By Charlyn Fargo
There’s something steady about central Illinois farmland – it doesn’t go up fast, or down fast. And despite the nationwide downturn in commodity prices, prime central Illinois farmland is still bringing premium prices.
Sure, it may be down slightly from the highs a few years ago, but a recent auction in central Illinois showed how valuable prime farmland continues to be.
On March 9, more than 200 attended an auction for 775 acres near New Berlin. The price topped $13,879 per acre. Not bad for a market that many say has softened. That price is significantly above the USDA’s 2015 average Illinois Farm Real Estate Value of $7,500 per acre or the national average or $3,020 per acre, but central Illinois farmland has always beat the averages.
Earlier farmland in Sangamon County has sold for $14,000, $15,000, even $17,000 an acre, according to John Hawkins, Illinois Farm Bureau spokesman. He’s a farmer himself and believes farmland gives a better return than money in the bank. The current return on investment is 2.5 percent, compared to a traditional range of 3 to 4 percent. That still looks good compared to the volatility in the stock market and concern over other economies in other countries such as Japan, Europe and oil-dependent nations.
“(Farmland) isn’t as much of a sky-is-falling scenario as some may have expected,” said Bruce Sherrick, University of Illinois professor and director of the TIAA-CREF Center for Farmland Research, speaking at the recent Illinois Land Values Conference in Bloomington.
“I’m still pretty pro-farmland,” he said. “Farmland remains a solid investment on a risk adjusted basis.”
The Illinois Society of Professional Farm Managers and Rural Appraisers recently released its annual (2015) county-by-county survey of farmland values, and found that prices paid to purchase or rent Illinois farmland dropped 8 percent for a second year. However, the group reported that land values remained “relatively strong” and that buyers were still willing to “pay a premium for high-quality soil.”
“Investors still find this acceptable in an unstable general economy,” he said.
In all cases, Aupperle said reduced commodity prices were blamed for the reductions in land prices as well as rent rates across the state.
The average prices for excellent quality land in central Illinois was $12,000 per acre in January 2015 and $11,600 in December 2015.
Here are some other observations from the Illinois Society of Professional Farm Managers and Rural Appraisers annual survey:
- Estates accounted for 54 percent of the volume of Illinois farmland sold.
- Buyers of Farmland – Farmers accounted for 60 percent of the purchase made in 2015. Most were reinvesting into their farm business – where they know the value as well as anyone. When farmers stepped aside, investors were looking for opportunities in an uncertain financial market.
- Methods of Sale – Most farms were sold by private treaty in 2015, a sign more negotiating was occurring. Thirty-five percent of the transactions were at auction. In an uncertain market, auctions can bring decision-makers together in a hurry. As a result, some firecrackers continued to be let off and more “no sales” occurred at auction.
- Cash Rents – Generally speaking, farm incomes were lower in 2015 and are projected to be even lower in 2016. This reduced crop share leases as compared to cash rents. Cash rents for 2015 declined by roughly $25 per acre to a $350 average on excellent quality farmland. Most ISPFMRA members expect 2016 cash rents on excellent quality soil farms to be another $25 per acre lower than the current year at $325 or less.
- Belt tightening can be heard throughout the countryside. Lower corn and soybean prices will reduce net farm income by over 20 percent in 2016. Spring crop insurance prices will be the lowest since 2006, and input costs today are nearly double what they were then.
- Livestock Industry – Beef, swine and poultry production numbers are all planned to grow in 2016, but livestock farmers have started to feel their own pinch of lower prices. These land buyers understand the value of “the farm next door” and continue to compete vigorously for additional farmland near their current facilities throughout the state.
- Auction Sales – Auction sales continue to show pockets of both strength and relative softness. Class A farms selling at Mt. Carroll for $14,400, Brimfield for $13,500, and Mendota for $12,000 early in 2016 show strength still exists in areas, but an increasing number of “No Sales” in November/December 2015 also shows that every farm auction isn’t bringing expectations every time.
- Tract Sizes – Tract sizes were generally larger in 2015 than 2014. The largest tracts were often purchased at a premium by institutional or absentee investor landowners seeking to place significant holdings into farmland. Auctions on large tracts were met with mixed results.
- Transitional/Development Land – Fewer tracts of land were sold for development than in past years in downstate Illinois. More activity is picking up in the collar counties, which has led to a little 1031 exchange money again
- Institutional Money – Larger tracts of land have drawn interest again from institutional investors, pension funds and others. There may be a premium right now for bigger tracts.
- • Drainage Pays – 2015 taught many landowners across the state the value of good drainage on our productive cropland. The ability to effectively move excess water and keep crops healthy resulted in wide productivity ranges and better returns on farms improved with tile drainage.
- • 1031 Tax Free Exchange Influence – These continue to be used by landowners making even money trades to create larger tracts of land where they can be farmed more efficiently, as well as a slow increase in developmental exchange money out of the St. Louis, Chicago and Indianapolis markets.
- • Farmland Availability – Farmland supply to the market remained fairly tight throughout 2015 until year end when the seasonal increase occurred in November and December. Most of our membership expects 2016 to see a larger supply come to the market this year.