Summer is the beginning of a new “season” in the land market. Normally the second quarter is quiet for land sales. Historically, only about 10% of the land auction activity would occur during the 2nd quarter. However, that paradigm appears to have shifted.
In 2022, nearly 25% of the sale volume occurred in the 2nd quarter and for good reason – land values were shooting higher. 2nd quarter 2023 volume approached the acreage total from last year. 1st quarter 2023 had the highest acres sold in any 1st quarter in at least a decade. In fact, our database shows the past 2½ years have seen more acres sold than the previous five years.
We look at the overall market a little differently than we would do an appraisal or market valuation of a specific property. A specific property appraisal or valuation is based upon direct comparison with 3-6 highly comparable properties. Appropriate adjustments are made for significant differences contributing to value.
Our overall market review is based on all sales in 23 counties which meet the criteria of 35 acres or more with at least 85% tillable cropland and no significant value added from buildings.
The overall farmland market peaked in the 2nd quarter 2022. 3rd quarter was slightly lower and 4th quarter softened as well. The trend has continued so far in 2023. We’ve seen softer values with fewer of the “bell ringer” sales; however, we also note that the bottom-side sales didn’t climb as sharply and have remained steadier than the marquis sales. I believe that is due to the relatively short duration of the recent upswing (7 quarters) as compared to a decade ago.
So far in 2023, we’ve noted nine sales of $20,000 per acre or higher with the highest at $24,000. While we saw more sales topping that figure in 2022, that type of result only occurs in certain areas. Less land has been available in those high-dollar areas lately.
We’ve also noted that the overall weighted average CSR2 of the land being sold is lower. A little deeper dive was needed. We divided the sales database down into 5-CSR increments.
For example, 95-100 CSR-2 farms averaged the highest $/ CSR-2 multiple, as you would expect. They are the most desirable soils with fewer blemishes, as a rule. They should also have the least crop production risk. Now, we can point out certain soil types within this category which we feel are over-rated, but they appear in minor amounts. Know your soils, but we do appreciate that CSR-2 is a pretty reliable index.
As we reviewed each 5-point CSR-2 category of sales, the $/CSR multiple declined in each category until you reach the lower CSR’s. Then other factors associated with mid to lower-quality farms begin to affect value as much or more than the CSR.
As always, land values are site-specific. Even farms rated 95 CSR-2 or higher can vary greatly in value ($/ acre or $/CSR-2) depending on external factors. Most importantly, don’t assume a $/CSR figure is one-size-fitsall. The variability is great and only a truly apples-toapples comparison is worthwhile. To point, the standard deviation on $/CSR of 95+ sales just in 2023 is more than 10%.
This discussion leads to this conclusion – if you’re talking to an appraiser, farm manager, or broker/salesman, make sure they have a firm understanding of market variabilities as they apply to your farm property.
In Northwest Iowa, and parts of Minnesota, Nebraska, and South Dakota, that trusted farm manager is Stalcup Ag. Take a look at the summer edition of Today’s Land Owner to see a full chart of the recent sales of “good” farmland, including deals that we at Stalcup Ag Services have brokered.
This article originally appears in the summer edition of Today’s Land Owner, authored by Dennis Reyman, AFM, ARA
