Corn Belt Farmland Values – Declines Continue, Modest Rises Expected

Photo: Michigan State University

Today’s update highlights recent news items that discuss the value of farmland in Iowa, Nebraska, and more broadly in the Corn Belt.

Iowa

An update last month from Iowa State University (ISU) Extension’s Wendong Zhang and Steven Johnson (“Agricultural professionals expect lower land values and stable crop prices“) stated that, “Over 270 agricultural professionals attended the 2019 ISU Soil Management Land Valuation (SMLV) Conference this past May…Over 150 participants provided their estimates of future land values as well as future cash corn and soybean prices in their primary county in Iowa via an online Qualtrics survey.

Overall, the agricultural professionals forecasted a continued modest decline in land values in Iowa as well as stable cash crop prices.

The ISU report explained that, “The agricultural professionals expect an immediate, modest decline in land values, followed by stable to slightly rising land markets. It is important to note that the annual inflation rate over the next few years will likely be close to 2%, so even the 1% bump in nominal land values from 2020 to 2021 would be modest declines in inflation-adjusted terms.”

Zhang and Johnson pointed out that, “U.S. farm income has fallen by half off the 2013 peak, and the records from the Iowa Farm Business Association show that a quarter of producers are experiencing liquidity problems and low working capital. The heightened uncertainty about the U.S.-China trade relations is another reason for the dampened commodity and land market outlook.”

With respect to cash rents, last month’s update indicated that, “The respondents provided cash rent estimates for the corresponding time-horizon, for which we calculated the gross capitalization rates for the land market as their gross cash rent estimates divided by land value estimates. Interestingly, the respondents expect the gross capitalization rates to be stable around 3.3% from now to 2040.  In other words, respondents expect cash rent to rise or decrease at the same pace with the land values.”

“Figure 1 shows that over the past three decades, the gross capitalization rates for the farmland market in general followed closely with the CMT-10 rates.” (“Agricultural professionals expect lower land values and stable crop prices,” by Wendong Zhang and Steven Johnson. Ag Decision Maker. Vol 23., No. 8 (June 2019)). Click Image to Enlarge

Nebraska

Also last month, the Department of Agricultural Economics at the University of Nebraska released its 2019 Nebraska Farm Real Estate Report.

The report stated that,

Marking a half decade of declines, the all-land average value in Nebraska for the year ending February 1, 2019 averaged about 3 percent lower than the prior period.

“Figure 2 summarizes these figures and trends along with the percent changes over the prior year’s all-land average for the eight districts in the state.”

“Nebraska Farm Real Estate Market Highlights, 2018-2019, by Jim Jansen and Jeff Stokes. Department of Agricultural Economics University of Nebraska-Lincoln (June 2019). Click Image to Enlarge

“The state wide all-land average value for the year ending February 1, 2019 averaged $2,645 per acre or about a 3 percent ($75 per acre) decline to the prior year’s value of $2,720 per acre.”

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The report stated that, “Panel members reported in 2019 current crop prices, property taxes, and farm input costs as the most negative forces leading to the lower market value of land across the state. Additional economic forces placing strong negative pressure on the real estate markets included future property tax policies and the financial health of current owners.”

The University of Nebraska report added that, “Nebraska farm real estate set the highest nominal (non-inflation adjusted) market value for the all-land average in 2014 at $3,315 per acre. Two years prior to the market high, the price of corn peaked at $6.89 in 2012 during the record setting drought period.

“Nebraska Farm Real Estate Market Highlights, 2018-2019, by Jim Jansen and Jeff Stokes. Department of Agricultural Economics University of Nebraska-Lincoln (June 2019). Click Image to Enlarge

“The prolonged downturn in commodity prices has panel members and stakeholders concerned about the financial circumstance of many agricultural producers across the state. As a result, since the peak in the all-land market value, the price of land has declined $670 per acre.”

Corn Belt

And DTN Special Correspondent Elizabeth Williams reported last week that, “From Ohio to Nebraska, farm real estate brokers note a firmness in the market that wasn’t there three months ago.

“‘Even six weeks ago, we were looking at selling $3.30-per-bushel old-crop corn. There’s a much different feel right now in the market,’ said Doug Hensley, president of real estate services for Hertz Farm Management with offices in Iowa, Illinois and Nebraska.

While the disastrously wet spring across the Corn Belt could create localized pockets of financial distress, brokers say quality land is still commanding strong prices and attracting an array of buyers.

The DTN article noted that, “[Mark Wilson, owner of Wilson National real estate and auction group in Hillsboro, Ohio] said stronger commodity prices will help farmers with corn in the bin from last year. One Ohio ethanol plant was paying $5.10-$5.25 per bushel for corn this week.

Those prices are helping to renew optimism in the farmland market, said Mark Mommsen with brokerage firm Martin, Goodrich and Waddell in Sycamore, Illinois.

“‘Land buyers see opportunity ahead,’ he said. ‘This weather has gotten us closer to a reset than any time since 2013.’


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