In what could hardly be termed a surprise, the Des Moines Register reported on February 21, 2009 that farm land values in Iowa declined 6% during the final quarter of 2008 according to the Federal Reserve Board of Chicago. This is the first such drop in a decade. The primary contrbuting factor is the sharp decline in commodity values since the summer, in many cases as much as a 50% drop.
The 6% drop in Iowa was discovered during a survey of 209 banks in the upper Midwest, including not only Iowa, but Indiana, Illinois, Wisconsin and Michigan as well. Iowa's decline was the sharpest of the five states surveyed.
Mike Duffy, the often-quoted economist at Iowa State University, pointed out that approximately 80% of farm sales in the past year or so have been to neighboring farmers. He said "Up to now, farmers have probably kept farmland prices up simply because when a good piece of land they've had their eyes on for a long time comes up for sale, they'll bid for it even if the price is high. They may start backing off and maybe we'll see some more outside investors come in, particularly since farmland did better than just about anything else as an investment last year."
Randy Hertz of Hertz Real Estate Services, offered this on farm land values: "What h
as happened is that we're probably about even with a year ago in farm values," indicating that the decline comes after an increase during the previous nine months, leaving values about flat during 2008. "We had a big boost in midyear when commodity prices shot up and then we've probably seen about a 10 percent decrease since then," Hertz said.
Mr. Hertz also noted that there are still some farmland that commands high prices. Specifically, Hertz cited two parcels near Prairie City that sold in the previous week for $7,050 and $6,850 per acre for top-quality land.
Most longtime observers of Iowa agriculture doubt that what is to come will be anything like the farm crisis of the 1980s, when land prices dropped over 60% over a seven-year period. Most believe that the high leverage many farmers used back in those times was the cause of many of the problems, and for the most part that leverage does not exist today. Hertz said. "Today they're in a much better cash position compared to 25 years ago. They have more equity in the land, and their loans are less likely to go upside-down on them."
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