Agricultural land values for the Seventh Federal Reserve District, which includes Iowa and Illinois, dropped slightly in the third quarter from July 1 through Oct.1, but the Hawkeye state’s values rose slightly in year-over-year from Oct. 1, 2016 to Oct. 1, 2017.
According to the November 2017 Ag Letter, written by Federal Reserve Bank of Chicago senior business economist David Oppedahl, for the third quarter of fiscal year 2017, Illinois’ and Wisconsin’s land values dropped 1 percent while Indiana gained 1 percent and Iowa’s values remained stagnant. Michigan had no report on its land values.
In year-over-year, Indiana’s farmland values dropped 4 percent, while Illinois’ land values dropped 3 percent.
However, land values in both Iowa and Wisconsin gained 2 percent.
As far as Iowa is concerned, Oppedahl said the state's agricultural land values dipped earlier and more than those of Illinois, Indiana, “so maybe we're seeing values converge some over time."
"Also, Iowa had better yields last year than other states, so it will be interesting to see if relatively lower yields shift the changes around some.”
Oppedahl said that, “a greater reliance on livestock has helped bolster Iowa farmland values, as both the pork and beef sectors have been generally profitable.”
“It seems there is additional diversification in agriculture throughout the Midwest, yet Iowa has a head start and continues to diversify even more,” he said. “It seems there are several ways in which agriculture is going ‘Back to the Future.’
“There are niches to be found that increase profits on farms,” Oppedahl said. “However, they are subject to the forces of supply and demand, like all commodities. Remember the ostrich boom?”
Developing new markets is an ongoing challenge for agriculture, as Midwest farmers continue to produce bountiful harvests, he said.
“Direct sales, organics, livestock, mint, distilling, fruits and vegetables are some of the ways farmers seek out new markets,” Oppedahl said. “Yet, the top approach to diversification for farmers is off-farm income and benefits.”
While a number of factors have helped to bump Iowa’s farmland values during the year, Jason Smith, a land broker, auctioneer and appraiser with DreamDirt Farm & Ranch Real Estate, which serves Iowa, Nebraska and other areas in the plains, said that it is the short supply of land in Iowa that has had the biggest impact.
As a result, what is selling is going for serious money, he said.
On Tuesday, 81 acres of farmland in Lyon County in far northwest Iowa sold for $14,600 an acre, Smith said. “That included a feedlot for 2,300 head of cattle so it had some improvements.” Still, he added, at a total of $1,182,600, that 81 acres brought a hefty price.
Another spread of farmland sold at $13,700 an acre, Smith said, and another was at $12,400 an acre.
Smith said that in the Midwest, Iowa is always a year ahead of other states in terms of farmland values.
“Iowa is the premium brand when it comes to farmland,” he said. “This isn’t unlike when back in 2009 prices fell 2 percent in Iowa and then increased in 2010.
“In 2010, everyone in the other 'I' states — Illinois and Indiana — dropped, and then in 2011 their land values rose again.
“Iowa is a year ahead of everybody when it comes to land values and I think the same thing will happen in those states next year,” Smith said. “Last year we had a loss in farmland values and this year we went up a little bit.”
But Iowans are not putting their land up for sale, at least not this year, and it’s that lack of supply coupled with an increased demand that has put the most upward pressure on Iowa’s farmland values, Smith said.
“The whole state has been slow,” Smith said. “When we look at the sales volume of farmland today it’s less than half of what the sales volume was in 2012.
“The fact is everybody’s nervous about the market,” he said. “Everybody’s been hearing that corn is going to drop into the $2 range and beans will drop to $8. People who may want to sell their land would like to see that pass so they’ll get top dollar for their land.”
Smith wondered why the U.S. has not tried to get a foothold in other markets, such as India, which would help commodity prices.
But with prices as they are the successful farmer will be very smart in a marketing plan, he said. “That’s what separates the men from the boys,” Smith said.
Wendong Zhang, assistant professor of economics at Iowa State University and the head of the university’s annual Farmland Value Survey, said he agrees that the main driver for the recent bump in Iowa’s farmland values is the limited land supply.
However, Zhang also pointed out that during the past three years, Iowa, Illinois and Indiana were on a downward trajectory and still remain there overall.
For instance in 2010, Iowa’s farmland values averaged $5,064 an acre, according to the Iowa State University Farmland Value Survey. In 2011, the average value rose to $6,708 while in 2012 it rose to $8,296. In 2013, farmland values hit an average of $8,716 per acre.
In 2014, Iowa’s farmland values began to slide, with average values that year falling to $7,943 an acre. In 2015, the average value of Iowa farmland fell again to $7,633, while last year if dropped to $7,183 an acre.
Iowa State’s Farmland Value Survey will be released next month, which will show if Iowa’s land values have risen or if the fall has slowed somewhat.
In his Ag Letter, Oppedahl said that most of the banker respondents to his survey, 73 percent, predict farmland values will be stable in the fourth quarter of 2017, while 25 percent of those bankers expect farmland values to decrease in the October through December of 2017. Only 2 percent of respondents expect farmland values to increase.
Oppedahl said that bankers anticipate weaker demand by farmers and nonfarm investors to acquire farmland in the fall and winter when compared to a year ago.
It is that tight supply of available land for sale that appears to be contributing to the stability of farmland values in the Seventh Federal Reserve District, which saw a drop of only 1 percent overall year-over-year from Oct. 2016 to Oct. 2017, he added.
Oppedahl also said that there is concern “not only for the health of agriculture, but also for the vitality of rural economies.”
In his Ag Letter, Oppedahl said that nearly two-thirds of the responding bankers view that a “weakening agricultural economy had led to weaker Main Street business activity.” Another 18 percent of respondents did not agree and 17 percent were uncertain, he said.
Yet, Oppedahl said that “Until the outlook for farming improves, the economy in the rural Midwest is likely to remain constrained.”