BLOOMINGTON, Ill. — Experts surveyed about their biggest concern for land values this year agreed the price of corn is a big factor. Lower commodity prices were among the factors that brought land prices and cash rent values down again in Illinois in 2016.
The price of excellent land in Illinois fell from $11,600 to $11,000, about a 5 percent drop from the previous year, according to the 2017 Farmland Values and Lease Trend report released March 23.
Illinois farmland prices decreased between 5 and 14 percent in 2016, depending on land productivity, according to Gary Schnitkey, University of Illinois agricultural economist, who spoke at the meeting in Bloomington where the report was released.
Schnitkey is a key contribution to the annual report created by the Illinois Society of Professional Farm Managers and Rural Appraisers (ISFMRA). It is based on surveys and input from the society’s members, the Realtors Land Institute and others across the state.
The 110-page report includes a survey of what farm managers expect for the future. They indicated the current trend will continue in 2017. Of those surveyed, more than half — 54 percent — said they believe farmland prices will decrease in 2017 from 2016 by between 1 and 5 percent; 22 percent believe it could be as high as 10 percent; and 20 percent think farmland prices will stay about the same as this year.
“2017 could be a repeat of the last couple of years,” Schnitkey said. However, he noted that respondents weren’t worried there would be a big drop in land values of 20 percent or more.
Rent and lease prices continued their downward trend. Cash rents for 2016 declined by roughly $25 per acre to a $325 average on excellent quality farmland. The survey showed landlords received $200 per acre for traditional crop share; $250 for cash rent and $235 for custom farming on excellent quality land.
But there is a great deal of variability in cash rents, even for a specific level of land productivity. In Central Illinois, for example, most leases were down less than 10 percent and many were unchanged.
“If there is any surprise, it’s that they weren’t down more,” Schnitkey said.
He said high yields helped offset bigger drops. He notes most of those surveyed expect 2017 cash rents on excellent quality soil to be near the 2016 level or slightly less.
“There is a bit of stabilization occurring in the rental rates as landowners are resistant to move much lower,” he said.
Of the ISFMRA members surveyed, 56 percent expect rents to stay the same if corn prices are about $3.50 per bushel, and about a third expect cash rent prices could drop another $5 to $25 per acre if corn is that price. But if corn prices are near $4.20 per bushel this year, 63 percent expect cash rents could go up $5 to $25 per acre.
“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,” said David Klein, a co-chair of the annual project.
There is reason for some optimism this year. At the end of the first quarter of 2017, farmland prices are “up a little” from 2016, he said.
By the numbers
The report for 2016 showed excellent quality farmland in the northern part of the state had the largest swing, from being down 7 percent to down 13 percent, while the rest of the state was down in values ranging from 5 percent to 10 percent. Good quality farmland dropped 6 percent overall (from $10,100 per acre to $9,500 per acre); average quality was down 12 percent (from $8,200 per acre to $7,200 per acre); and fair quality land values fell by 14 percent (from $6,900 per acre to $5,900 per acre).
There were some highpoints. In region 7, west central Illinois, there were some good prices including a recent sale of $12,200 per acre, Klein said. He joked that he thought the optimism there might just come from a new person reporting in the area, but the sale backed it up.
While there were “brief periods of market rally,” the region also saw a “minimal decrease” in land values, with excellent and good land about 5 percent lower and average and fair land holding steady, the report said.
“The factors driving these declines are multiple,” said Klein, who is managing real estate broker and auctioneer for Soy Capital Ag Services in Bloomington. “Farmland supply to the market remained fairly tight throughout 2016 until year end when the seasonal increase occurred in November and December.
“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.”
While farmers are still most often the buyers of farmland, larger tracts of land continue to draw interest from institutional investors, international buyers and others, Klein said. This source of demand for farmland in Illinois has likely kept values more stable than restrictive ownership states west of the Mississippi River. For some investors, buying farmland helps balance their portfolio, he said.
Kevin Van Trump, an investor, farmland owner in the U.S. and Brazil, and publisher of the Van Trump Report also noted that large investing groups may continue to look to farmland as part of their portfolio this year.
- 56 percent of the volume of Illinois farmland sold came from estate sales in 2016.
- 80 percent of survey respondents are concerned about potential price decreases if another record U.S. crop is grown in 2017.
- 72 percent of those surveyed are concerned about interest rates going up.
- 50 percent of those surveyed are concerned about government policy, including potential changes in ethanol mandates and international trade policy.
- The complete 110-page 2017 Illinois Land Values and Lease Trends Report is available to buy as a downloadable PDF at www.ispfmra.org.