While it’s less common to see farms for sale in the Midwest as farmers hold on to their property and hope for the record-high prices to return, the land that is put on the block often gets snapped up by other growers who want to work the acres rather than by investors or large-scale family producers, according to real estate agents and analysts.

Prices nationally have dropped year over year, but the decline is more pronounced in the Midwest where corn, soybeans, and wheat – all of which have lost value in the past three years – are grown.

While declining land prices are keeping a lot of producers from selling, those who have decided to part with their farms aren’t having a hard time finding buyers. Local growers have recently made up the bulk of those purchasing farmland, often outbidding fund managers or large-scale owners who want to rent to single or multiple tenants, says Tomm Pfitzenmaier, president of Summit Commodity Brokerage in Des Moines.

“Every single one of those sold to a local farmer or a neighbor. Not one sold to an outside investor.” —Tomm Pfitzenmaier

“Just before harvest, there were about a half dozen for sale up in the north-central part of Iowa, and they all sold pretty well – from $7,800 to $8,500 an acre,” he says. “Every single one of those sold to a local farmer or a neighbor. Not one sold to an outside investor.”

Iowa farmland values fell 8.9% to $7,943 an acre in 2014, the biggest decline since 1986. In 2015, values fell 3.9% to $7,633, according to data compiled by Iowa State University’s Center for Agricultural and Rural Development. Prices in the state, the biggest grower of corn and soybeans in the U.S., peaked in 2013 at $8,716 an acre, according to the report.

The trend is true across the Midwest.

In Indiana, farmland values have declined for a second straight year, falling from 8.2% to 8.7%, depending on land quality. That’s the biggest drop since the mid-1980s, according to a report from Purdue University.

Average farmland values have declined 13% in the past two years, Purdue says. The value of the best land fell from $9,266 to $8,508 an acre; average land values declined from $7,672 to $7,401; and less-than-ideal land fell from $5,863 to $5,353 an acre.

Crop Price impact

The collapse in grain prices and the impact of tighter gross margins are working their way through the agricultural economy, Purdue ag economists Craig Dobbins and Kim Cook, write in the report.

“While the underlying reasons for multiple years of tight gross margins now are not the same as in the 1980s, a series of years with downward adjustments in farmland values and cash rents like the 1980s may still be the result,” the economists write.

Jim Hughes, the owner of Jim Hughes Real Estate in Glenwood, Iowa, says there aren’t a lot of farms for sale in his area, but the ones that have sold did so at “solid” prices, even if they are down from the lofty levels of 2012 and 2013.

Farmers in his part of the state also are the main buyers, partly due to laws that forbid corporate farming and partly because farmers like to own land. Interest rates are favorable as the Federal Reserve keeps down its federal funds rate, which affects long-term debt such as land and equipment purchases, he says.

Hughes says he will use an upcoming sale of a farm that’s been tended to by the same farmer for 60 years as a good bellwether to see how far land prices are off from peaks. That farm will likely be purchased by another farmer who wants to expand.

“Most of the sales we’re seeing are purchases from people who have at least some sort of farming background,” he says. “Whether it’s investors or absentee farmers – whatever you want to call it – they have a tie to farming whether their folks owned a farm or if they used to be a farmer.”

Many growers, on the other hand, prefer to hold on to their land until they pass away so they can more easily bequeath their farms to their children or other family members, Hughes says.

“If they can pass it on through inheritance, they can avoid some tax issues,” he says. “Plus, people just don’t like to sell their land. It’s part of them, and it usually has family ties.”

Outside Investors

Still, the value of land is forecast to fall another 1.9% this year in Iowa and 1.3% in Illinois, while staying unchanged in Indiana. Nebraska farmland per acre will fall 3.3% to $2,950 an acre, on average, and Kansas acres are forecast to decline 7.4%, according to the USDA.

Declining land values and low crop prices likely are keeping outside investors on the sidelines, Pfitzenmaier says. That, in turn, devalues the land because there’s less demand. Corn, soybean, and wheat prices will have to rise before investors get excited about owning farmland again.

That leaves the door open to farmers who want to expand their holdings or to buy more land they can rent to tenant growers. Most farmers know that prices will rise eventually because prices are cyclical, he says.

Land Market

Sal Gilbertie, president of Teucrium Trading, which operates funds that are tied to agriculture prices, tells Successful Farming magazine that prices will have to turn higher at some point. It’s a statistical certainty that the weather will turn dry or some other black swan event will occur, which will drive futures higher.

Demand will increase incrementally year over year – consumption of corn, beans, and wheat are expected to be records this year – as the global population grows and rising income allows people to move to meat-based diets, which means a jump in feed use, Gilbertie says.

There’s still uncertainty over how long the current downtrend in prices will last. That will, no doubt, keep investors across the U.S. who base purchases on rates of return and per-acre value from jumping back into the market – at least for a few years, Pfitzenmaier says.

“It’s going to take a better return on investment for investors (or large-scale farmers) to return,” he says. “We’re already starting to see prices on the grain side moving higher. Will that translate into better farm profitability? That’s the million-dollar question.”