AMES, Iowa – Despite concerns about higher inflation and interest rates, the average value of an acre of Iowa farmland jumped 17 percent to $11,411 per acre from last year, according to the results of the 2022 Iowa State University Land Value Survey, released Dec. 13.

“The nominal value (the unadjusted rate or current price, without taking into account inflation or other factors) of an acre of farmland is again higher this year than at any point since Iowa State University began surveying values in 1941,” said Wendong Zhang, an Iowa State associate professor of economics, who conducts the annual, year-end survey.

In 2021, the average value of an acre of Iowa farmland was $9,751 per acre, according to last year’s survey.

“When adjusting for inflation, the 2022 average value surpasses the previous inflation-adjusted record value set in 2013 for the first time,” added Zhang of the survey, which is sponsored by Iowa State University Center for Agricultural and Rural Development, and the Extension and Outreach Office.

Initiated in 1941, the survey, which is the first of its kind in the nation, is typically conducted every November, with the results released in mid-December.

Zhang said only the state average and the district averages are based directly on the Iowa State survey data. County estimates are derived using a procedure that combines the Iowa State survey results with data from the U.S. Census of Agriculture.

In addition, the survey is based on reports by agricultural professionals knowledgeable of land market conditions, such as appraisers, farm managers, agricultural lenders, and actual land sales. Zhang said results from the survey are consistent with results by the Federal Reserve Bank of Chicago, the REALTORS® Land Institute, and the USDA.

According to Zhang, “Iowa farmland values have increased more than 15 percent in a year a handful of times since 1941, most notably in 2011, when values rose 32.5 percent; and last year, when values rose 29 percent.”

While inflation was a major factor that drove the increase last year, Zhang said it did not play as much of a factor as commodity prices, limited land supply, and low interest rates through summer 2022 did this year.

He said inflation rates this year are similar to those of last year, “but the Federal Reserve (of Chicago) has used aggressive rate hikes since this summer to curb the problem. The Federal Reserve seems to be determined to keep raising interest rates until they get a firm control on inflation. This is a tricky balance because larger and quicker interest rate hikes run the risk of slowing down the economy, potentially to a recession.”

While higher interest rates put downward pressure on the land market, he said the effects typically don’t show up in land prices for one or two years.

“While the Federal Reserve has been raising interest rates, 81 percent of Iowa farmland is fully paid for, so the higher interest rates don’t always affect farmers’ land purchasing decisions,” he said. “This is especially true when high inflation makes the real interest rates negative or low, which tends to incentivize (provides someone with an incentive to do something) more borrowing and investment.”

Moreover, he said a significant portion of survey respondents said cash on hand was a positive factor influencing land values.

“Farmers have a lot more cash on hand and supply chain issues led to a shortage of equipment, so the money that farmers normally spend on equipment is now devoted to land,” he said.

As for commodity prices, he said they have been strong this year and yields have been higher than expected, despite the weather challenges. “Not only are crop prices much higher, livestock and poultry prices are also significantly higher, translating into higher farm income and profits,” he said.

For the first time, he said, this year’s survey asked respondents’ views of current farmland values, with 70 percent of respondents indicating current land values are “too high” or “way too high.”

“The higher land values do create an even higher entry barrier for beginning farmers,” he said, adding “the increase in cash rents, along with higher input costs, could negatively affect producers, especially those with a lot of rented ground.”

He said 48 percent of respondents forecast an increase in farmland values one year from now, while 24 percent forecast no change, and 28 percent expected lower values. He said most respondents expect the one-year value to either be the same, or increase roughly 5 to 10 percent.

Looking five years ahead, 60 percent of respondents said they believe land values will increase 10 to 20 percent from current values, while about 24 percent forecast a decline in prices.

For the second year in a row, all 99 of Iowa’s counties showed an increase in land values, the survey said. However, for the first time in almost a decade, Scott County did not report the highest overall value. O’Brien County topped the list this year, reporting a 20.6 percent increase, or $2,818 per acre, to $16,531. Decatur County again reported the lowest value, although land values there increased 10 percent, or $505 per acre, to $5,566.

The survey said land values increased across all crop reporting districts, with the northwest district reporting the highest overall value, $14,878 per acre; the largest percentage increase, at 22.3 percent; and the largest dollar increase, at $2,714 per acre. The south-central district reported the lowest values, at $6,824 per acre, and the lowest dollar change, at $790 per acre, while the southeast district saw the smallest percentage increase, at 9.8 percent.

Statewide, low-quality land now averages $7,369 per acre, an increase of 15.2 percent, or $972 per acre. Medium-quality land now averages $10,673 per acre, an increase of 17.7 percent, or $1,602 per acre, the survey said. High-quality land now averages $13,817 per acre, an increase of 16.8 percent, or $1,983 per acre.

According to the survey, the most frequently mentioned positive factor influencing Iowa’s land market was higher commodity prices. Limited land supply and low interest rates through summer 2022 were the second- and third-most frequently mentioned factors. Other frequently mentioned factors included cash on hand and high credit availability, strong yields, a good farm economy, and strong demand.

The most frequently mentioned negative factor affecting land values was interest rate hikes. Other noted factors included concerns about higher input costs and stock market volatility, and economic uncertainty were the second- and third-most frequently mentioned negative factors.