Iowa farmland prices set another record in 2013 but softening

CHICAGO, Dec 11 (Reuters) – Prices of Iowa farm land set a new record in 2013 for the fourth year in a row as farmers paid top dollar but most land brokers and other industry specialists expect weakness ahead due to falling crop prices, an Iowa State University researcher said on Wednesday.

The average Iowa farmland value in 2013 was estimated to be $8,716 per acre, an increase of 5.1 percent from 2012, according to results of the Iowa Land Value Survey conducted in November.

“The land value survey shows a market in flux – fluctuating between strong sales and poor sales,” Michael Duffy, the Iowa State farm economist who conducts the annual survey, said in an interview.

“It’s a question of whether the market is at a plateau, a peak and due for a correction, or catching its breadth before it starts taking off again,” Duffy said.

Iowa – the top corn and soybean producing state, and a major hog and cattle producer – is a bellwether for the U.S. farm economy, which has seen an historic boom in the last five years driven by the demand for biofuels and food exports.

The Iowa survey is based on reports by licensed real estate brokers and selected individuals considered knowledgeable of land market conditions. The 2013 survey is based on 674 county land value estimates from Iowa’s 99 counties.

Duffy said many respondents commented that the current Iowa farmland situation might be “a plateau.”

Scott County, with an estimated $12,413 average value for all farmland, saw the highest average county values in the Iowa State survey. Scott County, located in east central Iowa, also had the highest percentage increase and highest increase in value, 12.45 percent and $1,374 respectively, of any county.

The Northwest District overall reported the highest land values at $10,960. But that was a decrease of $445 (3.9 percent) from 2012. O’Brien County showed the highest dollar decrease in 2013 of $478. Osceola, Dickinson and Lyon counties along with O’Brien County all shared the greatest percentage decrease in 2013 at 3.72 percent.

The results were in line with a recent quarterly survey of Midwest farmland by the Chicago Federal Reserve Bank, which reported steady to weaker land prices in the third quarter of 2013 for the first time in years as crop prices fell on the outlook for a record grain harvest.

“The results of our survey – up 5 percent occurred primarily in the first six months of the year,” Duffy said. “Since then as corn prices dropped land values have either stabilized or dropped a little.”

Iowa farmland values vs corn prices: http://link.reuters.com/rys54t

LEANING LOWER?

Duffy said there were many competing forces that will influence prices over the coming years but for now it appears there are more factors that will lead to lower prices.

Farmland values are highly correlated with gross farm income, he said, and a majority of the survey respondents were concerned about income. More than three-fourths, 76 percent, of respondents cited lower commodity prices as a negative factor affecting the land markets.

Data show the rate of increase in land values slowed and commodity prices started dropping after June 2013, Duffy said.

Farm income is a strong indicator for the direction land values will go but interest rates remain low and the volume of farm land for sale is down from a year ago. Duffy said the percentage of respondents who reported fewer sales in 2013 than in 2012 was the highest it’s been since 1985.

Duffy said that from October 2012 to October 2013 there was a 33 percent drop in the Iowa average corn price and an 11 percent drop in soybean prices. The November estimated price for Iowa corn was 39 percent lower than the November 2012 price. Soybean prices were 11 percent lower.

If projections of a new lower level for commodity prices hold, land values will like drop as well, he said.

“But the odds are pretty low of major collapse in land values because I think the odds of a major collapse in grain prices is pretty low,” Duffy added.

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