Farmland values in southeast Iowa grow more than 4 percent

Farmland values in southeast Iowa are on the rise, according to a survey released earlier this month.

The value of Iowa farmland grew by 2.3 percent from 2018 to 2019, according to the annual Iowa Land Value Survey released earlier in December by Iowa State University.

It was just the second time in the last six years that farmland values have risen in the state. The average value of an acre of land is now $7,432, up $168 from last year.

Local jump

The value of farmland in southeast Iowa rose even more than the state average. Jefferson, Washington and Henry counties saw their land values jump 4-5 percent.

' Washington County's land value rose 4.9 percent to $8,593 per acre.

' Henry County's grew by 4.3 percent to $6,901 per acre.

' Jefferson County matched Henry County's growth of 4.3 percent, climbing to $5,608.

Iowa State University assistant professor of economics Wendong Zhang led the land value survey, and remarked that the modest increase in land values reflects a slowly improving U.S. farm economy buoyed by low interest rates. He said stronger than expected crop yields in Iowa and continuing limited land supply helped contribute to the increase in land values, despite low commodity prices.

'We are still faced with significant uncertainty, especially the ongoing U.S.-China trade war, which has significantly affected U.S. agricultural exports, especially soybean exports, and lead to lower commodity prices and weaker farm income,” Zhang said

Variation

Perhaps the most interesting fact revealed in the land values survey is how the value of land differs so much from one part of the state to the other. Even neighboring counties can have huge discrepancies in their land values, as evidenced by the statistics above showing Washington County with average land values 65 percent higher than neighboring Jefferson County.

What explains the difference? Zhang said it comes down to two main factors: livestock competition and land quality. There is more competition for livestock in Washington County than a lot of surrounding counties, and that bids up the price of its land. Also, the quality of its land, for instance, its corn suitability rating, is high at 68, compared to a 61 CSR in Jefferson County.

'Washington County is among the highest in that region in terms of soil quality,” Zhang said.

Washington County's higher land values are nothing new. Zhang looked at figures in 2006, and they showed that Washington County's land values were noticeably higher than Jefferson County's then, too, at $3,600 per acre compared to Jefferson's $2,400 per acre.

State overview

Broadly speaking, the most expensive farmland in the state is concentrated in northwest Iowa, where there are eight counties with average land values over $9,000 per acre, compared to just three such counties in the rest of the state. The southernmost tier of counties has the lowest land values. Of the 10 counties that border Missouri, all of them have average land values under $7,000 per acre and six of them are under $5,000 per acre.

Zhang said the difference in land value is driven mostly by the quality of the soil. In general, soil quality is better in northwest Iowa than the rest of the state. The southernmost counties have worse soil because they were not covered by the Des Moines lobe, a glacier that covered the northern part of the state during the last Ice Age and which deposited minerals in the soil as it slowly melted.

'We see more pasture and timber in southern Iowa, and a lower fraction of tillable cropland as well,” Zhang said. 'In the northwest corner, there is strong competition among livestock producers, which bids up the price of land. They need nearby land to spread manure to be compliant with their manure management plan.”

A few counties outside northwest Iowa have high land values, such as Johnson County (Iowa City) and Scott County (Quad Cities), with average land values of $9,041 and $10,837 per acre, respectively. Scott County has the highest land values in the state.

'Scott County has high land values because of urban influence,” said Zhang, who added that a land parcel's sheer proximity to a big city raises its value because of its prospects for urban development. 'It's been the highest because of its proximity to the Mississippi River and the Quad Cities. Farmers there have a transportation advantage, which helps with the crop prices you get. They have a shorter distance to travel to ship their grain south.”

Zhang said farmers in northwest Iowa used to suffer a price disadvantage because they were far away from major consumer markets like rivers, and they had to transport their grain farther before selling it than farmers in the rest of the state. In fact, Zhang said states like North Dakota suffer as much as a $1 per bushel loss in their corn price compared to southeast Iowa because of the distance they have to transport it to market.

Farmers in northwest Iowa aren't suffering that penalty like they used to, Zhang said, because over the past decade ethanol plants have been built so the farmers can sell their grain to the plant instead of transporting it to the Mississippi River.

Trajectory

What does the future hold for Iowa farmland values? Zhang sees them stabilizing, evidenced by the fact that they were falling for a number of years but have now leveled off.

Commodity prices peaked in 2013, which is also when land values peaked. Since then, farmland values have fallen by 15 percent, while commodity prices have dropped much further, falling by half.

'The general rule is that a 10 percent change in farm income results in a 5 percent change in land values the following year,” Zhang said. 'Land is a much tighter market now. There isn't much of it for sale.”

Commodity prices seem to be on the rebound, especially in recent weeks when news broke that the U.S. and China had reached terms on a trade deal to reduce tariffs. The trade deal has not been finalized, but the two sides have come to an agreement in principal. Zhang said that if the tariffs are done away with, he predicts exports to China will return to 2013-2017 levels.

Getting a start in farming

The Union asked about how the price of land affects a new farmer's ability to enter the profession. Zhang said getting a foot in the door is not as easy as it used to be. To be successful at farming, he calculated that a person needs $4-5 million to purchase land and about a quarter-million dollars to purchase machinery.

This is a major concern for the United States Department of Agriculture, which has started a beginning farmer program to encourage more land access to beginning farmers.

'Most land transfers are within families, such as to the next generation, as opposed to nonfamily members,” Zhang said. 'That is part of the issue. Because a farm needs to be large to be efficient, you can't just buy two acres of land to enter farming. You've got to buy a substantial amount.”

Zhang said one of the ways new farmers get a head start is by purchasing equity in their family farm or by doing contract feeding to build up their equity. Then, after a few years, they have built up enough capital to purchase land of their own.

For those who wish to learn more about the Iowa Land Values Survey such as in-depth data and maps, go to https://www.card.iastate.edu/farmland/.