This is the third in a series of three articles evaluating the relationship between farm income, interest rates, and other factors and land values. The first article is available here and the second is available here.
When discussing farmland values, net income and interest rates often take center stage. However, a closer look reveals a complex web of factors influencing land markets, especially in agricultural regions like Iowa. While income and interest rates are important, other forces such as land supply, strong demand for land, proximity to infrastructure, and the growing use of farmland for renewable energy projects—like wind and solar—are playing a significant role in shaping the Midwest’s land market.
For example, data from the 2023 Iowa State University Land Value Survey (LVS), along with reports from the Federal Reserve and USDA, show that despite rising interest rates and tightening farm incomes, steady demand for land and limited land supply have helped maintain or even boost land prices in certain areas. Farmland values in south-central Iowa increased by 9.6% in 2023, despite economic pressures and slight decreases in some Northern Iowa counties. This trend underscores the impact of land scarcity and strong demand for land in keeping farmland values high.
Figure 1 outlines the key drivers of land markets in 2023. In addition to factors that directly affect farm income, such as commodity prices, yields, and input costs, several other influences play a critical role. These include limited land supply, strong demand for land, weather uncertainty, and the evolving future of agriculture. In this article, we will briefly explore how each of these factors contributes to the current land market dynamics.
Source: 2023 Iowa State University Land Value Survey: Overview (Chandio 2023).
Supply and demand dynamics
Farmland value influences go beyond just profit margins—land supply and demand play a crucial role. In areas like south-central Iowa, stable demand has been a key factor in maintaining high prices. According to the 2023 LVS, land supply was the most frequently cited factor driving up prices across the state with strong demand also listed as a key factor.
The competition for available land is fierce—within Iowa, it is most often between existing farmers, but for other parts in the Midwest, both farmers and investors contend for limited tracts. The 2023 LVS reports that 24% of Iowa farmland sales in 2023 went to investors, with 12% of these buyers being non-local. However, legal restrictions largely determine the players in the market. Presently, 13 US states restrict who can purchase farmland, with Iowa having the strictest regulations in the country that severely limit corporate and foreign ownership. As a result, the influence of investors on the land market varies significantly depending on the state and region. Given that, the investor demand in Iowa, coming from both local and non-local investors, looks different from the investor demand in, say, Illinois. For Iowa, most of the investor demand is concentrated in the southern parts of the state with demand for hunting and recreational ground.
Anecdotally, non-locals investing in farmland not for timber or hunting ground in many cases also represent former Iowa residents who may have moved out of state, and a small portion may be coming from institutional investors. This growing interest from investors though, is part of a broader trend in Iowa where more and more farmland is leased out, rather than owner operated. In 2022, 65% of all Iowa farmland was under some form of lease, with 56% operated under cash-rent leases (table 1).
1982 | 1992 | 2002 | 2007 | 2012 | 2017 | 2022 | |
|---|---|---|---|---|---|---|---|
| Owner-operated | 55% | 50% | 41% | 40% | 40% | 41% | 35% |
| Cash rent lease | 21% | 27% | 40% | 46% | 46% | 49% | 56% |
| Crop share lease | 21% | 22% | 18% | 13% | 13% | 10% | 8% |
| Other type of lease | 1% | 1% | 1% | 1% | 1% | < 1% | 1% |
This goes hand-in-hand with the changes observed in the ownership of farmland, with a total of 51% of Iowa land owned by those who do not farm, and the remaining 49% by part-time or full-time farmers (table 2). Those who do not farm but own farmland are, of course, often leasing it out, explaining the changes described above. Another interesting phenomenon to note about the ownership is that, farmer or not, about 80% of Iowa farmland owners are full-time Iowa residents, while another 6% are part-time residents. So, most of the land ownership remains local (See the appendix).
