Farmland values in Iowa, the top U.S. corn and soybean state, fell 5.4 percent over the past six months, under pressure from lower grain prices, according to a benchmark survey of realtors.
Still, the market remains underpinned by strong demand from wealthy farmers and non-farming investors, said the Iowa Realtors Land Institute survey, which is based on information from local farm real estate brokers, lenders and others with knowledge of land prices.
"The report overall was encouraging because we knew the price of corn had fallen off 35 percent since this time last year," Kyle Hansen, past president of the institute and broker with Hertz Real Estate in Iowa, told Reuters on Wednesday.
The average selling price of farmland across Iowa in March was $8,286 an acre, compared with $8,758 six months before. Prices were down 4.6 percent from $8,690 a year earlier.
Agricultural bankers, economists and farmers have expected land prices to taper off in 2014 after setting a series of record highs over the past five years as grain markets boomed, fed by exports and the biofuels expansion. Low interest rates also spurred demand for land from farmers and outside investors.
Economists and bankers have been keeping a close eye on Iowa, a bellwether for the U.S. grain economy and also the largest hog-producing state.
Crop prices, led by corn, have fallen by about a third from a year ago as grain stocks have expanded. That raised some concerns that land prices might also tumble, popping a farmland bubble similar to what happened in 1980s, when overleveraged farmers lost their land. But most agricultural economists expected a soft landing since grain farmers have benefited from strong income and reduced debt over the past five years.
"If asked in December, I would have estimated land values would have been off more," Hansen said. "But over the last 45 to 60 days, we have seen a renewed strength in commodity prices, and that has lifted the spirits of a lot of buyers, giving them confidence that land values are holding steady."
Iowa land values fell in all nine crop-reporting districts, the survey said, with the biggest drop in the southeast, down 8.4 percent, while the southwest had the smallest decline at 2.1 percent. Northwest Iowa farmland had the highest average price at $12,930 an acre.
The results are in line with the most recent survey of Midwest farmland by the Chicago Federal Reserve Bank. That study, issued in February, showed a steady to softer outlook for farmland values.
The Iowa survey, which began 1978, was the first glimpse at what the next Fed survey may reveal when it is released in mid-May. (Editing by Lisa Von Ahn)