Prices paid for Illinois farmland as well as rates being paid to rent the same ground have continued their downward trend for a second year, according to a state-wide survey conducted by the Illinois Society of Professional Farm Managers and Rural Appraisers. The results were released today at the annual Illinois Farmland Values Conference in Bloomington, Illinois.
Prices paid for land rated "excellent" and "good" both dropped by 8% during 2015 while "average" land dropped 9% last year, according to the study results. Be definition "excellent" land typically yields over 190 bu. of corn per acre; "good" land yields between 170 - 190 bushels and "average" yields between 150 -- 170 bu. per acre. The study is a result of a state-wide survey that was conducted in January among Illinois Society members and others within the industry.
In releasing the survey results it was noted that values regressed but remained 'relatively strong' for "excellent" land and there are pockets of strength that still exist. The presentation was made by David Klein, AFM Soy Capital Ag Services, Bloomington, Il, overall co-chair of the annual Land Values Project which is conducted by ISPFMRA. His co-chair is Dale Aupperle, AFM, ARA, Heartland Ag Group, Forsyth, IL. Klein went on to explain that buyers are still willing to pay a premium for high quality soil. He noted that average prices paid for excellent-quality land in January 2015 were at $12,600 per acre. This compared to $11,600 at the end of the year.
"Buyers were cautious, looking for deals for land ranked as 'good' quality," Klein continued. "We noticed there were some longer listing periods for some of this land during the year." Opening year prices averaged $10,600 and closed out December at $9,700.
"Buyers of 'average' land were very selective," Klein said. "There were more noticeable declines in prices for this type of land, which requires higher maintenance and management." He also noted that there were more 'no sales' at auctions for this type of land compared to the other classes. The statewide average for this type of soil was $6,215 per acre.
Lower Farm Income to Blame
In all cases, reduced commodity prices were blamed for the reductions in land prices as well as rent rates across the state. "All of agriculture is watching corn and soybean prices to see which direction our earnings will take in 2016," Klein explained. He referred to the overall earnings outlook as 'diminishing,' and added that crop insurance is an important income safety net.
Aupperle also cited lower commodity prices for drop in return on investment (ROI). "Our traditional 3.5% to 4.0%t ROI has been diminished as well. Those returns are now in the 2.5% range." He added, however, that "investors still find this acceptable in an unstable general economy."
Cash Rent Levels Will Continue Decline
An analysis of cash rent levels was done by Gary Schnitkey, Ph.D., University of Illinois Department of Ag and Consumer Economics. "Survey results indicate that income levels in 2015 from owning farmland were below 2014 levels, continuing a string of declining return years that began in 2013. Cash rents in 2016 decreased from 2015 levels and, if trends continue, we'll see lower cash rents again in 2017. Respondents expect very little farmland to change hands because the current farm operator is unwilling to pay the desired cash rent. They also feel they could find other farm operators to replace current operators if the need arises."
For excellent-quality farmland, traditional crop shares had average income of $204 per acre, cash rent had $263 per acre, and custom farming had $259 per acre. Across all land qualities, returns from share rent leases were lower than cash rent leases. Custom farming had returns comparable to cash rents, he said.
In those same categories, incomes in 2015 decreased from 2014 with net drops of $46 per acre of "excellent" land for traditional crop share, negative $37 for cash rent and negative $58 for custom farming, he stated.
Projected rent rates for will vary from a high of $350 per acre to $275 per acre for "excellent" land; $300 to $250 for "good" land; $260 to $191 for "average" land, and $208 - $150 for "fair" land. In retrospect, mid-range rent rates for 2007 were $183 for Excellent land, $164 for Good land, and $144 for Average soil. Values peaked in 2013 at $396 for "excellent" land, $339 for "good" land, and $285 for "average" land, he said.
Looking to the future the survey respondents expect 2017 cash rents to be lower than in 2016. Some 41% expect decreases of between $25 and $50 and 50% expect the decrease to range between $5 and $25 per acre. None are expecting rents to increase, the survey showed.