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Land Prices Show Signs of Leveling Off

Rising prices for crop production farmland have been a hot news topic for the last few years.  The latest data compiled by our appraisal team suggest the market could be leveling off or in some cases softening.

Every six months we update the values of 65 farms that we’ve been tracking in a benchmark study for 30+ years.  We also analyze real estate transactions, including auctions and private sales. 

In our latest benchmark update, land prices for 21 farms in Iowa were down an average of 2.8 percent in the second half of 2013.  This was the first decline measured in four years.  For 19 benchmark farms in Nebraska, value increases slowed to just 0.7 percent, their lowest levels in many years.

The chart below provides the average change in benchmark farm values as of January 2014. The number of benchmark farms is shown in parenthesis after each state.

State

Six Month

One Year

Five Year

Ten Year

Iowa (21)

-2.8%

3.4%

98.3%

282.1%

Nebraska (19)

0.7%

8.0%

143.2%

325.9%

South Dakota (23)

7.2%

17.6%

109.3%

325.7%

Wyoming (2)

3.4%

6.9%

-3.8%

75.2%


While the number of auctions in Iowa and Nebraska was down 30 percent in 2013, they’re still well-attended, and most ground is being purchased by local farmers.

As chief risk officer, the thing I watch most closely is the quality of credit that’s being written to finance land purchases. Since 2008 we’ve been using a risk management strategy that has served our cooperative and our customer-owners very effectively. By lending based on the long-term sustainable value of land, which assumes $4.50 corn versus $7 or more, we’ve seen farmers maintain strong balance sheets and working capital while they’ve put a significant amount of equity into land purchases. Our data suggest customers are positioned to weather a moderate downturn in land prices.

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