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farmland

Farmland Values Relatively Stable, Despite Downward Pressure

Farmland values slipped some in the first half of 2019. But on the whole, the real estate market for cropland in eastern Kansas and the grain states of Iowa, Nebraska and South Dakota remained stable as values continue to slowly adjust to the current margin environment

The value of 71 benchmark farms tracked by Frontier Farm Credit and Farm Credit Services of America (FCSAmerica) declined an average of 0.83% in the first six months of 2019.

“Despite continued tight commodity price margins in 2018, real estate values remained stable and were supported by a favorable interest rate environment, market facilitation payments and equilibrium in the supply and demand levels for real estate,” said Tim Koch, chief credit officer for the alliance of Frontier Farm Credit and FCSAmerica.

Farmland values in eastern Kansas declined 3%, as a whole, in the first six months of 2019, the largest decline in Frontier Farm Credit’s and FCSAmerica’s latest benchmark farmland study. Compared to a year ago, cropland values are down 1.8% and pasture land is down 3.1%.

While Iowa farmland experienced a decline in 2019, values still are up 2.7% compared to a year ago. Modest declines in Nebraska and South Dakota in the later half 2018 extended into 2019 for a drop of 1.4% and 1.3% since last July.

State (No. of benchmark farms) Six Month One Year Five Year Ten Year
Kansas (7) -3.0% -2.4% Not available Not available
Iowa (21) -1.3% 2.7% -15.3% 71.3%
Nebraska (18) -0.4% -1.4% -15.7% 103.1%
South Dakota (23) -0.7% -1.3% -8.9% 91%
Wyoming (2) 6.5% 9.8% 35.9% 45.9%

 

Three of the seven benchmark farms in eastern Kansas lost some value in the first half of 2019, two increased and two showed no change.

Of Iowa’s 21 benchmark farms, 10 decreased in value, three increased and eight saw no change. Ten benchmark farms in Nebraska lost value, five increased and three were unchanged. In South Dakota, values dropped on five farms. The remaining 18 farms held even. Wyoming continues to see values for cropland and pastureland increase. However, the limited number of farmland sales in the state makes it difficult to accurately track trends.

Farmland sales across the Associations’ territory were down in the first two quarters of 2019 compared to the same period in 2018. Sales in eastern Kansas fell by more than 52%, although public auctions were up 6% compared to the first two quarters of 2018.

South Dakota saw 26.7% fewer sales. In Iowa, sales were down 11%, while Nebraska’s combined sales for irrigated and dry cropland dropped 18.4%.

The average quality of land has not changed in the past year, and buyer demand for high quality ground remains strong.

farmland

Farmland Values Soften Modestly

Farmland values in eastern Kansas softened slightly in the last half of 2018, but remained stable overall.

While benchmark farmland values in eastern Kansas improved throughout 2018, the gain was modest in the last six months of the year.

In the neighboring state of Nebraska, farmland values as a whole declined 1.0 percent in the last half of 2018 and 0.9 for the year. Iowa, which generally is on the leading edge of changes in the real estate market, declined 1.4 percent in the last six months of 2018, but were largely unchanged for the year.

“The softening of the market in the latter half of 2018 wasn’t unexpected and, in fact, it better aligns farmland values to profitability in the grain sector,” said Tim Koch, chief credit officer for Frontier Farm Credit. “The industry continues to be challenged by compressed margins. For producers who rent farmland, softening in the market will help their bottom line.”

Continued pressure on profit margins could lead to additional softening in 2019. However, the same factors that have helped to stabilize the market for the past three years remain in place, including interest rates near historic lows and strong demand for quality land that is in tighter supply.

The chart below reflects changes in farmland values for the benchmark farms that Frontier Farm Credit tracks in eastern Kansas. The number of benchmark farms is noted in parentheses.

STATE Six Month One Year
Kansas (7) 0.7% 2.8%

Cropland in 2018 saw a 0.6 percent increase in value; pasture land gained 5.8 percent in value.

