Iowa Farmland Is Going Back Up, Survey Shows
AMES, Iowa — While long-term outlooks are bullish on Iowa farmland values, financial experts say it’s time that farmers micromanage their operations.
With farmers, professional farm managers, appraisers, landowners, and ag lenders in attendance Wednesday, Iowa State University held its 90th Annual Soil Management and Land Valuation (SMLV) Conference.
One of the highlights of the conference was the results of a land value survey involving over 1,448 respondents, many of which attend the annual meeting.
Farmland values in Iowa have started to stabilize and bullishness is setting in for the long-term, according to this year’s survey.
Land Survey Results
The 2017 SMLV estimated land value average estimate came in at $7,863 per acre vs. $7,183 last year.
The survey also asked participants about land values going forward and while the state average dips a little for 2018 at $7,849 per acre, it jumps up to an average estimate of $8,307 in 2020 and $9,632 per acre in the year 2025.
Dr. Wendong Zhang, Iowa State University Ag Economist, says the internal rate of change is more telling than the actual survey estimates.
“We think the bleeding has stopped,” Dr. Zhang says.
He adds, “Statistically, there is no real change between this year and last year. But, the near-term outlook is for the land values to stay flat vs. falling any further than the already 10% drop since the peak of 2013. Gradually, the survey tells us that farmland values are going to pick up in the next five years,” Dr. Zhang says.
Mike Hein, an eastern Iowa banker serving on a panel of experts, reported that high quality land sales are off their highs but still showing some top-end strength at $9,500 to $10,500 per acre. “This is off about 25% from the highs of $14,000 per acre,” Hein stated.
The respected survey also indicates that this year’s November cash corn prices could average $3.47 per bushel and November soybean prices could average $9.31.
The annual survey showed Iowa cash rental rates averaged $219 per acre, down from $230 in 2016.
Going forward, the conference's panel of ag lenders were unwilling to project where cash rents could be headed in 2018.
"It's really hard to project that, not knowing what our crop production is going to be like this year," says Dr. Alan Tubbs, chairman and CEO of Onward Bancshares, Inc.
In general, the conference attendees reflected that the ag economy is not experiencing a sector-wide “1980s Farm Crisis,” instead there are individual producers that have financial problems.
“There are a lot of things that the ag professionals in this room need to do to help us all weather the storm and hopefully, based upon the signs, we are approaching or are already at the bottom of the downturn,” Dr. Zhang says.
On the Minds of Ag Lenders
One of the main thoughts that established itself throughout the daylong conference was that this ag economy is not the 1980’s but there are farmers feeling financial stress.
While loan losses and termination of credit lines have been minimal, to this point, ag lenders are urging farmers that risk management has more influence on profitability than size factors.
“It’s time to micromanage your operation,” Hein says. "There is a need to see better records and production details,” Hein says. “Plus, a need for better marketing and risk management plans.”
Dr. Tubbs, an active banker in the 1980s, says that farmers need to understand the principles of increasing risk, regarding leverage.
“When you leverage debt during those years that you are seeing positive returns on your assets, you get the desire to grow your farm and add more financial leverage. But, when the worm turns, and returns on assets go negative and you are losing liquidity, the downturn goes a lot faster than the upturn,” Tubbs says.
This kind of financial pattern occurred in the 1980s, along with a decline in real estate values, equity was disappearing so fast that the banking industry worked with the federal government on policies that would help put a floor on real estate values, Tubbs says.
“Lenders and borrowers need to pay more attention to this principle of increasing risk,” Tubbs says.