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Area cropland drops in value, according to state survey

Changes in estimated cropland value from September 2018 to March. Iowa Chapter Realtors Land Institute Land Trends & Values Survey
Changes in estimated cropland value from September 2018 to March. The north-central district consists of Floyd County and Kossuth, Humboldt, Winnebago, Hancock, Wright, Worth, Cerro Gordo, Franklin, Mitchell and Butler counties. (Iowa Chapter Realtors Land Institute Land Trends & Values Survey)
By Bob Steenson, bsteenson@charlescitypress.com

Area farmland values trended downward in the latest survey by a group of real estate agents who specialize in farm and land sales, management, development and appraisals.

So did the state average value.

Spring-2019-RLI-Survey-PPT

The survey, performed every six months by the Realtors Land Institute, asked participants to estimate the average value of farmland in their area as of March 1. The results showed a statewide average decrease in cropland value of 1.0 percent for the six months ending March 1.

Combined with a statewide average estimated decrease of 1.7 percent from the previous six months, the average decrease for the year was almost 2.7 percent.

Lyle Hansen, the Land Trends and Values Committee chairman, said negative factors affecting the estimates were low commodity prices, the uncertainty of trade and tariffs, increasing interest rates, tighter operating capital and a slight trend toward lower rent payments for land.

“There’s been a lot of variability — a lot of different responses both high and negative across the state,” Hansen said, “not just from the cropland but also about timber and the pasture acres that are being sold across Iowa.”

Factors that moderated the cropland value decline were listed as the low supply of land available for sale, still historically low interest rates, higher than anticipated yields last fall and the uncertainty of the stock market causing people and organizations to look for other areas to invest, he said.

The state average tillable cropland price fell from $6,951 in March 2018 to $6,794 this month.

Information was not broken out by county, but in the north-central crop reporting district that includes Floyd County, the value dropped 2.8 percent from September 2018 to March.

All but two of the nine crop reporting districts showed an decrease in cropland value. The west-central district increased 0.4 percent over the six months, and the southeastern district increased 3.0 percent.

The north-central district that includes Floyd County had the largest drop.

The realtor members that responded to the survey said more than three-fourths of land sales are by current farmers, with investors buying about 18 percent and others about 5 percent.

The report showed that 20 percent of all sales are influenced by what are known as 1031 exchanges, which are property sales which can be structured under the U.S. tax code so that revenue from the sale of one property is used to purchase another property and defer paying capital gain taxes.

The report also showed that respondents estimated the average rate of return on cropland was 2 percent to 4 percent, with an average of 2.9 percent.

The estimated rate of return on cropland in the Conservation Reserve Program was 3 percent to 6 percent, with an average of 4.3 percent.

Asked to predict the farmland market for the next year to three years, realtors who specialize in such land sales said the market will be very dependent on production yields and crop prices.

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