MARION, Iowa — Soil productivity and farm location in close proximity to other farms continue to be the most sought-after characteristics for Iowa farmland.
Jeff Troendle, president of Hertz Farm Management, said, “Higher quality farms have certainly softened less. They have also rebounded faster.” Big yields were one of the main factors supporting farmland prices in Iowa this year, he said. The lowest-quality farms have generally saw the most impact on values and likely haven’t rebounded yet, except for the poorest farms which are often put in CRP. CRP recreational land value has come up a bit, Troendle said. Richard Isaacson and his team of appraisers and real estate salespeople, including Ben Isaacson and Erin VanderHeiden at Agri-Management Services (AMS), said buyers are interested in farmland with high-quality soils that adjoin their existing farms, regardless of market conditions. “If you’ve got a 160-acre farm (and are considering buying an adjoining tract), typically that person is a little more motivated,” Isaacson said.
Iowa State’s Corn Suitability ratings, CSR1 and CSR2, continue to be the go-to standards for assessing soil productivity, including soil type — clay, sand or loam — as well as other important factors such as topography and drainage, the AMS team said.Farmer’s needs influence what makes a valuable farmland property. For example, a rectangular-shaped 160-acre tract may bring a higher rent per acre than an irregular or triangle-shaped tract that makes using large equipment difficult, Isaacson said. Farm location matters most in terms of distance to other farms, Troendle said. Farmland near livestock production areas can use manure instead of commercial fertilizer. Distance to market has “become less and less of an issue just because we’ve got so many new options,” from ethanol processors to river terminals, he said. Farms near cities are starting to see some pressure to sell again as the U.S. economy strengthens, Troendle said. That’s good for landowners who want to sell for a premium but not for farms in the area that would like to expand. The land’s location in a farming community can also influence its value, according to Broker John Kirkpatrick of Murray Wise and Associates’ Iowa office.
Investors may be less likely to buy highly productive farmland in an area without a healthy farming community due to diminished resale opportunities, he said. But, in very active farming community — such as Webster County, Iowa, with many nearby grain markets positively influencing basis — the opposite can be true, resulting in higher rents and higher resale values, he explained. In these markets, “if it’s any good, it’s gone pretty fast,” Kirkpatrick said.
Tiling is also high on the list in buyers’ minds, but newly installed tile is likely to be discounted somewhat vs. the cost of installation in most cases. “It’s kind of like remodeling your kitchen, typically it is hard to attain the value of what it costs to remodel,” Isaacson said.
Furthermore, natural drainage characteristics — like location at the top of a watershed — are key, AMS said. How a farm has been cared for can also affect its value. If a farm has been abused in terms of limited rotations, minimum fertility applications and weed control, it can affect the value, Troendle said. He said the reputation of the farm matters more than how it has been rotated, as some growers may have a corn on corn rotation that has been handled very well. “I think the biggest thing is the inherent productivity of the soil,” Troendle said. “Unless major erosion has occurred, buyers will usually decide they can shape up a farm with low fertility so long as the productivity of the soils is high.” This influence depends somewhat on how the farm is marketed and the sale arrangement. At auction, the community will have time to scrutinize past practices, while in a private sale to an adjoining farmer, the farmer may care more about being able to expand or take advantage of amenities like on-farm storage, AMS said.
Kirkpatrick said there are “a lot of things at work right now,” influencing farmland values, noting costs of farming are up, farm income is down and there’s pressure from lenders to help hold rents down. These factors influence investors’ motivation for buying farmland, potentially shifting the focus from return on investment toward wealth preservation and diversity. Some recent sales have been “confounding,” with sales varying by as much as $1,000 per acre for similar quality soils, he said. This may be due to how the sale was promoted or the supply of available farmland recently. “Once farmers get their plate full, then sometimes they push back,” Kirkpatrick said.