Iowa farmland value jumps 24 percent in year

Report shows slowdown in second quarter

Troy Louwagie
Troy Louwagie

The drought that has savaged Midwest crops and is expected to slash yields contributed to less rapid increases in farmland values during the second quarter.

Even so, the value of an average acre of Iowa farmland still jumped 24 percent from July 1, 2011, through the same date this year.

Bankers responding to a survey by the Federal Reserve Bank of Chicago said an average acre of good Iowa farmland rose 2 percent in dollar value from April 1 through July 1 of this year. Across the five-state Seventh Federal Reserve District, farmland values rose an average 15 percent on a year-over-year basis and 1 percent in the second quarter.

The value of an average acre of good farmland in east central Iowa rose 22 percent year-over-year and 3 percent in the second quarter. In northeast Iowa, the value of an average acre of the same quality farmland increased 20 percent year-over-year, but slipped 2 percent in the most recent quarter.

Troy Louwagie of Hertz Farm Real Estate Services in Mount Vernon said high quality farmland in Eastern Iowa has been selling in the range of $9,500 to $10,500 an acre.

"We just had an auction two weeks ago of 200 acres in Benton County that sold for $12,300 an acre," Louwagie said. "High quality continues to sell very well."

Louwagie agrees with the Federal Reserve Bank of Chicago that the value of Iowa farmland has begun to level off in the most recent quarter. He said a potential increase in the capital gains tax on Jan. 1 is prompting some farmland owners to inquire about a possible sale.

North Central Iowa continued to lead the state in farmland value appreciation with a 30 percent year-over-year increase and a 1 percent advance in the second quarter.

With 22 percent of the respondents anticipating higher farmland values in the current quarter and only 4 percent expecting declining values, David Oppedahl, business economist with the Federal Reserve Bank of Chicago, said the drought does not seem to have stifled all the momentum of rising agricultural land values.

"Responding bankers predicted that as the drought continues to spread across much of the district during the third quarter, farmland values would likely level off, but not face much downward pressure from the drought’s effects," Oppedahl said. "Only 4 percent of the respondents forecast farmland values to decline in the third quarter of 2012, whereas 22 percent of the respondents forecast farmland values to rise in the third quarter."

Although there has been spreading concern about the drought's impact on corn and soybean yields and the cost of feed for livestock producers, Oppedahl said agricultural credit conditions strengthened in the second quarter when compared with the same period in 2011. Repayment rates for farm loans were above the level of a year ago, with 94 percent of agricultural loans having no significant repayment problems.

Oppedahl said agricultural loans with “major” or “severe” repayment problems were under 2 percent of the five-state district's total loan volume. Wisconsin was the only state that had over 4 percent of its loan volume in troubled status.

Sixty-five percent of the survey respondents said their banks had more money available to lend to farmers and 1 percent reported they had less.The Federal Reserve Bank of Chicago surveys more than 200 agricultural bankers each quarter in Iowa, Illinois, Indiana, Michigan and Wisconsin. The  agricultural loans held by the banks provide operating capital for farmers and do not involve the farmland purchases.

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