FOCUS ON AG

Written by Kent Thiesse

Farm Management Analyst and Senior Vice President, MinnStar Bank
March 20, 2023
FARMLAND VALUES CONTINUE TO INCREASE
Farmland values in the Upper Midwest have continued to move higher early in 2023, surpassing the highest
levels ever in many areas. Many locations in the Upper Midwest, except for portions of Western Minnesota and
Iowa, South Dakota, Nebraska, and Kansas, experienced average to above corn and soybean yields in 2022.
These solid yields, combined the highest crop prices in several years that existed throughout most of 2022,
helped boost final 2022 farm income to some of the highest levels that we have seen in many years. The
enhanced farm income levels have resulted in sharply higher land values in many portions of Iowa, Minnesota,
and other areas of the Upper Midwest. Land values have also been enhanced by very strong buyer interest in
purchasing farmland and a limited amount of land being offered for sale in many areas.

Iowa State University does a comprehensive land value survey each December, which is regarded as one of the
best resources on trends in Midwest farmland sales. The Iowa State Land Value Survey is based on actual land
sales in Iowa over a 12-month period, as well as from reports by agricultural professionals that are
knowledgeable regarding land market conditions, including appraisers, farm managers, and ag lenders. The
complete 2022 Iowa State Land Survey results can be found at: https://www.extension.iastate.edu/agdm/
(Note --- Refer to the Table at the end of this column for a summary of Iowa land values from 2008-2022.)

The average value of Iowa farmland in 2022 was of $11,411 per acre, surpassing the 2021 average of $9,751
per acre, which previously was the highest average land price ever recorded since the Iowa State survey was
initiated in 1941. Since the recent low point of $7,183 per acre in 2016, the Iowa Land Value Survey has shown
an increase of 59 percent, or $4,228 per acre, in the past six years (2016-2022). This includes a 51 percent
increase in land values in a span of two years from December of 2020 until December of 2022.

The average land values in 2022 increased in all 99 counties in Iowa, as compared to 2021 average values.
Eight of the nine Iowa crop reporting districts had at least a 13 percent increase in land values in 2022, with
Southeast Iowa being the exception with a 9.8 percent increase. The greatest increases were at just over 22
percent in both the Northwest and Southwest districts. The Northwest district reported the highest 2022 average
land value in Iowa with an average of $14,878 per acre, with the North Central, West Central, East Central, and
Central districts all averaging over $12,000 per acre.

Trends in farmland values in Southern Minnesota have been tracking very closely to the trends shown in the
Iowa land value survey for northern crop reporting districts in Iowa. Similar to many areas of Iowa, land values
were much higher in 2022 in most portions of Southern Minnesota due to the much higher commodity prices
and average to above average crop yields in many areas. There have been many land sales across Southern
Minnesota that have topped $10,000 per acre in the past 12 months, with some isolated sales nearing $15,000
per acre. Even with the higher land values, there has continued to be a gap between the average land price for
high quality, well drained farmland compared to lower quality land that is poorly drained. The number of
potential buyers interested in purchasing farmland has also increased in many areas of Minnesota.

Based on the recent Iowa State Land Value Survey, farmers accounted for approximately 72 percent of the
farmland purchases in Iowa in 2022, which was primarily existing farm operators that were expanding their
owned land base. The remaining 28 percent of farmland was purchased by real estate investors, with about half
being retired farmers and other local investors and the other half being non-local investors. The main reasons
listed for the strength in farmland values were the continued high commodity prices and strong farm income
levels in 2022, the limited supply of land offered for sale, and the continued low interest rates in the first half of
2022. The survey indicated that there continues to be strong interest for purchasing land among farmers as we
entered 2023.
Data released in late 2022 by the Federal Reserve Districts across the U.S showed similar trends in average land
values in the Upper Midwest at the end of 2022, compared to a year earlier. The highest 12-month percentage
increases at the end of 2022 were North Dakota at 30 percent, Indiana at 29 percent, Kansas at 27 percent,
Minnesota at 24 percent, and Iowa at 22 percent. Nebraska and Illinois were at a 20 percent increase. South
Dakota, which was hard-hit by drought last Summer, was still at a 13 percent increase in land values in 2022.

