Iowa farmland values remained firm during the past six months despite economic pressures on agriculture and the general economy caused by the COVID-19 pandemic and extreme weather events. A survey conducted by the Iowa Realtors Land Institute in early September showed statewide land values unchanged from March, although there were slight variations among the state’s nine crop reporting districts.

The RLI surveys its members every six months, and the latest survey showed as of September that Iowa land values were flat overall from where they were in March. High-quality farmland averaged $9,236 per acre in September for Iowa.

“I think of these values being flat as a positive sign,” says Elliott Siefert, an agent with Hertz Farm Services at Nevada in central Iowa. “There’s so much economic uncertainty this year, and yet farmland values have held fairly steady overall.”

Volume down

When the COVID-19 crisis hit the U.S. economy hard in March, the land market pretty much shut down for a couple months. Since then, things have started opening back up, but the volume of land being sold is down as more sellers decide to hold off in an uncertain market, Siefert says. Farmland values had risen a mere 0.1% in the previous six months (September 2019 to March 2020), and about 0.8% in the six-month period before that (March 2019 to September 2019).

There has been an increase in the number of non-local investors bidding on land in Iowa, and some timber land has sold for stronger prices than low-quality farmland, as investors sought to put their money in an alternative investment rather than the stock market, Siefert says. He and Matt Vegter, who also works at Hertz, co-chaired this survey as members of the Iowa RLI.

Crop reporting districts showed variability regarding the average farmland value. The districts varied from a 1.3% increase in the south-central district to a 1.7% decrease in the north-central district since March.

Average value holds steady

The Realtors surveyed were asked what they see as factors driving land values today. Major factors supportive to current farmland values continue to include a limited amount of farmland available on the market, the use of 1031 Exchange activity and low interest rates for borrowers. Negative factors are uncertainty about U.S. ag trade and exports, variability in yields for 2020 crop year, and unfavorable weather patterns.

The RLI survey estimates the value of high-quality cropland in Iowa at $9,236 per acre, medium quality at $6,975 per acre and low quality at $4,686 as of September 2020. Pasture values climbed $15 per acre since March and timber values rose $35 per acre.

“Cropland values rose slightly in five districts and dropped in the other four,” Vegter says. “While COVID-19 initially caused steep declines in commodity prices, farmers and investors continue to view farmland as a safe-haven for investments. Looking at what COVID-19 has done to the stock market, it’s been quite a ride. That’s caused more people to look at the land market, and they like the idea of owning a hard asset.”

Will stability continue?

Extremely low interest rates are supportive of land values. “Interest rates have been low for a couple of years now, but in the last six months, they’ve declined even more and that’s good for borrowers,” he says. “We’re seeing folks who don’t even need to finance that are financing part of their farmland purchases just because interest rates are so favorable for borrowing.”

The recent rally in crop prices and a surge in U.S. export sales has also boosted attitudes among farmland buyers. However, many farmers in Iowa are also harvesting reduced yields this year due to drought and the derecho windstorm, which is reducing their income, Vegter says.

There’s also lingering uncertainty about how long export sales will remain strong and whether the presidential election will bring changes to favorable tax laws for farmland transfers. The key, he says, “Is there continued stability in land values and the economy, or just more uncertainty ahead?”

While average land values in Iowa were flat overall for the past six months, Vegter and Siefert point out that a farm’s location can make a big difference in how much it sells for.

“We sometimes see a difference of thousands of dollars per acre from one sale to the next,” Vegter says. “You can see a fairly significant change in what a farm sells for just by the local market and the buyers who live close to the farm. If I’m a strong farmland buyer, a farm that’s 2 or 3 miles away or perhaps adjoins me is worth a lot more than a farm that’s 10 miles away.”