Many agricultural experts and economists have been warning for the past couple of years that we could be headed for a significant correction in farm land values in the Midwest. Based on recent data, there appears to be evidence that a reduction in average land values may be occurring in some regions of the U.S., including the Upper Midwest. Much lower corn and soybean prices in 2014 and early 2015 have lowered farm income, which has put pressure on average land values in many areas.
Record U.S. net farm income levels from 2010 to 2013 led to major increases in land values in some areas of the U.S. during that that time frame. According to USDA data, there was a 14.5% increase in average U.S. farm land values from mid-year 2011 to mid-year 2012, followed by a 13% increase a year from mid-year 2012 to mid-year 2013, and an 8.1% increase from mid-year 2013 to mid-year 2014. However, more recent data would suggest that this trend is likely changing, at least in states like Iowa and Minnesota.
Iowa State University does a comprehensive land value survey each December, which is regarded as one of the best resources on trends in Midwest farm land sales. In a nine-year period (2005-2013), average farm land values in Iowa increased from $2,914 per acre in 2005 to $8,716 per acre in 2013, representing an increase of 179% in 9 years. Annual rates of increase topped 20% in three years (2007, 2011 and 2012, and topped 10% in all but two years (2009 and 2013). Average land values in Iowa declined by 8.9% in 2014, dropping to an average of $7,943 per acre.
The decline of almost 9% in average Iowa farm land values in 2014 was the largest annual percentage drop in farm land values since 1986. The 2014 Iowa Farmland Value Survey showed the greatest drop in land values in northwest, north-central, and northeast Iowa, with large majority of counties showing a 10-15% decline in land values during 2014. Some of the counties in northwest Iowa had extremely high land values in 2012 and 2013. Many counties in northeast and north-central Iowa also had poor crop yields from 2012-2014, which has likely impacted land values.
Trends in farm land values in southern Minnesota are fairly close to the trends shown in the Iowa land value survey, reflecting the lower crop prices, and tighter profit margins. Similar to Iowa, land values in portions of southeast and south-central Minnesota, which had below-normal crop yields in 2013 and 2014, have shown a greater decline than some other areas of the state. Some isolated land sales across southern Minnesota have still reported fairly high values per acre; however, the overall trend in the past 12-18 months has probably been a decline of 10-15% in land values from the highest reported average land prices in 2013.
The Iowa Realtors Land Institute farm land value survey from September 2014 to March 2015, indicated that Iowa farm land values had dropped by an average 7.6% during that six-month period. Based on reports from land professionals, it is likely that land values in southern Minnesota have shown similar trends to the Iowa data in recent months. However, there is a big variation in land sales in a given area, depending on location, soil type, available drainage, field size and local interest.
One of the best sources of farm real estate values in Minnesota is the University of Minnesota's Land Economics website. This site is updated annually after September 30, and accesses a data base of various land values, based on farm land valuations reported to the State Revenue Office by County Assessors Offices throughout the state each year, which are adjusted annually based on actual land sales in a given county. This site allows for selected sorts by county, state economic regions, watersheds, etc., as well as by types of land.
Even though 2015 crop prospects look good to excellent in many areas of the Upper Midwest, corn and soybean prices have dropped even lower since the beginning of 2015, and profit margins in livestock production are much tighter than they were a year ago. The potential for reduced farm income in 2015 will likely continue to put downward pressure on farm real estate markets in southern Minnesota and northern Iowa. Many experts feel another decline of 10-15% in land values during 2015 is highly likely in many portions of the region.