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Farmland prices slide in Illinois

Survey finds 5-14 percent decline last year

Tom C. Doran AgriNews Publications

Mar 27, 2017 Updated 23 hrs ago

BLOOMINGTON, Ill. — Farmland sale prices declined for the third straight year after soaring to record highs in 2012 and 2013 in the Prairie State.

The findings from a statewide survey of Illinois Society of Professional Farm Managers and Rural Appraisers members were released at the group's March 23 land values conference.

Sale price of excellent productivity farmland was estimated at an average of $11,600 per acre price on Jan. 1 and $11,000 per acre on Dec. 31. Good quality land dropped from $10,100 to $9,500, average from $8,200 to $7,200, and fair from $6,900 to $5,900 from the beginning to the end of 2016.

The northern part of Illinois had the largest swing — down 7 percent to 13 percent — while the rest of the state was down in values ranging from 5 percent to 10 percent.

Excellent productivity farmland had an average value of $12,600 and good farmland averaged $10,600 in January 2015.

Excellent-rated land typically yields more than 190 bushels of corn per acre, good land yields between 170 and 190, average yields between 150 and 170 and fair between 130 and 150.

David Klein of Soy Capital Ag Services, who served as overall co-chair of the survey with Dale Aupperle, Heartland Ag Group, said that although values regressed, they remained relatively strong for excellent land and that pockets of strength still exist. There also is some price strength in recreational land, which is reflective of the general economy.

"2016 brought continued challenges for Illinois agriculture with increasing grain supplies and wide price variations as a result of one of the best growing seasons ever recorded," Klein said.

"Most farm incomes continued their retracement from recent historical highs. As we begin 2017, farmland seems to be finding its footing as farmland owners and investors continue to seek this tightly held asset class with its unique investment characteristics.

"We keep a database in our organization, and as compared to the last half of 2016, so far in this first quarter of 2017, farmland values are actually up a little bit."

Downward Drive

Klein said there are number of factors pushing farmland sale prices downward.

Farmland supply to the market remained fairly tight throughout 2016 until year-end, when the seasonal increase occurred in November and December. Eighty-four percent of the survey respondents believed there was either the same volume or less farmland available to purchase in 2016.

This is the opposite of what many expected to see happen from survey results a year ago. At that time, most of the membership expected 2016 to see a larger supply come to the market. This relatively tight supply has likely kept farmland values more stable in Illinois.

"While 2016 was a struggle, higher soybean prices and great production will improve farm-gate returns slightly from 2015. Government program payments provided many producers with additional cash flow in the last quarter of 2016, which was helpful," Klein said.

"Spring crop insurance prices will also be significantly higher in 2017 as compared to 2016 for soybeans and slightly higher for corn. This offers some additional revenue protection for 2017. On the expense side, crop input providers are being challenged by farmers this winter to become more competitive to help their bottom line."

Survey Tidbits

The surveys conducted in each of Illinois' 10 crop-reporting districts also included further details about farmland sales and association members' outlook. Here are a few of the results:

Sellers of farmland: Estates accounted for 56 percent of the sales.

Farmland buyers: Farmers made 63 percent of the purchases last year.

Methods of sales: Forty-three percent of the farms were sold via private treaty and 39 percent at auction.

Cash return on investment: The traditional 3.5 percent to 4 percent cash return on farmland investments is diminished by lower commodity prices and higher input costs. Cash returns now are at 2 percent to 3 percent. Several investors still find this acceptable when looking at alternatives and the opportunity for portfolio diversification.

Growing grain inventories: Eighty percent of the respondents are concerned about potential price decreases if another record U.S. crop is grown in 2017.

Interest rates: Rising interest rates started last year and continue to slowly increase. Adjustments to curb inflationary pressure will be watched closely.

Government policy: Following the 2016 presidential election, changes in ethanol mandates and international trade policy issues weigh heavily on the minds of more than 50 percent of those surveyed.

Tract sizes: Sizes generally were larger last year compared to 2015. This also may have contributed to some of the price decreases as fewer buyers have the capacity to purchase larger parcels of farmland.

Institutional money: Larger tracts of land continue to draw interest from institutional investors, pension funds, international buyers and others. This source of demand for farmland in Illinois likely has kept values more stable than restrictive ownership sates west of the Mississippi River.

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