Frontier Farm Credit appraises its benchmark farms twice a year, in January and July. In addition, the cooperative compiles records from farmland sales. The cooperative’s objective in using the benchmark farms is to track real estate values without the influence of changes in land quality on sale prices.

The chart below tracks quarterly changes in actual farm sales:

Kansas Cropland Values 122018

Farmland photo

Farmland Values Hold Steady

Farmland values appear to have adjusted to a new normal. Even with seasonal fluctuations, farmland values have remained generally consistent since 2015.

“Farmland values are largely dependent on geography and have adjusted to reflect their market’s current supply and demand,” said Tim Koch, chief credit officer for Frontier Farm Credit, which tracks the values of 71 benchmark farms in association with Farm Credit Services of America (FCSAmerica).

Farmland values in FCSAmerica’s four states of Iowa, Nebraska, South Dakota and Wyoming peaked in the last half of 2013. Long-term data for eastern Kansas is not available because the alliance between Frontier Farm Credit and FCSAmerica dates only to 2015.

Nearly five years later, Iowa has seen the largest drop in values at 17.8 percent, followed by Nebraska at 17.6 percent. South Dakota’s farmland is off 10.8 percent since it peaked in the fourth quarter of 2013. (The five-year mark in the chart below reflects changes in farmland values since the first half of 2013, prior to the market peak. The number of benchmark farms in each state is noted in parentheses.)

STATE Six Month One Year Five Year 10 Year
Kansas (7) 2.1% 2.1% N/A N/A
Iowa (21) 2.1 3.5 -16.3 71.4
Nebraska (18) 0.1 -2.8 -12.0 109.3
South Dakota (23) -1.4 -2.6 4.2 98.6
Wyoming (2) 2.5 3.2 38.5 30.1

In the first half of 2018, four of the seven benchmark farms in eastern Kansas increased in value, two declined and one showed no change.

Frontier Farm Credit and FCSAmerica appraise benchmark farms twice a year, in January and July. In addition, the cooperatives compile records from farmland sale. The cooperatives’ objective in using the benchmark farms is to track real estate values without the influence of changes in land quality on sale prices. Below are quarter-by-quarter changes in sale prices for eastern Kansas:Kansas Cropland Values

Farmland photo

Farmland Values Stabilize in 2017 in Grain Belt States

Farmland values stabilized in 2017, a reflection of continued market demand for quality land in states served by Frontier Farm Credit and Farm Credit Services of America (FCSAmerica).

Sales of higher quality farm ground contributed to an uptick in average sale prices in 2017. Where prices dropped at local or regional levels, sales generally involved lower quality land. Average sale prices rose slightly in eastern Kansas, Iowa, Nebraska and South Dakota. Wyoming had too few sales to identify a trend.

FCSAmerica, in association with Frontier Farm Credit, compiles sales records and, twice a year, appraises 71 benchmark farms. The cooperatives’ objective is to track real estate values without the influence of changes in land quality on sale prices. Iowa and Wyoming saw modest overall increases in real estate values in 2017, while eastern Kansas, Nebraska and South Dakota declined.

Below is the average state-by-state change in benchmark farm values through 2017. The number of benchmark farms in each state is indicated by parentheses.

State Six Month One Year Five Year Ten Year
Iowa (21) 1.4% 1.8% -12.8% 82.1%
Kansas (7) -0.1% -3.2%
Nebraska (18) -2.8% -2.8% -5.1% 130.2%
South Dakota (23) -1.3% -3.1% 15.6% 123.3%
Wyoming (2) 2.5% 3.2% 38.5% 30.1%

“Overall real estate values have stabilized in the past year, but continued low profit margins and potential for an increase in sales activity could put downward pressure on real estate values,” said Tim Koch, chief credit officer for Frontier Farm Credit and FCSAmerica.

Farmland values remain well below the market’s peak of three to four years ago. Overall, values are off about 20 percent.

EASTERN KANSAS

One benchmark farm increased in value, four declined and two were unchanged. The 3.2 percent decline in overall value for 2017 was due largely to the sole irrigated cropland represented among the benchmark farms. The value on the irrigated ground dropped 21 percent. Frontier Farm Credit has been tracking farm values since January 2015, when it began operating in alliance with FCSAmerica.

