How did Iowa farmland values fared in 2020?
November 30, 2020

How did Iowa farmland values fared in 2020?

The price of land is something every farmer and landowner keeps an eye on. It makes up a large majority of assets in the farm sector in this country, and it is often seen as a key indicator of the agriculture economy’s health.

So, after a year with many unexpected barriers, many people in our industry are likely wondering how farmland values fared in 2020. Thanks to our friends at Iowa State University Extension and Outreach, we have updated answers that provide a look at how land prices in Iowa closed out the year.

ISU Extension and Outreach recently released an updated version of the 2020 Iowa Farmland Value Survey, which provides not only a look at prices throughout the state, but also provides insights into why the market is behaving as it is and where the market may be headed.

What is the Iowa Farmland Value Survey?

The Iowa Farmland Value Survey has been around for many years. It was first conducted in 1941 and has been sponsored each year by Iowa State University.

The goal of the survey is to provide a look at general trends in land values, geographical land price relationships and factors that influence the land market here in Iowa. The survey takes responses from experts involved in many areas related to agriculture, including real estate brokers, farm managers, appraisers, agricultural lenders, county assessors and other individuals that the survey organizers selected.

Why are farmland values important?

We will get to the updated survey responses shortly, but first it’s important to share why these land values are so closely watched. There are several reasons why those involved in farming and agriculture keep such close tabs on the price of land.

For one, land generates returns for as long as a farmer or investor holds it. The land’s value is a sign of how much returns could be expected. In years where markets are strong and/or production is strong, as well, land values are likely to benefit, for example. On the other hand, weak markets can negatively affect land values, as can poor production levels.

The latest land values in Iowa

The latest survey shows that the state average value of what survey respondents consider to be quality land is an estimated $7,559 per acre as of November, 1 2020. This is actually an increase of $127 per acre, or a 1.7% increase, compared to November of 2019.

The survey’s authors indicated that this is considered a modest increase in farmland values. It is also, the authors notes, the third increase in Iowa farmland values in the previous six years – and it’s the second increase in a row.

However, though the short-term trends look positive, the 2020 land value is a 13% decrease when compared to where values were in 2013 when those figures reached a peak.

Several factors led to higher land prices

There were a number of reasons why farmland values in Iowa were able to see a second consecutive period of increase, according to the survey.

Those reasons included:

  • Record amounts of federal payments
  • Significant cuts in interest rates by the Federal Reserve
  • Recent increases in both agricultural exports and commodity prices
  • A continued limited land supply

The survey authors are quick to add a caveat that the increased land values are modest. This, they add, suggests that the overall land market is stable and is likely not on a drastic rebound toward values at peak levels like those that were seen in 2013.

There was some variation across the state

Not all regions in Iowa saw farmland prices go in an upward direction. How certain regions and counties fared depended a lot on the local land supply and demand and local differences and changes in farm income.

For this survey, the state is divided up into nine different regions, which are referred to as crop reporting districts. They are: northwest, north central, northeast, west central, central, east central, southwest, south central and southeast. Each of the crop reporting districts saw an increase in land values, except for the southwest district.

The west central crop reporting district had the highest percentage increase at 3.9%, while the south central district had an increase in farmland value of 3.8%. According to the survey, the northeast and northwest districts had increases of 2% or higher.

Broken down even further on the county level, there were 78 counties in Iowa that saw land values go up, but 21 counties saw land values go in the other direction.

Survey also shares information on land sales

ISU’s survey is not just used for examining land values. It also looks at who is buying and who is selling farmland in the state.

In this survey, most farmland sales went to existing farmers (72%). Investors accounted for 22% of land sales.

Collectively, 38% of survey respondents said that there were more sales in 2020 compared to last year, while 19% said there were fewer.

What these results mean for farmers and investors

One of the highlights that the survey points to, according to its authors, is the relative stability of the land market here in Iowa. Historically, farmland has been seen as a good investment for both farmers and pure investors because of its history of providing stable, positive returns.

That means this year’s stable market should be a positive sign for anyone owning farmland. As farmland continues to increase in value, more investors – and farmers wishing to expand their operations – will be drawn to look at their farm real estate options.

Work with Cotton Grave to increase your return on investment

Cotton Grave has been a leader in farm real estate since 1960 in Iowa, Minnesota and South Dakota. With all of our experience, we are able to examine land, understand how productive it will be and project its potential production and rate of return well into the future.

We frequently work with both buyers and sellers on farmland transactions, so contact us today to discuss your goals and investment strategy.

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