By Elizabeth Williams
DTN Special Correspondent
AMES, Iowa (DTN) -- Iowa farmland values slid 7.6% in the past six months, down an average 11% from a year ago, and roughly back to the level they were in 2012, reported a survey by the Iowa Realtors Land Institute Monday.
A correction in land is not necessarily a bad thing, noted some farmland realtors. "It recognizes the current economic situation, and [the drop in values] is not debt-driven. Farmland is still in strong hands," explained Roger Johnson with Farmers National Company in Cedar Falls.
One bright spot in the survey: Pasture land held its value or slightly improved -- aided by the profitable cow/calf industry. Hardest hit (down 17.5% since March 1, 2014) was northeast Iowa that has had only one good growing season out of the past four and has a higher concentration of dairy, explained Kyle Hansen of Hertz Real Estate Services, who coordinated the Iowa survey for the Realtors Land Institute.
Cash rents have also backed down. "But it depends on where they started," said Sam Kain with Farmers National Company in West Des Moines. "If they were $400 to $500 an acre in 2014, they've probably backed off quite a bit. If they were $300 to $325 an acre, they probably didn't back down that much," said Kain.
It also depends on when you negotiated your lease, added Johnson. Most rents were negotiated last fall and if they were lowered, they came down at most $50 to $75 an acre. Kirk Weih with Hertz Farm Management in Mount Vernon agreed. "Last fall when we worked with our tenants and landowners, most of the lease adjustments were $10 to $25 to $40 per acre lower, depending on where you started and the history of the rent over the past three to five years," he said.
For leases that were negotiated late winter or in March, "some have dropped $100 per acre," reported Johnson in northeast Iowa. (See related DTN story, "Midwest Renters Send an SOS," on Land Management page http://bit.ly/….)
What about the farm tenants whose lenders wouldn't finance their March 1 rent payment and had to renegotiate or give up that land? That was only a small portion of the tenants, said Weih. "For most areas, I think it was more rumors than fact. True, some farmers didn't get the financing they needed. But if you didn't get your financing approved after the past three largely profitable years we've had in corn and soybeans, that tells you there's more to the story," said Weih. "While it did occur [farmers letting their rented land go], it wasn't significant enough to be a trend."
Weih believes cash rents will adjust down again in 2016 unless commodity prices turn around. "That's just the nature of a cyclical industry," he said.
Farmland values are also expected to be lower next year. The Iowa survey showed land brokers expect a 5% to 20% decline over the next three years. "Depending on commodity prices, we may see another 10% to 15% drop in land values in each of the next two years. But that's not 'falling out of bed.' It's simply a correction in the market," said Johnson.
Most of the recent buyers have been farmers, noted Kain. "And they generally never sell their land. So we're not going to see a lot of panic sales if values go lower. They may sell an 80-acre or 160-acre parcel to get more financially comfortable. But I don't see a return to the 1980s."
Kain added, "We've got two to three years when it's going to be very tight. But if you have 1,000 acres paid for and have little debt, you are set up for opportunity. The people I feel sorry for are the young farmers who tend to be the ones who pay the higher cash rent and have higher equipment costs. Most of the younger farmers have never seen bad times. We've been in a growth period since the mid-1980s."
For those who lived through the '80s, Elwynn Taylor, Iowa State University climatologist, told the group, we are returning to a similar volatile weather cycle for the next 20-25 years, beginning in 2012.
"If you've ever wondered how you would handle the 1980s if you had to do it again, well, you have to do it again," said Taylor. "If it scares you to manage yield and price risk, maybe you should do something else [besides farming]," he advised. However, this year's weather is shaping up to be an adequate moisture year for Iowa, said Taylor.
Realistic about the upcoming challenges in agriculture, Kain was philosophical. "One of the great things about the American way is that you can succeed or fail depending on your personal decisions and efforts," he said. "Those that have been good managers will weather the next few years. Those that have not may fail, creating opportunities for others to step in and succeed."
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