By WENDONG ZHANG

Iowa State University Extension and Outreach economist

AMES (ISU-E) – The survey was initiated in 1941 and is sponsored annually by Iowa State University. Only the state average and the district averages are based directly on ISU survey data. County estimates are derived using a procedure that combines ISU survey results with data from the U.S. Census of Agriculture. Since 2014, the survey has been conducted by the Center for Agricultural and Rural Development in the Department of Economics at Iowa State University and Iowa State University Extension and Outreach.

The survey is intended to provide information on general land value trends, geographical land price relationships, and factors influencing the Iowa land market. The survey is not intended to provide a direct estimate for any particular piece of property.

The survey is an expert opinion survey based on reports by licensed real estate brokers, farm managers, appraisers, agricultural lenders, county assessors, and selected individuals considered to be knowledgeable of land market conditions. Respondents were asked to report for more than one county if they were knowledgeable about the land markets. The 2018 ISU Land Value Survey is based on 793 usable county-level land value estimates provided by 624 agricultural professionals.

Of the 624 respondents, 62 percent completed the survey online. Online responses allow participants to provide estimates for up to 15 counties. A web portal has been developed to facilitate the visualization and analysis of Iowa farmland values by pooling data from ISU, USDA, Chicago Fed, and the Realtor Land Institute, as well as by making use of charts over time and interactive county maps. The portal can be accessed at www.card.iastate.edu/farmland.

Participants in the survey are asked to estimate the value of high, medium, and low-quality land in their county. Comparative sales and other factors are taken into account by the respondents in making these value estimates. This survey is the only data source that provides an annual land value estimate at the county level for each of the 99 counties in Iowa. In addition, this survey provides estimates of high, medium, and low quality land at the crop reporting district and state level.

The 2018 state average for all quality of land was estimated to be $7,264 per acre as of November 1, 2018. This is a decrease of $62 per acre from November 2017, and a 0.8 percent decrease. This is the fourth year of decline in the past five years.

Major factors influencing the farmland market

Most survey respondents listed positive and/or negative factors influencing the land market. Of these respondents, 82 percent listed at least one positive factor, and 84 percent listed at least one negative factor. In most cases, respondents listed multiple factors.

There were three positive factors listed by over 10 percent of respondents who provided at least one positive factor. The most frequently mentioned factor was limited land supply, mentioned by 23 percent of respondents. Strong yields and low interest rates were the second- and third-most frequently mentioned positive factors, mentioned by 13 and 12 percent of respondents, respectively. Other frequently mentioned positive factors included cash/credit availability (nine percent), strong demand (seven percent), and investor demand (six percent).

There were two negative factors listed by more than 10 percent of respondents who identified at least one negative factor. The most frequently mentioned negative factor affecting land values was lower commodity prices, mentioned by 36 percent of respondents. Higher long-term interest rates were the second-most frequently mentioned negative factor, mentioned by 18 percent of respondents. Nine percent of respondents cited recent tariffs on U.S. soybeans and pork and other agricultural products, making it the third- most frequently mentioned negative factor. Cash/credit availability, higher input costs, an uncertain agricultural future, and weather were each mentioned by four to six percent of the respondents.

Thirty-four percent of respondents reported lower sales in 2018 relative to one year ago. On the other end of the spectrum, just 28 percent reported more sales, and 38 percent reported the same level of sales in 2018 relative to 2017.

Interpretation of the 2018 survey results

The 2018 ISU Land Value Survey shows a 0.8 percent decrease in average Iowa farmland values from November 2017 to November 2018. The average statewide value of an acre of farmland is now estimated at $7,264. This modest drop is the fourth decline over the past five years and represents a 17 percent decrease from the 2013 peak in nominal land values, or a 24 percent drop in inflation-adjusted values.

The recent decline is largely attributable to lower commodity prices, higher interest rates, and to some extent the trade disruptions. The magnitude of the decline is still very modest and overall the land market is largely stable. Many respondents cited limited land supply, strong yields, and low interest rates as positive factors influencing the land market. Two-thirds of the respondents reported no change or less sales compared to a year ago. In general, the survey respondents have an optimistic view regarding the strength of the future land market both one and five years from now.

The 2018 ISU Land Value Survey revealed a mixed land value pattern across crop reporting districts, counties and land quality classes. Local land supply and demand, as well as the local fluctuations in farm income largely explain the variation across the state. Five of nine crop reporting districts reported an increase in land values: the largest percentage increase was in South Central Iowa, 3.8 percent, while Central Iowa and Southeast Iowa reported a 2.4 percent and 3.6 percent loss, respectively. Seventy of 99 counties in Iowa reported a drop in land value, while the other 29 counties saw an increase. The largest percentage increase, 3.1 percent, was reported in both Floyd and Mitchell Counties, while the highest percentage decrease (3.3 percent) was reported in Humboldt and Wright Counties.

