After a string of double-digit annual gains this past decade, farmland could be poised to reverse its fortunes. Unfortunately, agriculture’s most widely monitored farm real estate surveys will likely lag that reality, Kansas State University economist Mykel Taylor cautioned.
Just last week, three Federal Reserve Bank districts released glowing reports of farmland gains since July 2012. Based on surveys of ag lenders, the Kansas City Federal Reserve concluded that its district’s irrigated cropland had surged 25% and non-irrigated land 17% from year-ago levels. The St. Louis Federal Reserve reported that high-quality land in its district surged 11% in the second quarter of 2013 as the region recovered from drought, and notched 20% gains compared to a year ago. The Chicago Federal Reserve, meanwhile, showed no change in district land values in the second quarter of 2013, but overall values still 18% higher than year-ago levels. Somewhat disturbing was that parts of southern Iowa showed losses of 9% in the most recent three-month period.
In an era of instant and real-time information, few states or farm lenders compile actual sales transactions when assessing land value trends; in states such as Kansas, only licensed appraisers even gain access to those public records, a phenomenon common in western states. That means the industry must rely largely on educated guesses of where farm real estate has been and where it is headed, she told attendees at the university’s 2013 Risk and Profit Conference this week.
The problem is, neither realtors, bankers nor farmers included in many of these opinion surveys may have an accurate assessment of market conditions. Using sales data from the Kansas Property Valuation Department, Taylor and KSU colleague Kevin Dhuyvetter found that the average acre of non-irrigated Kansas farmland was worth about $2,364 per acre last year — almost 40% more than reported by farmer opinion surveys conducted by the National Agricultural Statistics Service for the same timeframe. The margin of error for opinion surveys was even steeper for irrigated Kansas farmland. Taylor found irrigated land should have averaged $4,302 per acre, more than 50% higher than the NASS data reported. Actual cash rents ran 63% higher than the NASS survey, on a statewide average.
NASS has been under budget pressure in recent years, so is likely issuing fewer surveys, Taylor said. But another problem is that a number of farmers may not be responding to surveys, so some counties lacked enough reports to be statistically valid. Even when they do, growers and landowners may be more conscious of public auctions and unaware of private transactions that are never made public.
Land markets are so dynamic that values may be moving faster than people who are not actively engaged in the land markets realize, Taylor said.
It’s not just landowners, lenders and tax assessors who rely on accurate data; judges in court cases use third-party evaluations to settle disputes. “It’s important we do the best we can,” Taylor said. One problem with relying on state tax assessor records, however, is that data can’t be processed in real time, so it lags reality as well.
Other databases that use real transactions may be quicker to indicate if buyers are becoming more cautious about paying top dollar for farm real estate. The Iowa Peak Soils Index measures actual appraised sales from 20 counties in the state that are compiled monthly and reported quarterly. Its data indicates that Iowa farmland values peaked in the third quarter of 2012 at a state average of $8,606 per acre, slipped to $8,410 at year-end and then dipped to $7,959 during the first quarter of 2013. Further slides are expected for its July 1 report, set to be released in the next few weeks.
That scenario squares with other economists here, who believe agriculture’s golden years may be waning. “Land values should be level to down just a hair” now that commodity prices are sliding, said Terry Kastens, a farmer and emeritus professor of economics who spoke at the conference. “The ethanol boom is done … There’s been a massive expansion of world competitors. China’s growth is slowing. We’re not looking at $7 corn the next five years. If you plug $4 corn into land values and rents, I can’t see a scenario where things can keep going up.”
Written by: Marcia Zarley Taylor can be reached at email@example.com
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