| Do not farm | Part-time farmer | Full-time farmer | Total | ||
|---|---|---|---|---|---|
| Past experience | No experience | ||||
| Full-time resident | 20% | 15% | 26% | 17% | 79% |
| Part-time resident | 2% | 2% | 2% | 1% | 6% |
| Non-resident | 2% | 10% | 1% | 2% | 15% |
| Total | 24% | 27% | 29% | 20% | 100% |
Climate and weather risks
Climate change is becoming an increasingly significant factor in many sectors of the economy, and farmland is no exception. Shifts in climate and weather patterns directly influence farmland values, particularly through their impact on rainfall and vital transportation systems like the Mississippi River. While rainfall affects yields and farm income, an equally important, yet indirect, consequence of climate change is the decreasing water levels in the Mississippi, a key route for transporting agricultural goods.
The Mississippi River, which facilitates roughly 60% of US grain exports, has faced delays and rising costs as barges struggle with shallower waters caused by prolonged droughts and erratic rainfall—both clear effects of climate change. In 2022 and 2023, reduced water levels led to more than a doubling of barge rates (USDA AMS 2024). These disruptions have a ripple effect on farmers, particularly through the basis—the difference between local cash prices and futures prices on the Chicago Board of Trade (Arita et al. 2022). Higher transportation costs weaken the basis, prompting buyers to lower their cash bids, which further tightens farmers' profit margins.
Increased shipping costs, whether from higher barge rates or more expensive alternative transportation, also contribute to rising input prices. This combination of higher costs and tighter margins can depress farmland values, especially in regions heavily reliant on river transport. In this context, climate change is not just an environmental issue, but a critical economic factor that will shape the future viability and value of farmland.
Infrastructure and proximity
Farmland located near key transportation hubs, markets, and grain elevators often commands higher prices due to the reduced costs and increased efficiency of moving goods to market. For instance, land near major highways or close to processing plants can minimize logistical challenges, driving up competition among buyers even in less favorable market conditions. In states like Iowa, where agricultural infrastructure is well-developed, the added value of proximity can be harder to recognize. However, in regions like the Northern Plains, where distances to grain elevators vary significantly, the impact of proximity on cropland values is more pronounced (Nickerson et al. 2012). Nickerson et al. (2012) find that in North Dakota, the value of cropland within five miles of a grain elevator was at least $1,000 more per acre compared to land farther away. This proximity-value relationship remains a key determinant for farmland prices and varies by location.
Another important factor influencing farmland value is proximity to urban areas. Land near cities or growing industrial regions is often more desirable due to its potential for future development, although this affects only about 23% of agricultural real estate, with the remaining 77% being rural land largely uninfluenced by urbanization (Nickerson et al. 2012).
Interestingly, proximity to electricity transmission lines (TMLs) is also becoming a significant factor in farmland valuations, especially as renewable energy projects expand. A study on the Midwest's farmland and housing markets found that land within 0–2 kilometers of TMLs in high-wind areas was valued 3.1% higher than comparable land in low-wind areas (Lu et al. 2023). This underscores the growing importance of TMLs in land valuation, as they are critical for connecting wind and solar energy projects to the grid. In states like Iowa, where wind energy is abundant, farmland near transmission lines is becoming increasingly valuable. Access to this infrastructure enables landowners to lease their land for energy projects, providing new revenue streams and further enhancing the land's value.
Renewable energy development
Renewable energy development has become a transformative factor in the Midwest's farmland market, beyond just the connection to the electrical grid via TMLs. Wind turbines and solar farms provide landowners with new revenue streams, making land suitable for these projects highly sought after. In Iowa, leasing land for wind turbines can offer a substantial income boost beyond traditional farming operations—this extends to solar energy as well. Recent studies indicate that land near solar projects can see value increases of up to 2.1%, particularly for parcels located within one mile of a solar farm (Kunwar 2024), likely because the proximity highlights their suitability for a similar use. However, this premium tends to decrease with distance, meaning that properties further away may not experience the same financial benefits. These trends make renewable energy projects an appealing opportunity for landowners looking to enhance their land's profitability through energy development.
