Farmland values constrained by falling income, pandemic

Farmland values across the Midwest and Plains are steady or lower than they were last June under the weight of the coronavirus pandemic and fears of declining farm income, said the largest U.S. farm management and real estate sales company. "The land market became more cautious in the areas with dairy, livestock, and ethanol as these industries endured mounting bad news," said Farmers National Co.

Separately, ag lenders and land experts said they expect farmland values in Iowa to decline by 2.3% by November even with an improvement in market prices for corn and soybeans, the two major crops grown in the state. Land values would decline by an additional 1% by November 2021, according to a survey conducted annually for the Soil Management and Land Valuation Conference.

Land accounts for roughly 80% of farm assets and in many cases is the foundation of a farmer's finances. Farm debt is rising and measurements of the sector's financial health, such as the debt-to-equity ratio, are worsening although still quite manageable by historical standards. The FAPRI think tank estimates that farm income will decline by 3% this year, despite record-setting government payments, and then plunge by 12% in 2021.

When the coronavirus intensified earlier this year, the land market "hit the pause button as buyers and sellers slowed activity," said Farmers National, based in Omaha, in a newsletter. Sales prices per acre are down in Illinois, Indiana, Iowa, Nebraska, and South Dakota, it said, and unchanged in Kansas, Michigan, Minnesota, Missouri, North Dakota, Ohio, and Oklahoma.

"Challenges that could put pressure on land values include the overriding potential for depressed farm incomes and the further decline of working capital for producers," said the newsletter. Conversely, low interest rates and the small amount of land on the market are factors for strength in prices. Investors may look at land as a safe haven for their money or a long-term hedge against adversity in stocks and bonds.

The farm bankers, farm managers, realtors, brokers, and land appraisers who took part in the Iowa survey expect land to rise in value in the medium and longer-term. By November 2024, land will be worth 10% more than this fall, they said.

"Respondents cited lower interest rates, good crop yields, and strong demand amid tight land supply as main factors driving up land values," said economist Wendong Zhang of Iowa State University. "Some of our other recent research supports the role of lowered interest rates in land values."

Cropland values have been relatively stable since 2014, fluctuating slightly from an annual nationwide average of $4,030 an acre to $4,100 an acre, say USDA data. During that same period, net farm income dropped by 50% with the collapse of the commodity boom and then began a slow recovery in 2017. Farm income is a gauge of wealth and includes the value of grain held in storage. Surveys that focus on individual states or farming regions say land values softened in recent years and declined slowly.

The USDA's annual Land Values report is based on a survey of farm operators. The 2020 report is scheduled for August 6.