September 2019 Wallace’s Farmer “MarketPlace Extra”
“Time doesn’t slow down for anyone.” This tru-ism that my Grandma Hensley shared with me when I was little holds particularly true for the 2019 crop year. Another school year is soon to begin, and harvest is not far behind. What does this fall have in store for Iowa and rural America? There are many factors in play simultaneously; and all this simultaneous motion seems to make the world spin that much faster. How will these factors impact the Iowa farmland market, as we approach the fall sales season? Let’s slow things down and look at the facts…
The early-summer commodity markets took note of the early-planting problems in the Eastern Corn Belt and responded to move appreciably higher into July. However, the markets have recently given back much of the early season price gains, on speculation that demand for our Midwest crops is being destroyed more quickly than our 2019 production is shrinking.
Coming into spring 2019, farms with above-average soil types, adequate drainage, easy farm-ability, and well-managed fertility levels were selling best, and values were largely stable. Since the growing season started, that stability has continued, and seems to have strengthened just a bit. The strength appears to be rooted in the reality that much of Iowa is growing an average or average-plus crop. With average yields and stronger commodity prices through much of the summer, there is an expectation that this year can produce improved margins and overall profitability for Iowa farmers and landowners.
A handful of strong, late-summer sales, and several discussions with farmers and landowners, hint at this stronger market outcome. Having said that, the crop is not in the bin and is far from guaranteed. But, coming into the growing season, farmers were buying nearly 8 out of every 10 farms brought to the market. If Iowa farmers realize stronger profits in 2019, it’s quite possible that the Iowa market will show signs of broad price support not seen in recent years.
However, don’t overlook local market fundamentals. Remember - the farmland market reflects the collective confidence of all participants in the market. When things are going well, farmland values tend to be stable to higher; while weakness in land values shows up when things are not working well. Locally speaking, there are always value differences when comparing one specific neighborhood to another. Given the growing season differences this year from area-to-area, localized growing conditions and local sale volumes will be two areas to watch through the end of the year.
There’s also much to watch on a broader scale. The current interest rate environment has become significantly more ‘dovish’ than just a few months ago. In fact, the Fed cut short-term interest rates by a quarter percentage point in late-July. This is a result of the Fed’s concern that the overall economy is slowing/weakening. Lower rates are supportive to anyone borrowing money, and they are also supportive to underlying asset values, including Midwestern farmland.
Stronger commodity prices have been meaningful, even though some of the early-summer price gains have been given back. Many across the Midwest seem to think the corn and soybean crop is going to be the smallest since 2012 – and this smaller supply will continue to be supportive to crop prices, assuming we don’t destroy demand more quickly than our supply shrinks.
To that end, in early August President Trump ramped up more tariffs of China, which has much of agriculture buckling up for the real possibility that no trade deal will be made with China until well after the 2020 election cycle. Most across the ag sector understand what President Trump is attempting to do. But it has been painful to watch as one of our biggest customers has stopped buying our products.
The MFP payments have certainly lessened the cash-flow blow, but haven’t provided the underlying market confidence that is so important to long-term market health. Good or bad, discussions aimed at resolving our trade conflict(s) appear to be ongoing and will continue to impact commodity prices and underlying asset values, including farmland.
Finally, I’ll caution, again, to not ignore the possibility of a major ‘black swan’ type of unexpected market-moving event. If African Swine Fever were to reach the US, it would be significant, and it would be very damaging to US ag.
80 +/- acres, located east of Milford, recently sold at public auction for $9,350 per acre. The farm consisted of 78 +/- tillable acres with a CSR2 of 86.7, and equaled $111/CSR2 point on the tillable acres.
70 +/- acres, located west of Kensett, recently sold for $8,000 per acre. The farm consisted of 67 +/- tillable acres with a CSR2 of 85.7, and equaled $98/CSR2 point on the tillable acres.
154 +/- acres, located southeast of Fayette, recently sold at public auction for $6,400 per acre. The farm consisted of 143 +/- tillable acres with a CSR2 of 74.3, and equaled $93/CSR2 point on the tillable acres.
79 +/- acres, located northwest of Paton, recently sold at an online auction for $8,750 per acre. The farm consisted of 75 +/- tillable acres with a CSR2 of 82.3, and equaled $112/CSR2 point on the tillable acres.
40 +/- acres, located southwest of Ogden, recently sold at public auction for $7,700 per acre. The farm consisted of 39 +/- tillable acres with a CSR2 of 80.3, and equaled $98/CSR2 point on the tillable acres.
126 +/- acres, located east of Norway, recently sold for $11,000 per acre. The farm consisted of 125 +/- tillable acres with a CSR2 of 88.4, and equaled $125/CSR2 point on the tillable acres.
195 +/- acres, located northwest of Northboro, recently sold for $5,641 per acre. The farm consisted of 188 +/- tillable acres with a CSR2 of 66.8, and equaled $88/CSR2 point on the tillable acres.
155 +/- acres, located west of Osceola, recently sold for $3,350 per acre. The farm consisted of 133 +/- tillable acres with a CSR2 of 51.7, and equaled $75/CSR2 point on the tillable acres.
90 +/- acres, located south of Fairfield, recently sold at public auction for $6,400 per acre. The farm consisted of 85 +/- tillable acres with a CSR2 of 64.4, and equaled $105/CSR2 point on the tillable acres.
Hertz Real Estate Services compiled this list, but not all sales were handled by Hertz. Call Hertz at 515-382-1500/800-593-5263 or visit www.Hertz.ag.