The U.S. Federal Reserve has increased the prime interest rate by 4.50 percent in the past fourteen months,
increasing the prime rate from 3.25 percent in early 2022 to 7.75 percent in early March of 2023. The Federal
Reserve continues to discuss the likelihood of further increases in the prime interest rate during the balance of
2023. Prior to 2022, the prime rate interest rate had not changed in nearly three years which provided a stable
financing environment for buyers of farmland.

Following is an example to show the impact of the rapid rise in long-term interest rates ……
Assume that a land buyer purchased an 160-acre parcel of farmland and financed $5,000 per acre ($800,000
total) with a 25-year amortized real estate mortgage (REM). Following are the estimated increase in annual
principal and interest (P & I) payments as the long-term interest rates have increased:
 4.00 % Interest Rate = $51,511 per year P & I payment
 5.00 % Interest Rate = $57,158 per year P & I payment
 6.00 % Interest Rate = $63,078 per year P & I payment
 7.00 % Interest Rate = $69,251 per year P & I payment
 8.00 % Interest Rate = $75,656 per year P & I payment
From early 2022 until March of 2023 that represents an increase in the estimated annual REM P & I payment of
over $24,000 per year. On 160 acres of farmland, this would add over $150 per acre to the annual cost of the
land.

As part of the 2022 Iowa State Land Value Survey, the respondents were asked their opinion regarding the
future direction of farmland values. Forty eight percent of the respondents expect Iowa farmland values to
increase by 5-10 percent by the end of 2023, as compared to the end of 2022. Twenty four percent of
respondents expect farmland values to remain fairly steady in the next 12 months, while 28 percent forecast a
decline in land values in Iowa by the end of 2023. When asked about farmland trends over the next five years,
60 percent of the respondents expect land values to increase by 10-20 percent, while 24 percent feel that future
land values will decline in the next few years.

Currently, most signs point toward continued strength and even potential further modest increases in land values
in the next 12 months. However, there are some lingering “caution flags” that could put potentially reverse this
optimistic trend and revert to more downward pressure on land values. These potential challenges include:
 Return to lower crop prices and lower profitability in crop and livestock farming.
 Further increases in long-term interest rates by the Federal Reserve Bank in the next year.
 Changes in Federal policies, such as estate taxes, capital gains taxes, or 1031-exchange policies.
 Reduced interest to purchase farmland or a large increase in the amount of land being offered for sale.
 Lack of confidence in the land market by farmers, investors and ag lenders.

As we enter a period of increased crop input costs and tighter margins in crop and livestock production, farm
operators need to be more cautious on over-extending their farm business to purchase land. This is especially
the case for beginning farmers and those borrowing a significant amount of money that will be impacted by the
increasing long-term interest rates. It is best to sit down with a good farm business financial advisor or ag lender
to analyze the potential financial impacts on the farm business before finalizing the farm purchase decision.

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Note --- For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President,
MinnStar Bank, Lake Crystal, MN. (Phone --- (507) 381-7960)
E-mail --- kent.thiesse@minnstarbank.com) Web Site --- http://www.minnstarbank.com/

Following is a table showing the average value of Iowa farmland for the past 15 years
(2007-2021), as well as the percentage change in land values from year-to-year:

IOWA AVERAGE FARM LAND VALUES (2008-2022)

YEAR AVE. VALUE PER ACRE % CHANGE
2008 $ 4,468 +14.3 %
2009 $ 4,371 (2.2 %)
2010 $ 5,064 +15.9 %
2011 $ 6,708 +32.5 %
2012 $ 8,296 +23.7 %
2013 $ 8,716 +5.1 %
2014 $ 7,943 (8.9 %)
2015 $ 7,633 (3.9 %)
2016 $ 7,183 (5.9 %)
2017 $ 7,326 +2.0 %
2018 $ 7,264 (0.8 %)
2019 $ 7,432 +2.3%
2020 $ 7,559 +1.7%
2021 $ 9,751 +29.0%
2022 $11,411 +17.0%

NOTE --- This data is from the 2022 Iowa State University Land Value Survey.