The price of Illinois farmland is down by 2% to 7%, depending on the quality of farmland and location, according to the midsummer “Snapshot Survey” conducted by the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA).
"Land values are continuing a general softening across the state with the exception of some regional areas where there has been very little land for sale," says David Klein, AFM, ALC, vice president of Soy Capital Ag Services. Bloomington, IL and co-chair of the annual ISPFMRA Land Values Survey and Conference. "Decreases in farmland returns for 2015 and 2016 are seen as the main reason for the lower values," Klein explains. "USDA projected income for 2015 is expected to be the lowest since 2010 and our survey respondents are telling us they expect the softness in land values to continue." It is expected that the price paid for a bushel of corn will be below $4 into 2016.
The "Snapshot Survey" is done annually by Gary Schnitkey, Ph.D., University of Illinois College of ACES in conjunction with ISPFMRA. This information supplements the Society's larger efforts at year-end to document farmland prices and cash rents across Illinois and is part of the Society's Land Values Conference held each March.
According to the survey, one year ago respondents said excellent-quality farmland was averaging $13,000 per acre. "This year the reported average is $12,200 per acre, which indicates a drop in values of 6.5%," Klein says. Good-quality farmland decreased just under 6% from a year ago and average-quality land was down nearly 8%. In a normal year excellent-quality farmland averages over 190 bu. of corn per acre, Good-quality farmland averages between 170 and 190 bu. per acre and average-quality farmland averages between 150 and 170 bu. per acre.
"A low supply of farmland for sale during the first half of 2015 may be helping prop up values," Klein asserts. "Survey participants were divided on expectations for the supply of farmland coming to the market in the second half of 2015 with 45% expecting the same, 27% expecting more and 27% expecting less farmland for sale."
He notes that farmers continue to be the primary buyers of farmland but 72% of respondents said they are seeing the same or higher investor demand for farmland during this pullback as investors look for opportunities where they may have been out-bid by operating farmers the past few years for farmland at higher prices.
He adds that while 95% believe that interest rates will stay the same or increase less than one percentage point between now and year-end due to the condition of the general economy, interest rates still remain an important concern to this group regarding their outlook on farmland prices.
"They are also highly concerned with commodity price decreases from reduced global demand and how this will affect farmland values," Klein says. "They look at the potential for increased pesticide and seed costs as new technologies are released to battle weed resistance issues, while they expect fertilizer costs to retrace slightly."
"We continue the settling pullback of farmland values in a period where fluctuations in all financial markets and currencies are moving rapidly. Illinois farmland continues to provide the long-standing unique hard-asset stability that makes it distinctive to other investments. We also continue to be optimistic that because Illinois farmland is among the most productive in the world, and our farmers some of the most efficient at responding to market forces and management practices, that Illinois farmland will continue to be a historically competitive investment well into the future."
Cash Rents Also Dropping
"Cash rents in 2016 are expected to be about $30 per acre lower than 2015 cash rents" Schnitkey reports. He cites 2016 rents for excellent farmland to be in the range of $316 compared to current values of $350; $267 in 2016 for good land compared with $295 for this year; $219 next year for average land compared with $250 in 2015, and; $177 for fair land in 2016 compared with this year's $200 rent per acre.