In general, the results from the 2018 ISU Land Value Survey echo results from other surveys, which all showed relatively stable farmland market trends. In November 2017, the Federal Reserve Bank of Chicago reported a one percent decline in Iowa’s “good” farmland values from July 1, 2018 to October 1, 2018. U.S. Department of Agriculture June Area Survey reported a 1.0 percent increase in Iowa’s agricultural real estate values (land and building) from June 2017 to June 2018. In September, the REALTORS Land Institute reported a 1.7 percent drop in Iowa cropland values from March 2018 to September 2018, which constitutes an overall 1.2 percent decline from September 2017 to September 2018.

The 2018 ISU Land Value Survey shows that the majority of farmland sales, 72 percent, were to existing farmers. Investors represented 21 percent of land sales. Estate sales were still the main source of sales, followed by sales by retired farmers.

There are multiple supply and demand factors that support the overall stabilization of the farmland market.

First, the farmland market has always been a thin market with few farmland sales, but the past five years the farmland market has been extremely tight – for five consecutive years, more respondents to the ISU Land Value Survey reported less sales in their county compared to the previous year. In this year’s survey, only 28 percent of the respondents reported more sales activity, while 34 and 38 percent reported less or similar sales activities, respectively. The limited farmland supply helped buoy market prices in many areas across the state.

Second, the new 2017 Iowa Farmland Ownership and Tenure Survey shows that 82 percent of all farmland in Iowa is fully paid for and 29 percent is owned primarily for family or sentimental reasons. This explains in part the limited land sales offered by existing landowners and the strong demand noted as one of the positive factors in the 2018 ISU Land Value Survey.

Third, the exceptional crop yields in 2018 helped reduce production costs on a per-bushel basis and alleviate the downward pressures on farm profits and land values. In November 2018, USDA forecast corn yields of 198 bushels per acre and soybean yields of 58 bushels per acre. Even though this is revised lower compared to one month ago, the last six corn crops are still the largest the United States has ever produced, and a projected record national soybean yield will boost soybean production above 4.5 billion bushels for the first time (Schulz and Hart 2018).

Fourth, despite recent hikes, interest rates remain below the recent historical average and well below pre-recession levels. Lower interest rates kept the increase in interest expenses at modest levels and supported farm profitability. Finally, the 2018 ISU Cost of Production estimates reveal that estimated average cost for corn and soybean production in Iowa dipped further to $3.60/bu and $9.46/ bu, respectively. Despite continued declines in commodity prices, the corresponding drop in production costs have resulted in breakeven or positive production margins for many producers this year, which has a positive impact on farm income and asset values.

The farmland value estimates from the ISU Land Value Survey are average land value estimates for all farmland in the county, which not only includes cropland, but also pasture, CRP, and timberland. Specifically, we asked respondents to estimate “farmland value for average-sized farms in your county as of November 1, 2018.”

An opinion survey is just that. It represents the collective opinion of the survey respondents. Most of the respondents will use actual sales to formulate their opinions but each person can choose to weigh or discount particular sales as they deem necessary. The ISU Land Value Survey is an opinion survey, as are the surveys conducted by Federal Reserve Bank, USDA, and the REALTORS Land Institute. It is important to consider the survey respondents, the questions asked, the time period covered, and other factors relating to a particular survey. As a result, it is important to note that when comparing results across surveys for Iowa and neighboring states, it is better to compare percentage change over time as opposed to dollar amount per acre.

The ISU Land Value Survey is intended to provide information on general land value trends and geographical land price relationships and factors influencing the Iowa land market. The survey is not intended to provide a direct estimate for any particular piece of property. We recommend interested buyers or sellers hire an appraiser to conduct formal appraisal of particular parcel, go to county assessor websites, or examine recent auction results for comparable parcels in their region.

There are several unique uncertainties worth watching over the next year or two. First, it remains unclear how quickly and by how much the Federal Reserve will raise interest rates. Higher interest rates tend to put further downward pressures on producers’ working capital, farm income, and land values. Second, it is still highly uncertain how the trade negotiations and disputes with China will turn out, and because China was one of the most important buyers for key agricultural commodities such as soybeans, the impacts of trade disruptions on farm income and land values will likely be significant. It is worth noting that it takes time for the land market to fully capitalize the income shocks resulting from the trade disruptions. The 2019 land values will reflect more of the trade disruption impacts than current market values. Third, the agricultural sector is closely watching possible policy changes, especially a new Farm Bill and details on commodity and conservation programs. Fourth, it is critical to watch whether the improved farm income and land market lead to landowners’ growing interest in selling land, or more sales from financially stressed producers.

Across the Midwest, there are signs of deteriorating agricultural credit conditions and a continued, prolonged downturn in the agricultural economy, although with a much slower pace. This recent decline in the Iowa farmland market is a result of lower commodity prices and higher interest expenses. Given the rising interest rates and still- high uncertainty regarding U.S. agricultural trade, the land market in Iowa might see another modest decline next year despite an overall stabilizing trend.