Looking ahead
The factors shaping land markets today suggest that we may be seeing the beginning of an adjustment. According to the Federal Reserve Bank of Chicago’s August Ag Letter, Iowa experienced a 3% decline in the value of "good" farmland between July 1, 2023, and July 1, 2024 (Oppedahl and Kepner 2024).
Similarly, the Realtors Land Institute’s fall survey reports a 5% drop in Iowa land values from September 2023 to September 2024 (RLI 2024). With Iowa State University’s Land Value Survey set for release in December 2024, we will gain further insight into the current state of Iowa's land markets and the specific forces influencing these trends. The future of farmland in the Midwest will depend on how these forces—ranging from economic conditions to renewable energy development—continue to interact, presenting both opportunities and challenges for landowners, farmers, and investors.
References
Arita, S., V. Breneman, S. Meyer, and B. Rippey. 2022. "Low Mississippi River Barge Disruptions: Effects on Grain Barge Movement, Basis, and Fertilizer Prices." Farmdoc Daily: 12(164). Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign. https://farmdocdaily.illinois.edu/2022/11/low-mississippi-river-barge-disruptions-effects-on-grain-barge-movement-basis-and-fertilizer-prices.html.
Chandio, R. 2023. "2023 Iowa State University Land Value Survey: Overview." CARD working paper 23-WP 655. Iowa State University Extension and Outreach and Center for Agricultural and Rural Development, Iowa State University. https://www.card.iastate.edu/products/publications/synopsis/?p=1381.
Nickerson, C., M. Morehart, T. Kuethe, J. Beckman, J. Ifft, and R. Williams. 2012. "Trends in U.S. Farmland Values and Ownership." Publications from USDA-ARS/UNL Faculty, 1598. https://digitalcommons.unl.edu/usdaarsfacpub/1598.
Kunwar, B. 2024. "Impact of Commercial and Utility-Scale Solar Energy on Farmland Price." Master's dissertation, Purdue University Graduate School.
Lu, Q., N. Cheng, W. Zhang, and P. Liu. 2023. "Disamenity or Premium: Do Electricity Transmission Lines Affect Farmland Values and Housing Prices Differently?” Journal of Housing Economics 62:101968.
Oppedahl, D., and E. Kepner. 2024. "AgLetter: August 2024 (No. 2005)." Federal Reserve Bank of Chicago. https://www.chicagofed.org/publications/agletter/2020-2024/august-2024
Realtors Land Institute – Iowa Chapter (RLI). 2024. "Survey of Farm Land Values in Dollars per Acre [Press release]." https://www.rliiowachapter.com.
Tong, J., and W. Zhang. 2023. "Iowa Farmland Ownership and Tenure Survey 1982–2022: A Forty-Year Perspective." CARD working paper 23-WP 651. Iowa State University Extension and Outreach and Center for Agricultural and Rural Development, Iowa State University. https://www.card.iastate.edu/farmland/ownership/farmland-ownership-tenure-2022.pdf.
United States Department of Agriculture Agricultural Marketing Service (USDA AMS). 2024. Barge Dashboard. Accessed September 27, 2024. Available at: https://agtransport.usda.gov/stories/s/Barge-Dashboard/965a-yzgy/.
Suggested citation
Chandio, R. 2024. "The Landscape of Farmland Values: Beyond Income and Interest Rates." Agricultural Policy Review, Fall 2024. Center for Agricultural and Rural Development, Iowa State University. https://agpolicyreview.card.iastate.edu/fall-2024/landscape-farmland-va….
Appendix
The remaining 15% of non-resident landowners primarily consists of the next generation of landowners who have inherited farmland in Iowa but have since relocated out of state, as well as non-local individual investors. Another factor contributing to this ownership structure is the shift in the primary reason for owning farmland. There has been an increase in ownership driven by family or sentimental reasons rather than for generating income, further supporting the idea that many non-resident landowners are part of the next generation inheriting farmland (figure A1).
Note: In 2022, recreation was <1%.