Iowa State University Land Survey
Shows a 17% increase statewide.
History of the Iowa State Farmland Survey
Since 1950, the Iowa State University Land Value Survey has been the only data source that provides a county-level land value estimate for each of the 99 counties in Iowa. The 2022 Iowa State University Land Value Survey reported a 17.0% increase to $11,411 per acre for average Iowa farmland values from November 2021 to November 2022. This continues the dramatic surge from last year and the $11,411/acre nominal land value is the highest-ever since data collection began in the 1940s. The 2022 nominal land value is 31% higher than the 2013 peak in nominal land values and the inflation-adjusted values, $9,088/acre in 2015 dollars, saw another 9% increase, topping the previous peaks of 2012 and 2013 inflation-adjusted values. The surge continues to be supported by high commodity prices, limited land supply, stronger-than-expected crop yields, a good farm economy, and ample cash reserves on the farm. All crop reporting districts reported an increase in land values with the Northwest and Southwest districts reporting growth of 20% or more. High-quality land saw a 16.8% increase, while medium- and low-quality land increased 17.7% and 15.2%, respectively. In general, the results from the 2022 Iowa State University Land Value Survey extend the trend of substantially higher farmland values.
Iowa Farmland Value Increase
The 2022 state average for all quality of land was estimated to be $11,411 per acre as of November 1, 2022. The statewide average value increased $1,660 per acre from November 2021. The statewide average value increased 17.0% from November 2021. The highest average land values were reported in Northwest Iowa, $14,878 per acre. The lowest average land values were reported in South Central Iowa, $6,824 per acre. Land values across all nine crop reporting districts saw an increase. The largest percentage increases were in the Northwest and Southwest districts, 22.3% and 22.2%, respectively. The South Central and Southeast districts, which saw the smallest percentage changes, reported increases of 13.1% and 9.8%, respectively
Major Factors Influencing the Farmland Market
Most survey respondents listed positive and/or negative factors influencing the land market. Of all respondents, 98% listed at least one positive factor, and 90% listed at least one negative factor. In most cases, respondents listed multiple factors. There were three positive factors listed by over 10% of respondents who provided at least one positive factor. The most frequently mentioned factor was higher commodity prices, mentioned by 22.1% of respondents. Limited land supply and low interest rates through the summer of 2022 were the second- and third-most frequently mentioned positive factors, mentioned by 18.5% and 10.3% of respondents, respectively. Other frequently mentioned positive factors included cash on hand and high credit 4 availability (9.1%), strong yields (7.2%), good farm economy (4.6%), strong land demand including from investors (4.1%), inflation (2.9%), and stock market/global economic concerns (2.6%). There were also two negative factors listed by more than 10% of respondents who identified at least one negative factor. The most frequently mentioned negative factor affecting land values was interest rate hikes, mentioned by 34.5% of respondents. Concerns about higher input costs and stock market volatility and economic uncertainty were the second- and third-most frequently mentioned negative factors, mentioned by 14% and 8.1% of respondents, respectively. Weather uncertainty and uncertainty related to COVID-19 were each mentioned by roughly 6% of respondents.
Number of Sales Compared to Previous Year
Fifty-three percent of respondents reported more sales in 2022 relative to 2021, which ties for the 3rd highest rate since Iowa State began recording this information in 1986. On the other end of the spectrum, 16% reported fewer sales, and 31% reported the same level of sales in 2022 relative to 2021. The Central district has the lowest percentage of respondents who reported more sales, 44%, while the North Central district has the highest percentage of respondents who reported more sales, with 69%. Five of the nine districts had a majority of respondents indicate more sales in 2022 than 2021.
