Land market ‘could be leveling off’

Farm Credit Services of America is reporting that land prices and demand for land in South Dakota, Iowa, Nebraska and Wyoming continue to be strong, but that some of its data suggest “the market for crop production farmland could be leveling off, or in some cases, softening.”

Land market ‘could be leveling off’

Farm Credit Services of America is reporting that land prices and demand for land in South Dakota, Iowa, Nebraska and Wyoming continue to be strong, but that some of its data suggest “the market for crop production farmland could be leveling off, or in some cases, softening.”

“After years of a steady rise led by lower-than-average U.S. yields, strong domestic and international demand for commodities, low interest rates and solid profit margins, we’re seeing the rate of price increases leveling off for farmland in some areas we serve,” says Mark Jensen, senior vice president and chief risk officer for farmer-owned FCSAmerica.

The numbers are stronger for land in South Dakota than in the other states FCSAmerica serves. In South Dakota, land continues to be converted to higher-value corn and soybeans, and crop yields have been relatively better the last several years than in other states.

Jensen’s conclusions are based on two reports produced recently by FCSAmerica’s appraisal team. The first is a semiannual update of the lender’s Benchmark Land Values study, in which the values of 65 farms have been tracked for more than three decades. The second is a compilation and analysis of more than 3,500 agricultural real estate transactions — both auctions and private sales — in all four states during 2013.

“There’s evidence that farmland prices may be on a slight decline from record highs seen at the end of 2012 and for most of 2013. Based on our benchmark study, Iowa land prices were down 2.8% in the second half of the year, and our review of real estate transactions showed Iowa land prices down 3.3% in the fourth quarter of 2013, compared to the third quarter. Nebraska benchmark farm value increases slowed to the lowest levels in several years, up just 0.7%.”

South Dakota’s land prices were up 7.25% for the last half of 2013, and 17.6% for the whole year.

Key Points

FCSAmerica reports cropland price increases may be leveling off.

S.D. has stronger trend numbers than other states.

Continued switch to higher-value crops is supporting S.D. land prices.


Demand remains strong

Demand for farmland continues to be strong, Jensen says, but buyer sentiment could be adjusting to lower commodity prices.

“Even though the number of public land auctions in 2013 was down 25% to 30% compared to 2012, auctions were often well-attended and had multiple bidders.”

The number of auction “no sales” in Iowa was 6.7% in 2013, an increase from 3% in 2012.

The highlights

Here are state-by-state specifics.

Iowa: Land continues to sell at all-time highs, with premium ground generally bringing from $12,000 to as much as $17,000 per acre. The average price for unimproved cropland was $9,700 per acre in the fourth quarter, down from $10,100 in the second and third quarters. However, the average price of land was $9,800 for 2013, up 8% from $9,000 in 2012. There were about 30% fewer public land auctions in Iowa compared to 2012.

South Dakota: January 2014 South Dakota benchmark land values were up 7.2% for six months and 17.6% for the year. South Dakota unimproved cropland values have steadily increased for the last three years and are currently selling at all-time highs, with premium ground bringing up to $12,000 per acre. Land prices increased 12% to $6,500 per acre in the fourth quarter of 2013. For all of 2013, land prices averaged $5,800 per acre, up 19% from $4,700 in 2012.

Nebraska: Nebraska benchmark land values were up 0.7% in January 2014 compared to July 2013, and increased 8% for the year. Nebraska unimproved cropland values are measured separately for dry cropland and irrigated cropland. Nebraska dry cropland prices have had significant price swings over the last two years. For the fourth quarter of 2013, prices increased by 15% to $5,900 per acre. The price per acre for 2012 and 2013 was $5,500, on average. Nebraska irrigated cropland prices continued to rise, selling at all-time highs of $8,100 per acre. Land prices increased 6% during the fourth quarter of 2013. For all of 2013, prices were up 4.4% compared to 2012. Auction activity in Nebraska was off approximately 30% in 2013 compared to 2012.

Wyoming: FCSAmerica’s Wyoming benchmark land values were up 3.4% over July, and 6.9% for the year. Across the state sales were light, totaling 125. The diverse nature of the sales, and determining highest and best use, make it challenging to establish a trend. Considering those factors and the light sales data, pasture and unimproved cropland prices are about $750 to $1,500 per acre.

Source: FCSAmerica

Customers can weather downturn

FCSAmerica says its customers are positioned to weather a moderate downturn in land prices.

“Since 2008, FCSAmerica has used a risk management strategy that includes a cap per acre on the amount of money we’ll loan for land purchases,” says Mark Jensen, FCSAmerica senior vice president and chief risk officer. “We’ve been using a long-term sustainable value approach to projecting repayment and lending levels based on corn prices closer to $4.50 per bushel, versus the prices of $7 or more that some farmers were receiving in 2012. Our customers understand the financial risks and volatility in the agriculture industry. Their balance sheets and working capital levels are generally in a position of strength, and they have put a significant amount of equity into land purchases.”

Source: FCSAmerica

Average change in benchmark
farmland values as of Jan. 1, 2014

State Six months One year Five years 10 years

Iowa (21):-2.80% 3.40% 98.30% 282.10%

Nebraska (19): 0.70% 8.00% 143.20% 325.90%

South Dakota (23): 7.20% 17.60% 109.30% 325.70%

Wyoming (2): 3.40% 6.90% -3.80% 75.20%

Source: Farm Credit Services of America. Numbers in parentheses indicate number of farms studied.

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This article published in the March, 2014 edition of DAKOTA FARMER.

All rights reserved. Copyright Farm Progress Cos. 2014.

Land Values

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