The Ottumwa Courier

Local News

December 14, 2012

Southeast Iowa farmland values slow to increase

Lower yields, alternative land use, soil quality conditions of less value

OTTUMWA — Farmland values increased statewide this year, though the spike wasn’t quite as high in southeast Iowa.

According to a recent Iowa Land Value Survey, farmland value in Wapello County increased 15.8 percent from 2011 to 2012, peaking at $5,319 per acre this year.

Statewide, the average acre is approximately $8,296, a 23.7 percent increase from last year. This is also the third year land values have increased more than 15 percent.

Bob Wells, ISU Extension farm and ag management field specialist in Mahaska County, said this year’s drought drove yields down in southeast Iowa, which means the income potential on farms is less.

“So basically the price is a function of what that productivity is on the farm as far as income goes,” Wells said. “However, that’s not generally unique. If you go back through past land value surveys, we’ve always been a little bit less in price per land than other areas of the state.”

That’s because southeast Iowa has alternative uses for its land, including pasture, forest and hunting, which compete with cropland.

“So our prices don’t rise as fast as they do in areas where they have Grade A quality soil, large fields that can be managed with large equipment,” he said. “Some of our fields are smaller and more irregular in shape.”

The Northwest Crop Reporting District reported the highest land values, at $12,890, an increase of 33.6 percent from last year.

That’s in large contrast to the lowest gains in land values, the Southeast Crop Reporting District, where land values averaged at $6,172, an increase of 8.2 percent from last year.

Mike Duffy, Iowa State University economics professor and extension farm management economist who conducts the survey, said in a recent Associated Press article that this is the first time county averages have reached more than $10,000.

“It may not sound like a lot when you compare it to sales in northwest Iowa where farmland is going for $10,000 to $15,000 an acre,” Wells said. “But that’s still a pretty good price for the crop ground that we have in this part of the country.”

It all boils down to the capability of the ground to produce revenue, how many farmers are in the market for additional farmland and how many investors are in the area, he said.

With less revenue produced per acre, that’s less money for farmers to spend.

“On the other hand, they’re still building an asset base,” he said. “Farmers have been very profitable in most cases the last three to four years, so they do have a lot of cash. They don’t have a lot of debt against [the farm] and they spread out machinery and labor cost over more acres. So they can be more profitable with higher-cost land.”

Wells is optimistic in his economic outlook for the Midwest.

“Farmers are not carrying near as much debt to equity as they used to, and they’re still in a profitable position,” he said. “I think farmland values could catch up.”

But he said he could also make the case that farmland values could decline slightly next year.

“You don’t have to look far in our area for an example of that,” he said. “In the last three years, timberland prices in the southeast Iowa region have gone down. And with the recession, a lot of our investors, those dollars are no longer coming in to recreational ground. They don’t purchase timber grounds the way they did five to six years ago.”

Overall, the health of the farm economy is good, he said, and will likely stay that way through next year.

“But that doesn’t mean we don’t have challenges to overcome,” he said. “The cost of inputs, the price we get for commodities and for livestock, the cost of feed for livestock. Those things are big in our ag economy, and they affect how farmers make decisions. So we do have some challenges out there we can possibly face over the next 12 to 18 months.”

 

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