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Iowa farmland drop 6 percent near end of 2008

DES MOINES, Iowa (AP)--A survey by the Federal Reserve Bank of Chicago shows Iowa farmland values slid by 6 percent in the last three months of 2008, the first such drop in a decade.

The report doesn't put a dollar amount on land values, but Iowa's decline was the largest percentage decrease in the region, which also includes Illinois, Wisconsin, Indiana and Michigan.

The survey of 209 banks was done by David Oppedahl, an economist with the Federal Reserve Bank of Chicago. He said farmers would react to declining farm values with less capital spending, most notably on heavy machinery.

Agriculture experts were not surprised by the decline, citing the 50 percent drop in corn and soybeans prices from last summer.

Jim Knuth of Farm Credit Service of American in Iowa said the report is another sign that 2009 will be "a challenging year for Iowa's agriculture."

He said a continued deterioration in farmland prices would make farmland harder to buy. Lenders might increase the down payment they require for land purchases from the current average of 35 percent of the appraised value to 40 percent or 45 percent.

Mike Duffy of Iowa State University, who annually surveys farmland prices, said 80 percent of farmland sold in Iowa has been bought by neighboring farmers. That could change if farmland values decline.

"They may start backing off and maybe we'll see some more outside investors come in, particularly since farmland did better than just about anything else as an investment last year," Duffy said.

Iowa State University reported a 14 percent increase, to $4,468 per acre, in average farmland values from Nov. 1, 2007, to Nov. 1, 2008.

Duffy and Knuth both said they had noticed that farmland prices were softening toward the end of last year.

Randall Hertz, whose Nevada-based company conducts farm sales, agrees. He said Iowa is probably about even with a year ago in farm values, when the ISU survey showed a statewide average of $3,908 per acre.

"We had a big boost in midyear when commodity prices shot up and then we've probably seen about a 10 percent decrease since then," he said.

Hertz doubted that Iowa will relive the trauma of the 1980s when prices plunged, causing a wave of farm foreclosures and bank failures.

"A big difference is that in the early 1980s, farmers were heavily leveraged" in debt, Hertz said. "Today they're in a much better cash position compared to 25 years ago. They have more equity in the land, and their loans are less likely to go upside-down on them."

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