Average Iowa farmland value has shown a decline for the third year in a row—the first time this has happened since the 1980s farm crisis—and is now estimated to be $7,183 per acre. The statewide per acre value declined $450, or 5.9%, since November, 2015. Farmland values hit a historic high in 2013, but have steadily declined since then. The statewide average value for an acre of farmland is now about 17.5%lower than 2013 values.

Land values were determined by the 2016 Iowa State University Land Value Survey, which was conducted in last month by the Center for Agricultural and Rural Development (CARD) at Iowa State University and Iowa State University Extension and Outreach. Results from the survey are consistent with results by the Federal Reserve Bank of Chicago, the Realtors Land Institute, and the U.S. Department of Agriculture. Dr. Wendong Zhang, Assistant Professor of Economics at Iowa State University, led the annual survey.

The $7,183 per acre, and 5.9% drop in value, represents a statewide average of low-, medium-, and high-quality farmland. The survey does also report values for each land quality type, crop reporting district (district hereafter), and all 99 counties individually.

Average farmland values hit a historic peak of $8,716 per acre in 2013, but declined 8.9% in 2014, 3.9% in 2015, and have now fallen an additional 5.9%.

“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. The land market is going through an orderly adjustment while the US agricultural sector, a competitive industry, is trying to adjust to the old normal of zero industry-wise net profits,” said Dr. Zhang. “For a pessimist, there are reasons to worry, especially for landowners and/or producers who are over-leveraged. For an optimist, this decline is still modest, and the probability of a replay of the 1980s farm crisis is low.” Zhang said the likelihood of another farm crisis is low due to steady farm income accumulation before the downturn, a stronger government safety net, and an overall lower debt level in the agriculture sector.

Ethanol’s Impact
Starting in 2004, several factors, including the ethanol boom and historically low interest rates, drove five consecutive years of double-digit growth in average farmland values. By 2008, average values were almost 70% higher than 2004, and by 2013, average values were over 230% higher than 2004 values. While they have declined three years in a row now, average values are still 173% higher than 2004.

The decline didn’t come as a surprise for some. In November 2015, more than 75% of ISU Land Value Survey respondents thought land values in their territory would continue to decline in 2016. The majority predicted the decline would be either less than 5% or between 5 and 10%, which is consistent with the 5.9% decrease reported by the 2016 ISU survey.

“Looking ahead, land values might continue to adjust downwards in the next year or two,” Zhang said. “This is consistent with the stagnant corn and soybean futures prices and potential rise in interest rates; however, many respondents to the ISU survey are hoping for the market to rebound in 3 or 4 years.”

Factors Influencing Land Values
The most common positive factors influencing land prices noted by survey respondents were low interest rates, strong crop yields, limited land supply, and strong demand. The most commonly cited negative influences were lower commodity prices, high input prices, livestock losses, weak cash rental rates, and a weakening global economy and stock market returns.

The ISU land value survey was initiated in 1941, the first in the nation, and is sponsored annually by Iowa State University. The survey is typically conducted every November while the results are released every mid-December. Only the state average and the district averages are based directly on the ISU survey data. The county estimates are derived using a procedure that combines the ISU survey results with data from the US Census of Agriculture.

The ISU Land Value Survey is based on reports by agricultural professionals knowledgeable of land market conditions such as appraisers, farm managers, agricultural lenders, and actual land sales. It is intended to provide information on general land value trends, geographical land price relationships, and factors influencing the Iowa land market. The 2016 survey is based on 518 usable responses providing 711 county land values estimates. Forty-eight percent of respondents answered the survey online.