Iowa Farmland Cash Rents Fall

Cash rents down 3.7% in Iowa

Here are the details:

As I noted a few weeks ago, Iowa farmland prices have dropped a bit – 5.4% statewide, based on the recent report by the Iowa Chapter of the Realtors Land Institute. Naturally, when the price for buying land drops, it’s inevitable that the price for renting it will go down as well. And we’re seeing that, though to a lesser extent. Statewide, cash rents are down a bit – about $3.7 percent, from $270 in 2013 to $260 this spring, based on Iowa State’s annual survey.

You have to dig a little deeper to get the full picture, and if we we look at the numbers at the district level, we see that:

• The decline in cash rents is pretty much statewide. Rents in every district declined except those in District 9, in the southeast corner of the state, and that district was unchanged at $229 per acre.
• While we have a couple of outliers, which we’ll discuss momentarily, five of the nine districts hovered around the middle.
• When we look at the outliers, we see that District 2 (north central) is down more than 8%, but District 3, just east of it in the northeast corner of the state, is down 1.4%. (District 2 includes Kossuth, Winnebago, Worth, Mitchell, Hancock, Cerro Gordo, Floyd, Humbolt, Wright, Franklin and Butler counties. District 3 includes Howard, Winneshielk Allamakee, Chickasaw, Bremer, Fayette, Clayton, Black Hawk, Buchanan, Delaware and Dubuque counties.) I’m tempted to attribute the difference to quality, even though both districts have a great deal of excellent land.

We have to be careful not to over-interpret these numbers, especially when we get down to the district level. The smaller the sample, the more distortion we’re likely to see. So while it’s fun to slice and dice the numbers locally, it’s probably more useful to step back and keep our focus on the big picture.

It’s also important to remember that land prices and rent prices don’t necessarily move in lockstep. A farm may not be sold for generations, but cash rents change from one year to the next, based on such factors as commodity prices relative to the cost of inputs – notably seed, fertilizer and fuel. If it costs more to grow corn or soybeans and the farmer is likely to get a lower price, he’s naturally going to negotiate for a lower rent. The investor who owns the land may not like seeing the rent go down, but he also knows that if the farmer doesn’t make money, it’s bad for everybody.

Ultimately, what works out best for everybody is for both rents and land prices to accurately reflect market conditions. And when it comes to buying and selling farmland, the best way to ensure that is to sell the land at auction.

When a farmer is thinking of selling and the owner of adjacent land makes an offer, it’s tempting just to take the “bird in the hand.” But if there haven’t been many sales recently in the area, there may not be enough “comparables” to establish a meaningful market price. With an auction another farmer might enter the picture, seeking more land for his own operations. Or investors might bid up the price.

Risky? Scary? Not if the auction is properly promoted. To me, the greater risk is that of paying too much, or accepting too little. The auction eliminates that.  If an auction still isn’t for you we offer traditional listings as well, call us about marketing your Iowa farmland.