Farmland Value and Cash Crop Price Predictions by Respondents
This year’s survey asked respondents to predict land values and cash crop prices one and five years from now, as well as the prevailing interest rates for a 20-year farmland mortgage and a one-year operating loan. Respondents had optimistic views regarding the strength of the farmland market one and five years from now, and generally expect stable or even higher land values. Forty-eight percent of respondents forecasted an increase in their local land market in one year, while 28% expected a lower land value and 24% forecasted no change. While the most popular response was for the one-year land price forecast to be the same as the current situation, the second-most popular answer was an increase of 5%–10%. Looking five years ahead, 24% of respondents forecasted a decline, slightly smaller than the 28% forecasting a decline 12 months from now. However, over 60% of respondents expect a further increase in land values, with an increase of 10%–20% selected by most respondents. This year’s survey added a question to better gauge the respondents’ views of current farmland values by asking them to rate the current farmland values in their primary county as way too low, too low, just right, too high, or way too high. Fifty-nine percent and 12% of respondents think the current land values are too high or way too high, respectively, while only 5% of respondents think the current land values are too low. Twenty-four percent of respondents think the land values are just right. Respondents expect stable corn and soybean cash crop markets. In particular, the predicted state average cash corn prices for November 2023 and 2027 (five years from now) are $6.09/bu. and $5.90/bu., respectively. The statewide average soybean price predictions are $13.12/bu. in one year and $12.84/bu. five years from now. Respondents reported typical interest rates for 20-year farmland mortgages and one-year operating loans are 6.65% and 6.98%, respectively. These are significantly higher than one-year-ago levels due to the multiple interest rate hikes by the Federal Reserve to combat inflation.
Outlook for Land Values in 2023 and Beyond
The Iowa farmland market continued to soar and showed surprising strength despite rising interest rates and higher input costs. The estimated $11,411 per acre statewide average for all qualities of land in Iowa represents a 17.0% increase in nominal land values from November 2021. This significant increase, following the dramatic 29% surge last year, means that Iowa farmland values have hit an all-time high since Iowa State University started tracking the land value information in the 1940s. Even after adjusting for inflation, the inflation-adjusted land values rose 8.7%, and are higher than the previous peak in 2013. Not only the statewide and many district-level land values are at record levels even after adjusting for inflation, the inflation-adjusted land values in 66 out of 99 counties in Iowa are at an all-time high. Many of the factors behind the large surge in values last year continue to support this increase—interest rates remained low through the first half of the year, commodity prices held at very high levels as weather and geopolitical uncertainty created crop production concerns, crop yields once again were a positive surprise despite the weather challenges throughout the growing season, cash and credit availability has remained ample and allowed farmers to stay aggressive in the land market, and investor demand grew stronger nudged by inflation concerns and lack of alternative investment options. According to USDA Economic Research Service’s December 2022 farm income forecast, US net farm income is forecast to increase $19.5 billion (13.8%) from 2021 levels to $160.5 billion in 2022 (in inflation-adjusted terms, a 7.2% rise). US net farm income is at its highest inflation-adjusted level since 1973 and net cash farm income in 2022 would be at its highest inflation-adjusted level since 1929 (when USDA started computing inflation-adjusted values). The increase continues to be driven by strong commodity prices and cash receipts from farming. In particular, both crop receipts and animal or animal product receipts are expected to increase by 19% and 31%, respectively. Even though the direct government payments continue to fall, the 2022 direct government payments are still forecasted at $16.5 billion, reflecting the reduction in COVID-related assistance in 2022. Farm production expenses are rising as well, but the growth in expenses has still not caught up to the growth in revenues. Put simply, land value is the net present value of all discounted future income flows. With certain assumptions imposed, one could think of land value being net income divided by interest (discount) rate. To understand the changes in land value over time and across space, it is useful to examine how net income and interest rates will change over the next few years. Improving commodity prices, rising farm income, and lower interest rates tend to exert upward pressures on land values; while lower prices and incomes and higher interest rates tend to press downward on land values. From this perspective, the annual 17.0% increase in farmland values is consistent with reports on rising farm income as well as several other underlying supply and demand factors. First, commodity prices remain substantially higher—USDA forecasts the 2022 season-average corn and soybean prices at $6.70/bu. and $14.00/bu., respectively. These