator that another farm crisis is starting. The likelihood of another farm crisis is low, according to Wendong Zhang, an assistant professor of economics at ISU and the leader of the survey. He believes this because of the farm income growth before the downturn, a stronger government safety net, and an overall lower debt level.
“For an optimist, this decline is modest, and the probability of a replay of the 1980s farm crisis is low,” he explains. He does add that this could be a more dire situation, depending on a farmer’s financial state. “For a pessimist, there are reasons to worry, especially for landowners and/or producers who are over-leveraged.”
The Rise Before the Fall
In 2004, the ethanol boom, low-interest rates, and higher commodity prices started an upward trend in farmland values. By 2008, the price for farmland in Iowa had increased 70%. By 2013, values had spiked 230% higher than 2004 to an average price of $8,716 per acre.
Then came the drop in commodity prices and with it land values. Farmland values dropped 8.9% in 2014, 3.9% in 2015, and 5.9% this year. While farmland values have dropped 17.5% in the past three years, they are still 173% higher than 2004.
“The golden era of phenomenal, yet abnormal, growth in farm income and land values, as we saw from 2006 to 2013, is already behind us,” explains Zhang. “The land market is going through an orderly adjustment while the U.S. agricultural sector, a competitive industry, is trying to adjust to the old normal of zero industry-wise net profits.”
It looks like the downward trend may continue for the next few years.
“Land values might continue to adjust downwards in the next year or two. This is consistent with the stagnant corn and soybean futures prices and rise in interest rates. However, many respondents to the ISU survey are hoping for the market to rebound in 3 or 4 years,” says Zhang.
The ISU Land Value Survey is based on reports by 518 ag professionals with knowledge of land market conditions, including appraisers, farm managers, and ag lenders, as well as actual land sales.