It’s a hot one! Summer weather? Yes, and also the land market. You already know that. It has occupied every area of ag (and other) media over the past year. It can be entertaining to see how the story is sometimes presented.
Let’s start with the headliner. Several parcels have sold for $25,000 per acre or more in Northwest Iowa so far this year. Does that make all land worth $25,000? NO! There are a few specific cases in certain neighborhoods where such an outcome MIGHT occur. We tracked 43 sales of $20,000 per acre or higher across our territory. Each sale has its own story. It’s crucial to understand the motivations behind each sale outcome. In the majority of northwestern Iowa, $20,000 is not realistic, at least not yet. Let’s delve into the factors behind this.
Soil Quality – there is more to understanding soil quality than just knowing the CSR (now CSR-2) or Corn Suitability Rating. The Iowa Soil Regions map shows 22 distinct soil associations in the state. Within each, there are many soil types which are unique to each association. Our trade territory includes ten of the 22 associations. Each soil type has variation from one farm to the next. For example, Luton clay is the prevailing soil type on the Missouri River bottomlands. The official description of this soil type says its clay content can range from 35% to 75%. This makes a massive difference in permeability within the same soil type, and is not a factor that is differentiated by the Corn Suitability Rating. It is up to the land professional to discern this difference. Bottom line here is that the market not only pays more for better quality soil (of course it does) but it pays at a higher ratio. Better soils are not only more productive but also less risky since variability is considerably reduced. We always say “know the soil types, not just the CSR’s”.
Terrain/topography – following up on the soil quality discussion, a good soil type can be better or worse depending on where it is positioned. For example, a top-quality soil such as Galva silty clay loam may not be as good near a river bluff as it is on an upland plain. We always consider the other soils nearby in determining quality. In the case of Galva soil, is it intermixed with higher clay content Primghar and Marcus soils on an upland plain, or is it near the river bluff and intermixed with Sac and Everly soils? In that case, you may find patches of rocks on the surface which you won’t find on the upland plain.
Drainage – this is especially critical in the glacial soils which are found east of US Highway 71 (Storm Lake) and cover all of north-central Iowa. This area is younger than the wind-blown soil found west of Highway 71, having been created by glaciation about 14,000 years ago. Wind-blown loess is around 20,000 years old. This age difference impacts natural drainage. Subsurface tile drainage is important in most soil associations, but on a much more intensive scale in the glacial soils. Drainage is not one-size-fits-all. Missouri River farms rarely have tile but may require graded surface drainage. Drainage or lack thereof is a definite influence on values. Proof of a good drainage system is valuable information.
Improvements – this is less a factor than you might think, aside from drainage improvements. Newer efficiently-sized grain bins and machine sheds usually add value. Older buildings add little value, or may even be detrimental to value. Same with irrigation. New systems add value, older systems may not add much. Terraces have become somewhat of an obsolete item as well. We don’t recommend removing all terraces by any means, but some terracing projects from the 70’s and 80’s no longer fit modern farming and are removed by new owners. No-till farming allows good soil conservation, in many cases superior to the tillage programs used when the terraces were new.
Location – this is the biggie. The old saying is “look at the plat book, see who the neighbors are”. Some areas just have stronger land values than others, and the dividing lines are not always discernable to everyone. A history of livestock production often indicates the areas with highest land values. For example, Sioux County is well-known for high land values. Sioux County is also #1 in the state in cattle, hog, and poultry production. Manure is also a great fertility boost. Other towns and counties have similar but less dramatic livestock influences.
Fertility – it is amazing how many land transactions occur with little to no knowledge of soil fertility levels. It is also amazing how little influence it has on value. A very high fertility farm with recent soil tests may help its value, but not to the extent you might think. Think of today’s bidding levels. A bidding increment is often $100 per acre or more. A few bids buys a lot of phosphorous, potassium, or lime. Basically in the larger picture, a farm can be fixed up fertilitywise with relatively little money compared to the total purchase price.
After considering all these factors, it is no wonder some land might sell for $14,000 while a very similar farm might sell for $18,000 per acre. Don’t set your hopes on the highest number you’ve heard. We’d all love that outcome. Get a realistic assessment or appraisal of your farm and proceed accordingly. That approach will provide a plan with satisfying results.
Current Market Analysis
Moving on to the most recent land market analysis, a strong market like we’ve had the past 18 months always brings more land to the market. Volume has remained above average this spring and early summer. Considering that 75% of land transactions tend to occur the second half of the year, we anticipate a very active six months ahead. Will the market become saturated? We haven’t seen that yet. Off-farm buyers (investors and those who are just “off-farm”) remain very active bidders. Rising interest rates have not seemed to affect the market. Our theory is that most buyers are not planning to take 20 years to pay for it. In a lot of cases, much less time than that. That adds a lot of stability underlying the market.
Our list of sales shows most sales of good land ranging from $10,000 to $17,000 per acre. Two years ago, $10,000 per acre was a significant sale for good land in most areas. Increasing 30% puts that land at $13,000. Another 30% would move that number to nearly $17,000. For comparison purposes, we have to look back at the 1970’s when the Iowa State survey showed three years of 25% and a year of 30% gain in the middle of the decade, plus other years with significant gains.
Previous bull runs have been followed by years of steady land values, or perhaps a drop then steady values. Only twice in the past 120 years did a major crash in land values occur. The outcome this time will depend in part on how long this bull run lasts. Will it be 2-3 years, or 5-7 years? One thing we know is that while history repeats itself, it never does so quite the same way.
Below are two tables of selected sales of “good” farmland in Iowa and South Dakota which have sold recently in the region. Stalcup-brokered sales are in bold and highlighted in green
