Land values softened in 2008; no price collapse seen in 2009

Feb 27, 2009
by DTN

Land values fell in the fourth quarter of 2008, but so far in 2009, land is holding its own, slightly off last year’s highs.

Land prices in the fourth quarter were down 6 percent in Iowa and 3 percent in Illinois, according to the Federal Reserve Bank of Chicago. But the declines are from historic highs, propelled by the increased crop prices of recent years.

Indeed, for much of 2008, land prices were red hot. They only began cooling as the year drew to a close. Statistics from Farm Credit Services illuminate the story. Farm Credit Services has 68 benchmark farms in Iowa, Nebraska, South Dakota, and Wyoming that it tracks semiannually in January and July. Over the last year, Iowa land values have increased 9.2 percent; Nebraska values have increased 10.2 percent; South Dakota values have increased 11.3 percent; and

Wyoming values have increased 6 percent. The average marketing time has increased along with prices—from 80 days for Iowa ground in 2007 to 130 days in 2008, 97 days to 118 days for Nebraska ground, 166 days to 172 days for South Dakota ground, and 217 days to 385 days for Wyoming ground.

Meanwhile, the sale price as percent of listing price has decreased between 1 percent and 14 percent. In the last six months of 2008, land values on those benchmark farms in Iowa and South Dakota have increased only 0.6 percent.

They’ve been steady in Wyoming, and decreased 0.2 percent in Nebraska. This shows a “softening in the market, but not a collapse,” said Jim Knuth, senior vice president of Farm Credit Services of America, at the Iowa Land Expo held Feb. 12. This is not a repeat of the 1980s, he said. “Crop insurance is better; the interest rate environment is more friendly,” and “farmers are holding less debt.” This is in line with what Jeff Waddell of Martin, Goodrich & Waddell, a farm management firm in Sycamore, IL, is seeing in Illinois. “The first part of 2009 (has been) very similar to the last quarter of 2008. Sellers are digging in their heels at prices just off the highs—maybe 5 percent to 10 percent off of the highs— and buyers aren’t willing to push into those levels,” he said. “It’s a stalemate.”

The February Goss Mainstreet Survey reported similar findings: Nearly onethird of the bank CEOs surveyed in an 11-state region indicated that farmland prices had not decreased in their area over the last six months. Fifty percent of the bankers reported prices down from zero percent to 5 percent, and 16 percent reported price declines greater than 5 percent, according to the report.

High-quality farmland still has its fans. On Jan. 21, a 3,912-acre sale of prime Illinois farmland drew a crowd of 800 people, including 250 registered bidders, to the Crowne Plaza in Springfield, IL. The sale, covering 43 parcels of Kilton Farms Inc. land in Montgomery and Macoupin counties near Litchfield, IL, brought in $24 million, or just over $6,000 per acre. “It was a strong sale—a big sale,” that attracted the attention of both growers and investment firms, said Mac Boyd, a land broker with National Farmers Company in Arcola, IL. But the Litchfield sale also reflected the recent softening in the market.

The price for which the land sold was “in line with what we’ve been seeing: Price levels around 10 percent below the all-time highs,” Waddell said. Under the circumstances, “It was a solid sale in this market.”

“The quality of the farm had something to do with that,” Boyd said. “Land was up 15 percent (in the Corn Belt) last year and while that softened a little in the later part of the year, it’s still above where it came into 2008; there’s good, steady demand for Class A and high Class B land.” Big tracts generally bring a premium as well, Boyd said, “because people like to buy land in contiguous tracts. And this was a good quality bigger chunk of ground.”

We’re not seeing land pushed to $9,000 per acre like we did with some of the real high sales in 2008, Boyd said. “But I think we’ll see land stay strong here— most of the land that’s been sold here in early 2009 has been in the mid to high $5,000s to the upper $6,000s to low $7,000s.”

There’re too many unknowns to say what land values will do going forward, but “one fact we do know,” Waddell said. “The ag sector as a whole has very little financial leverage and has not been forced to liquidate debt. That’s a huge contrast to the farmland price decline of the early 1980s when a lot of highly leveraged land contracts and high interest rates forced farmers to sell land at any price.”

Banks are less willing to lend than they were even six months ago, Waddell said, but “it’s not that the farmland market is going up or down—it’s just quiet.” But in the long-term, farmland is an inflation hedge. “Land is stable and it’s not going to go away. It’s not going to be stolen in some Ponzi fraud ... it has a history of holding its real value through the generations,” he said. In the last two years, stocks, homes and commercial real estate have slipped sharply while land has held its value well. “In my book, that makes farmland an excellent investment—especially in this uncertain financial climate.” — DTN