prices are 12% and 5% higher than year-ago levels, respectively, and are at the highest levels since 2013. As a result, both crops now offer comfortable profit margins based on the 2022 Iowa Cost of Production estimates. Many respondents cited high commodity prices as a key positive factor supporting farmland values. Strong domestic demand and global production uncertainty have maintained commodity prices at high levels throughout the past year. Second, despite the weather challenges throughout the growing season, the Iowa corn and soybean yields are much stronger than expected at 202 and 59 bushels per acre, respectively. These yields are slightly below last year’s levels, but are surprisingly high given the extent of drought conditions within the state and across the growing season. Third, the Federal Reserve maintained low interest rates during the first half of the year as the general economy continued to rebound from the COVID-19 pandemic. Lower interest rates kept the increase in interest expenses at modest levels and supported farm profitability. Our previous research shows that the realization of the interest rate hikes in the land market is often delayed. The recent hikes in interest rates during the second half of 2022 will likely impact land values as we move into 2023 and 2024. The interest rate increases are in response to the inflationary pressures that had begun to build in 2021. By the second quarter of 2022, the US Bureau of Labor Statistics reported that the US inflation rate rose to its highest level since 1982. Inflation is driving some investors to consider farmland as an alternative investment asset because farmland value tends to rise with higher inflation. Finally, despite the increase in sales activity, many respondents noted the strong demand for farmland, including from investors. As noted earlier, some investors are nudged by the higher inflation rate when looking for alternative investment options, some look for undervalued assets or a bargain, and others are also attracted to rural acreage or land with recreational potential. In this year’s survey, a majority, 53%, reported more sales activity. However, there is still limited farmland supply, which was noted to have helped buoy market prices in many areas across the state. All nine crop reporting districts saw growth in their land values, with the Northwest and Southwest districts at an increase of 20% or more. While land values could be thought of as net income divided by interest rates, net income tends to be localized while interest rates are more universal. The strength in these districts reflected the competitiveness of the land market, more aggressive bidding for higher-quality ground, the influences of urban development or wind turbines, as well as the positive impacts of strong crop yields, growing livestock production, and higher agricultural prices in the state. While medium-quality land experienced the largest percentage increase, the high-quality land value change was only slightly smaller, with low-quality land capturing the smallest increase. Furthermore, our previous research shows that experts’ estimates are less informative and noisier for low-quality land, suggesting that more trust should be put in the Iowa State University Land Value Survey for high-quality land values than for low-quality land values. It is also worth noting that low-quality farmland in the Iowa State survey includes pasture, timber, and recreational tracts. All 99 Iowa counties reported strong and consistent growth as well—the largest percentage increase, 21.6%, was reported in Mills, Fremont, Page, and Montgomery Counties. Appanoose, Decatur, Lucas, and Wayne Counties reported the lowest percentage increase, 10%. All 99 counties reported the highest nominal land values since 1950; and, for 66 counties, the inflation-adjusted values are also record highs, exceeding the peaks from 2012 and 2013. These 66 counties, which truly posted historically high land values, come from across the entire state. Every district has at least two counties reaching an inflation-adjusted record. All of the counties in the East Central district set an inflation-adjusted record this year and in six of the remaining eight districts, a majority of the counties set records, with only the North Central and Southwest districts having less than a majority set a record. Across the Corn Belt and Great Plains, the land market saw consistent, yet more modest, increases. Many neighboring states also experienced recent large increases in land values, especially in surveys conducted in recent months in light of commodity market rallies. The Illinois Society of Professional Farm Managers and Rural Appraisers and University of Illinois reported in March 2022 that Illinois land values for excellent quality land increased 23% from January 2021 to January 2022. The February 2022 Nebraska report indicated the average market value of dryland nonirrigated cropland increased by 15% compared to one year earlier. The 2022 land value survey conducted by Purdue University reported a 30.9%, 30.1%, and 34.0% increase for Indiana’s statewide top-, medium-, and low-quality farmland values, respectively, from June 2021 to June 2022. The quarterly AgLetter report by the Chicago Federal Reserve Bank issued in November 2022 indicated a 20% increase in Illinois, a 22% increase in Iowa, and 12% and 29% growth for Wisconsin and Indiana, respectively, for the period of October 1, 2021, to October 1, 2022. It also reported an