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    falling farmland prices in iowa

    Are Iowa Farmland Prices Falling?

    I woke up this morning to 39 degrees, it was cold in the house and when I made my way out to feed the cows I threw on a sweatshirt.  As a farmer this signals harvest, but as a farmland auctioneer it tells me sales season is coming.  The majority of farmland sales occur from November through February when the crop is off and tenancy can change.   We have been busy since the last sales season gearing up for the next one.  Through the Spring, Summer and Fall we work with seller clients to help them understand the value of their farmland and prepare if for auction.  Each year for the last 6 or 7 years we as licensed agents and auctioneers have struggled with putting a solid valuation on farmland.  In times of uncertainty its always smart to use the auction method to sell farmland because auctions do not have a cap price like a listing does.  When you set a price you are likely never to do better than that price.

    As we came out of the 2012 farmland sales season we really did not believe there would be a great deal of business in 2013.  2012 was a unique year with a raise in capital gains taxes coming at year end we as auctioneers pushed a lot of farmland though the sales process last year.  To our surprise 2013 has been busy, potentially hussled along by anxious farmland owners that see commodity prices dropping this year as well as increases in interest rates.   For the last few years we have seen the farmland market shoot through the roof propelled by low interest rates, record farm profits and investor demand.  The picture looks different in 2013.  We’ve seen investor demand drop off slightly, interest rates have come off the bottom and commodity prices have fallen during the year.

    Current 2013 iowa farmland pricesA recent study released by the Realtors Association shows current 2013 farmland values and their change from March 2013. 

    The big question right now is what will 2013 hold for farmland prices?  I think the answer can change day by day and by the time you read this the picture could easily be different.  A new report out in early September on Iowa farmland values shows the steep increases in farmland prices have stopped.  In fact it showed that Iowa farmland had only appreciated 1.4% from March 1, 2013 to September 1, 2013 statewide.  Iowa’s 9 different crop reporting districts came in with differing numbers in farmland appreciation

    Northwest Iowa +0.8%
    North Central Iowa +1.7%
    Northeast Iowa -0.7%
    West Central Iowa -0.5%
    Central Iowa +1.1%
    East Central Iowa +5.0%
    Southwest Iowa -0.5%
    South Central Iowa +2.0%
    Southeast Iowa +2.8%

    The statewide average is calculated by adding the sum of all 9 crop reporting districts in Iowa and dividing by 9 districts.  Its important to look at individual districts in this study to understand where the farmland market is.  3 of the districts ran a negative appreciation for the period while 5 of the districts were up a small percentage.  East Central Iowa was the highest at 5.0% appreciation.  Considering the average appreciation over history has been approximately 6% it appears that region it keeping pace at least for the time being with the historical average.

    Looking forward to the fall and winter of 2013/2014 I think for those farmland owners that want to sell at the top, I’m not sure its any closer a call than this year.  I’ve always advised clients not to wait for the top otherwise you may be riding the market down and we can see in some cases across Iowa with softer than past sales there is already some erosion of farmland values.  There will be some that will hold on thinking that commodities will come back and I can’t argue that, we are at the bottom of the yearly cycle in commodity prices, they likely will be priced better later in the harvest cycle but I’m not an expert on commodity prices and markets but my conversations with those that are have told me we are likely to see them come off the levels they are now, but nobody expects to see the top prices we’ve seen in the past.  Our current stockpiled reserves along with what has been estimated to be a record harvest this year is likely to hold those levels down.  With farmland prices so closely tied to the lands ability to produce income you’ll see the two track in line with each other as they always have.

    So to answer the question “Are Iowa farmland prices falling?” I guess the answer is over all no, but in some places yes, lets see what harvest brings before we jump to to many conclusions.