Based on the data, more land has come to market, so far, in 2018 than in 2017 and the trendlines in many of the following tables indicate some softening has occurred in land prices.
Land Prices Soften
From January to June 2017, 208 land auctions occurred. In 2018, there were 369 land auctions from January to June. I think several farms were brought to the market that had some “financial stress” and added to the supply of auctions, which softened land prices.
This is indicated by the 12-month market review trendline for all land auctions and highly tillable land auctions (meaning at least 85% of the acres were tillable).
The 6-month market review trendline also indicates softening for all auction auctions. However, highly tillable land auction sale prices have increased slightly.
Benefits of High Quality Land
As you look through the tables, I think you will notice the higher the quality the land, the more stability, and maybe even a slight increase in the past 6 months. Land buyers are still willing to pay for quality and the tables indicate as much.
First quarter 2018 was very active for land auctions and was when the extra supply hit the market. The supply of land auctioned in second quarter 2018 is down considerably from first quarter and I think this helped strengthen the higher quality land prices in the second quarter.
Land Demand Remains Strong
Demand to buy land continues to out-pace the supply for sale. I do not see the bottom falling out of the land market, but slight movements up or down. There is also a lot of equity in rural Iowa, with a recent study by Iowa State University indicating 82% of the farmland in Iowa is debt free, which is a significant increase from 1982 which 68% was owned debt free. As I visit with realtors across the state, land investors are being very active in the market. While farmers are still buying most of the land sold at auction, they are getting vigorous competition from investor buyers. The investor buyers are keeping a floor under land prices.
Land Value Concerns
The next 90 days could get interesting in the lowa land market. Some of the concerns I am hearing from realtors across Iowa are: huge differences in the amount of rainfall, some parts of northern Iowa could not get their crops planted while parts of southern Iowa are in a severe drought, considerably lower commodity prices in the past 2 months, trade wars and tariffs, farm bill, and higher interest rates. Time will tell if these concerns are legitimate and will affect land prices. Land buyers look at land purchases as a multi-generational investment. It may not make a lot of sense to buy a farm in the current environment if you plan to own it for 2-3 years. If you plan on owning it 50-60 years, it will be a guaranteed solid investment.
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Written by Jim Rothermich, MAI "the Land Talker"
With nearly three decades of experience in the farmland real estate industry and his MAI designation, Jim is a respected expert in the appraisal industry. Check out his blog: "Land Talk Weekly" or follow him on Twitter: @theLandTalker to keep current on Iowa farmland information.