August 14, 2019
“Time doesn’t slow down for anyone.” This truism that my Grandma Hensley shared with me when I was little holds particularly true for the 2019 crop year.
What does this fall have in store for Iowa and rural America? There are many factors in play simultaneously, and all this simultaneous motion seems to make the world spin faster. How will these factors impact the Iowa farmland market as we approach the fall sales season? Let’s slow things down and look at the facts.
The early-summer commodity markets took note of the early-planting problems in the eastern Corn Belt and responded to move appreciably higher into July. However, the markets have recently given back much of the early-season price gains on speculation that demand for our crops is being destroyed more quickly than our 2019 production is shrinking.
Farms with above-average soil types, adequate drainage, easy farm-ability and well-managed fertility levels are selling best, and values are largely stable. That stability has continued and seems to have strengthened just a bit.
The strength appears to be rooted in the reality that much of Iowa is growing an average or average-plus crop in 2019. With average yields and stronger commodity prices through much of the summer, there is an expectation that this year could produce improved margins and overall profitability for Iowa farmers and landowners.
A handful of strong, late-summer sales, and several discussions with farmers and landowners hint at this stronger market outcome. Having said that, the crop is not in the bin and is far from guaranteed. But coming into the growing season, farmers were buying nearly 8 out of every 10 farms brought to the market. If Iowa farmers realize stronger profits in 2019, it’s quite possible the Iowa land market will show signs of broad price support not seen in recent years.
However, don’t overlook local market fundamentals. Remember, the farmland market reflects the collective confidence of all participants in the market. When things are going well, farmland values tend to be stable to higher, while weakness in land values shows up when things are not working well.
Locally, there are always value differences when comparing one neighborhood to another. Given the growing season differences this year from area to area, localized growing conditions and local sale volumes will be two areas to watch through the end of the year.
There’s also much to watch on a broader scale. The current interest rate environment has become significantly more “dovish” than just a few months ago. In fact, the Fed cut short-term interest rates by a quarter percentage point in late July. This is a result of the Fed’s concern that the overall economy is slowing or weakening. Lower rates are supportive to anyone borrowing money, and they are also supportive to underlying asset values, including Midwestern farmland.
Tariffs, trade issues still remain
Stronger commodity prices have been meaningful, even though some of the early-summer price gains have been given back. Many across the Midwest seem to think the corn and soybean crop will be the smallest since 2012. And this smaller supply will continue to be supportive to crop prices, assuming we don’t destroy demand more quickly than our supply shrinks.
To that end, in early August, President Donald Trump ramped up more tariffs on China, which has much of agriculture buckling up for the real possibility that no trade deal will be made with China until well after the 2020 election cycle. Most people across the ag sector understand what Trump is attempting to do, but it’s painful to watch as one of our biggest customers has stopped buying our products.
The Market Facilitation Program payments have certainly lessened the cash-flow blow but haven’t provided the underlying market confidence that is so important to long-term market health. Good or bad, discussions aimed at resolving our trade conflicts appear to be ongoing and will continue to impact commodity prices and underlying asset values, including farmland.
Use caution and don’t ignore the possibility of a major “black swan” type of unexpected market-moving event. If African swine fever were to reach the U.S., it would be significant, and it would be very damaging to U.S. agriculture.
Dickinson County. East of Milford, 80 acres sold at public auction for $9,350 per acre. The farm has 78 tillable acres with an 86.7 CSR2, which equals $111 per CSR2 point on the tillable acres.
Worth County. West of Kensett, 70 acres sold for $8,000 per acre. The farm has 67 tillable acres with an 85.7 CSR2, which equals $98 per CSR2 point on the tillable acres.
Fayette County. Southeast of Fayette, 154 acres sold at public auction for $6,400 per acre. The farm has 143 tillable acres with a 74.3 CSR2, which equals $93 per CSR2 point on the tillable acres.
Greene County. Northwest of Paton, 79 acres sold at an online auction for $8,750 per acre. The farm has 75 acres with an 82.3 CSR2, which equals $112 per CSR2 point on the tillable acres.
Boone County. Southwest of Ogden, 40 acres sold at public auction for $7,700 per acre. The farm has 39 tillable acres with an 80.3 CSR2, which equals $98 per CSR2 point on the tillable acres.
Benton County. East of Norway, 126 acres sold for $11,000 per acre. The farm has 125 tillable acres with an 88.4 CSR2, which equals $125 per CSR2 point on the tillable acres.
Fremont County. Northwest of Northboro, 195 acres sold for $5,641 per acre. The farm has 188 tillable acres with a 66.8 CSR2, which equals $88 per CSR2 point on the tillable acres.
Clarke County. West of Osceola, 155 acres sold for $3,350 per acre. The farm has 133 tillable acres with a 51.7 CSR2, which equals $75 per CSR2 point on the tillable acres.
Jefferson County. South of Fairfield, 90 acres sold at public auction for $6,400 per acre. The farm has 85 tillable acres with a 64.4 CSR2, which equals $105 per CSR2 point on the tillable acres.
Hensley is president of Hertz Real Estate Services, which compiled this list but did not handle all sales. Visit hertz.ag.
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