By DOUG SCHMITZ
Iowa Correspondent

MOUNT VERNON, Iowa — Lower commodity prices, high input costs, volatility in the stock market and declining confidence in the world economy have contributed to a statewide average decrease of Iowa cropland values of 7.6 percent over the last six months, which was the lowest level since September 1999.

That’s according to the Iowa Farm and Land Chapter #2 Realtors Land Institute (RLI)’s March 2009 Land Trends and Values Survey, released March 10.

“Combining this 7.6 percent decrease with the 6.6 percent increase reported in September 2008 indicates a statewide average decrease of 1 percent for the year from March 1, 2008 to March 1, 2009,” said Troy Louwagie, a licensed real estate broker with Hertz Farm Management, Inc. in Mount Vernon, where he conducts the biannual survey.

The results followed a Federal Reserve Bank of Chicago survey of Iowa bankers which recently showed a 6 percent decline in farmland values during the last quarter of 2008.

Mike Duffy, Iowa State University (ISU) Extension farm economist, who conducts an annual survey, with results released every December, said 2008’s $4,468 an acre was an increase of 14 percent over 2007.

“The 2008 average was an increase of $560 over last year, the second-highest dollar increase ever recorded in the 67 years that ISU has conducted the survey,” he said. “The 2007 survey reported a $704 increase over the previous year.”

But the last six month’s 7.6 decrease also contrasts with the RLI’s survey results of Iowa farmland values in 2007, which rose by 20 percent on the cusp of higher corn prices, fueled by increased ethanol demand. Conducted from March through September since 1978, the survey asked 200 Iowa farm real estate agents, appraisers and farm managers to estimate the average value of farmland as of March 1, 2009, including sales between January and February.

“These estimates are for bare, unimproved land with a sale price on a cash basis,” said Louwagie, whom the RLI awarded the Iowa Farm Land Broker of the Year last fall. “Pasture and timberland values were also requested as supplemental information.”

According to the survey, all nine Iowa crop reporting districts showed a decrease, varying from a 2.5 percent decrease in southeast Iowa to a 14 percent decrease in west central Iowa – the lowest in the state – for the September 2008 to March 2009 period; east central Iowa farmland value declined 3.7 percent, with northeast Iowa farmland showing a 9.7 percent decrease.

The survey said high-quality farmland dropped from $5,619 to $5,297, down 6 percent; medium-quality farmland slipped from $4,528 to $4,196, down 7 percent; and low-quality farmland dipped from $3,536 to $3,201, down 9 percent.

Louwagie said many Iowa producers are still paying high input costs and experiencing lower commodity prices, which have tightened up their cash flows and profitability.

“In July of 2008, corn and bean prices hit a record high with corn prices over $7 and bean prices over $15,” he said. “These prices have now dropped back to around $4 on corn and $9 on beans.
In the summer of 2008, fertilizer prices, fuel prices, seed prices and rents all increased rapidly.”

Hertz also works with many investors that purchase farmland, with many pouring money in the stock market – and subsequently pulling it out to invest in farmland.

“With the stock market falling almost 50 percent, many individuals do not want the cash out of their stock at this time,” Louwagie said. “They want to wait until the stock market comes back and may start purchasing farmland at that time.

As for the uncertainty in the world economy, Louwagie said many buyers are sitting on the sidelines.

“We see this on many consumer purchases,” he said, “whereas people have the ability to buy, but they are going to wait until their confidence comes back.”

In the meantime, Louwagie said more neighboring farmers are buying up farmland as a long-term investment.

“Over 75 percent of Iowa’s land has no debt and many farms that have been purchased in the last few years have been purchased with cash or buyers in strong positions,” he said.

As a result, Louwagie said even if Iowa farmland values continue to decline, there would be minimal landowners that would be financially troubled to the point where they would be forced to sell, which is what hurt the land market in the early 1980s.

“Iowa land values have increased over 70 percent in five years,” he said. “Even if we continue to have a correction, we would still be at near-record highs and have good equity in the farmland. Neighboring farmers continue to be the primary purchasers of land.”