overall 4% growth over the last quarter for the seventh district and a 5%–8% increase for Illinois, Indiana, and Iowa land values. The quarterly Ag Credit survey conducted by the Kansas City Federal Reserve Bank, published in November 2022, showed that the values of non-irrigated cropland in their district grew by roughly 20% from the previous year. While there has been a tempering of land value growth potential, generally, respondents expect higher land values in the future. Nearly half, 48%, of respondents forecasted an increase in their local land market in one year, while the most selected answer (24%) was for steady values. Looking five years ahead, 24% of respondents forecast a decline, growing from the 11% that forecasted a decline 12 months ago and the 6% that forecasted a decline two years ago. However, roughly 60% of respondents still expect a further increase in land values, with an increase of 10%–20% selected by the largest number of respondents (27%). This is consistent with respondents’ corn and soybean price forecasts—respondents expect a stable corn and soybean cash crop prices. The Ag Economy Barometer led by Purdue University, a nationwide monthly agricultural producer survey, showed that 41% of the surveyed farmers expect higher farmland prices 12 months from now, 47% expect no change in their local land market, and 12% forecast a decline. The inflation concerns that arose last year continued to strengthen through the first half of this year. At their peak, we experienced the highest inflation rate since the 1980s. During the fall, the Federal Reserve conducted a series of interest rate hikes to curb inflation. Recent inflation measures have shown some weakening of inflation, but additional interest rate hikes are expected by the markets. Our earlier research suggests that farmland values are very sensitive to interest rate changes. It is also worth noting that changes in the federal funds rate have long-lasting impacts on farmland values, as it takes at least a decade for the full effects of an interest rate change to be capitalized in farmland values. But within the current land market environment, the interest rate increases are fighting against other factors, such as high commodity prices and farm incomes, which continue to support higher values. The concerns about inflation and the downturn in the stock market has nudged more investors to consider farmland as an investment option due to the strong positive correlation between farmland returns and inflation. Farmland has historically been a fairly robust investment that generates relatively stable returns, especially when compared with other investments, such as stocks. The 2022 survey reported that investors represented 27% of land sales, which is higher than the 25% in 2021. Sales to investors were highest in the South Central district (40%). Despite this uptick, the majority of farmland sales, 68%, were still to existing farmers, of which existing local farmers captured 66% of land sales. The cash infusion from COVID-19-related assistance programs is still supporting land values, along with strong commodity prices and a good agricultural economy. Another frequently mentioned negative factor affecting land values is higher input costs. Producers already saw this in many factors of their production, including fertilizers, machinery, and fuel over the past 18 months. For producers who rely significantly on rented acres, they have seen their cropland rents increase, with additional concerns for next year’s rent as well. The current projections of crop prices and production costs show that overall producers are expected to have a profitable crop year in 2023, but the uncertainty about higher input costs and/or lower commodity prices could erode profitability and the momentum of farmland value increases. Third, respondents are also concerned about the sustainability of current high land prices and worry about a possible bubble burst. Over 70% of respondents think the current land values in Iowa are too high or way too high. Among these respondents, over a quarter think the land market will continue to increase despite being too high, which undoubtedly leads to worries about a bubble in current prices and a potential correction in the future. The much higher interest rates and likely continued hikes by the Federal Reserve also implies downward pressure on the land market. However, there are several factors supporting the seemingly high land values: commodity prices and income growth are still robust, at least 80% of Iowa farmland is fully paid for, and farmland is increasingly viewed as a more stable and robust investment option given greater general economy and geopolitical uncertainty. Although the land market could face declines in the medium run, we do not foresee a sudden collapse of the agricultural land markets in the near future. The continued dramatic increase in the Iowa farmland market is a result of low interest rates, high commodity prices, strong crop yields, and the presence of significant cash reserves and credit availability, both from the agricultural markets and government programs. The result is a duo of records for both nominal and inflation-adjusted land values in Iowa. Future changes in inflation, interest rates, and commodity prices will shape the trajectory of farmland market movements. Under current circumstances, many agricultural professionals still anticipate a stable and modestly rising farmland market in the near future.
Source Iowa State University
