Today’s land market vastly different from what we have been used to seeing in some ways and still not much different in other ways so todays Iowa Farmland Market Update will center on land volume and land prices. In visiting with my peers across Iowa they say many of the same things I think or see at DreamDirt so I’ll post a few of those things below to give you an idea from the inside where the Iowa land market is at as of today.
Around the state the biggest news today is that there is nothing for sale. By nothing I’m really talking about nothing new. There are farms for sale but the vast majority of listings available today are stale listings that have been available for many months, and some of them years. Most active buyers are looking for new listings daily and coming up empty time and time again. The trend toward the lower volume of farms available really started in 2016 and has amplified in 2017 with some regions of the state only seeing 1-2 land auctions in the last 6 months. Thats honestly as low as I’ve ever seen sales in my entire career.
Why is it so low? There are a few reasons but chief among them is the bad news of lower commodity prices. Most sellers are nervous to sell a farm today believing they will not be able to achieve the price they want to and they are watching for some sort of recovery or making long term plans to hold the asset until commodity prices do recover.
Prices across the state have been hit and miss and for those in my position it can be difficult to make sense of some of the sale prices at times. It seems there can be a low sale on Tuesday that will achieve the $60-$80 a CSR2 point and a comparable farm will sell the next day in another area of the state and break $120 a CSR2 point. That hit and miss situation has spooked some sellers into hiding. Even in the last 30 days a farm sold for $168 per CSR2 point despite the 57% loss in corn prices since 2013. The hit or miss can be predictable in cases where location plays a role. Despite the “hit or miss” thats been in the market the number of no sales has increased only slightly at auction. Is there a way to avoid the hit or miss cycle as a seller? There is and the cheapest insurance is to hire an auctioneer or broker that provides a multifaceted campaign with proper exposure. I have noticed at least in some of the cases where farms came up on the low end the exposure of the farm as limited to mostly the local area with very little outreach beyond an Internet website.
Will the sales come back? They most certainly will at some point and I think there is probably good reason to sell sooner than later if you are intending to sell over the next 2 or 3 years. I have written it before but its worth restating that the danger is not today, the danger is in kicking the can down the road. If you look forward and imagine how this plays out with continued low commodity prices you have to know 2 things. First, the penned up supply of farms continues to grow making that bubble grow and second lower commodity prices could be growing another bubble of distressed farms that could at some point flood the market with more supply. The simple economic principle of supply and demand dictates that a larger supply of farmland will decrease demand. A flood of farmland at some point could really send ripples through the pond.
What are buyers doing today? There are different kinds of buyers in the market today. There is an insatiable demand for 3 kinds of farms right now. The first and most valuable today is high quality tillable farms with a CSR of 75+ and the next most demanded property is a tie between quality pasture and quality hunting land. All of these farms are doing very well in the market right now and sell well in the auction space.
Beyond those farms and buyers you find the moderate quality, moderate CSR farms, less developed habitat and moderate quality pastures. These tillable farms are easy to identify by CSR running in the 50-75 range. Hunting farms can be graded on quality in several ways but tend to score best with buyers when they are fresh have a good mix of mature timber, water supply, some tillable history, adequate income and quality neighboring habitat. Hunting farms can also be much more location related than tillable or pasture farms, certain areas of the state are more inviting and desirable. Pastures with quality fence or new fences and gates that have been managed well for weeds, brush and timber as well as grass stand will be considered high quality but a mark against any of them will send it to the moderate or low quality for buyers. Poor fences, weeds or poor brush management is a real turn off for buyers and they often will discount the farm even more than the expense and effort required to make it a high quality pasture.
Its important to note that the cattle market has been on fire lately and the pasture market is subject to change at anytime and we’ve already seen some of that happening at DreamDirt at least over the past week with inquiries for pastures or calls about pastures we have on hand. It could be that the increased demand for pasture due to the uptick in the cattle market possibly spurred by the trade agreement with China could clear out some of the above mentioned stale listings further reducing the farms on the market. We are searching for large pasture tracts for at least 3 different buyers right now in specific areas and I suspect that trend will continue.
The market is hungry for new listings and new auctions and I don’t know if there has ever been a better time to sell a farm and still be able to achieve near top market prices. Waiting could push you into a bubble of supply that will make achieving the best price much more difficult in the absence of any improvement in commodity prices. If you are considering selling land in Iowa contact one of us to visit about your farm and learn what you can expect from todays market.