Public land auctions declined 31 percent compared to 2016 and total sales were down 46 percent.

The average price on completed sales by quarter:

KS Cropland Values

IOWA

Eleven benchmark farms saw an increase in value in the last six months of 2017, while 10 showed no change.

Overall farmland sales activity was down 20 percent. However, public land auctions increased 2 percent compared to the previous year. The percent of auction sales fell to 2.7 percent, down from 3.2 percent in 2016.

IA Cropland Values

NEBRASKA

Five benchmarks farms increased in value, while two showed no change. The remaining 11 declined an average of 6.1 percent.

Total sales declined in 2017, with dry cropland dropping 15 percent and irrigated 25 percent compared to 2016. Public land auctions dropped 16 percent and auction “no sales” increased to 5.2 percent, up from 2.2 percent in 2016.

NE dryland Cropland Values

NE irrigated Cropland Values

SOUTH DAKOTA

Values were unchanged on 14 benchmark farms in second half of 2017. Three farms saw an increase and six declined.

Total sales were down 18 percent compared to 2016. Public land auctions were down 16 percent and “no sales” increased to 6.1 percent, up from 3.2 percent.

SD Cropland Values

WYOMING

The one cropland benchmark farm increased in value by 5.1 percent. The pasture unit saw no change in value in the last six months of 2017.

Sales have been and continue to be very limited in Wyoming.

Challenges of Today Present Opportunities for Tomorrow

The following was adapted from a speech Doug Stark, our president and CEO, made to young and beginning producers at the Progressive Farmer’s Ag Summit in Chicago.

We all know that agriculture is laden with risks, and managing them is a critical part of what producers do every day. But to manage risks you must actually take risks. That’s not always easy for young and beginning producers, particularly when it comes to one of their biggest hurdles – access to land.

At one of our annual Side by Side Conferences for young and beginning producers, three of our Directors – two of them still relatively young – were asked what they would do differently if they could go back and do it again. “Buy more land,” two of these successful farmers responded.

When I visit our customers, I hear this same regret. With great pride, customers show me their operation, its evolution and the land they added.

Then, inevitably, they point to the tract they should have bought.

Passing Up Opportunities

Now, I’m not encouraging producers to throw caution to the wind and plunge into debt to buy every piece of land for sale. Rather, the lesson is that these producers had opportunities they didn’t take and, with hindsight, recognized that they could have made them work.

Taking risks is foundational to growing your operation, especially for young producers. The key is to understand the risks and the steps needed to manage them.

Consider a drive I took with one of our Directors. He had a nice start on his operation and wanted me to see an adjacent tract. If he wanted to own it, he told me, he would have to pay a record per-acre price for his county. Understanding his apprehension, I posed a series of questions:

  • How long will you own it? “Forever,” he said.
  • Where will land prices be in 30 to 40 years? “Probably higher,” he acknowledged.
  • Can you make the payments? “Yes,” he said.
  • Even under two to three years of adversity? “I think so,” he said.

There were additional – critical – facts we didn’t explicitly cover that day, including his cost of production and how the new purchase would affect his fixed and variable expenses. He understood his financials, with and without the land purchase.

Commit to Your Goals

Other young and beginning producers will come across their own land opportunities in the next couple of years, either as the result of producers retiring, adjusting their operations or deciding to exit the business.

Also, some non-farming landowners looking at higher interest rates and declining land values will decide this is a good time to sell, and leased land will change hands as agriculture searches for a cash-rent balance.

Prepare yourself for these opportunities by asking: “What would it take if I . . .”

  • had to buy the farm I lease?
  • could add another lease to my operation?
  • wanted to double my operation in five to seven years?

After you identify how you can position yourself for opportunities, take the next step. Commit to your goals. This might mean doing things differently, sitting down with a broker to devise a better marketing plan or developing relationships with trusted advisors.

It has never been easy to get started in production agriculture. But I’d offer that despite today’s challenging conditions, there are going to be more opportunities than ever.

This is an exciting time to be in agriculture.