While cropland continued to gain value in the first half of 2023, Farm Credit Services of America (FCSAmerica) reported signs that the real estate market is stabilizing.
FCSAmerica, a financial cooperative, appraises 63 benchmark farms twice a year to monitor trends in real estate in its four-state territory of Iowa, Nebraska, South Dakota and Wyoming. FCSAmerica’s July 2023 Benchmark Farmland Report was released recently.
The chart reflects the average change in value for multiple land types: dryland and irrigated cropland farms, crop-pasture farms and pasture-ranch operations. The number of benchmark farms appraised in each state is indicated in parentheses.
Iowa values for 15 of the state’s 21 benchmark farms increased by less than five percent, and four declined slightly. The highest increase was 9.1 percent, the greatest decline, 6.3 percent. The overall year-over-year gain of four percent compares to increases of 37 percent and 12.8 percent in 2020 and 2021, respectively.
Benchmark values in the first half of 2023 remained strong in markets where the availability of land was limited and were steadier in areas with a consistent supply. Higher quality cropland also supported higher values, while average to below-average ground saw smaller increases. This is indicative of a more stable market.
For all agricultural land types, values remain at record highs. The steepest gains occurred in the last half of 2020 through 2021. The market has remained resilient in the past year despite successive interest rate hikes and drought in much of the region.
“The other driver in real estate is farm profitability and the overall financial health of agriculture, which has been extremely strong,” said Tim Koch, executive vice president of business development for FCSAmerica. “Profitability and optimism in agriculture have more than offset the negative pressures created by the increased interest rates.”
Profit margins continue to tighten because of higher input costs and lower commodity prices. Producers generally are planning for 2023 profits near break-even levels. This could result in a flattening of land values, with some areas possibly seeing a slight decline, Koch said.
“There is lots of liquidity on farm balance sheets and overall leverage is down significantly,” he said. “So even if profit margins, on average, return to break-even levels, the overall financial strength of producers will lead them to stay in the real estate market. We still could see instances of aggressive bidding for the right farm in the right location.”