Illinois farmland values softened in the first half of 2014, according to a survey of farmland real estate professionals conducted by the Illinois Society of Professional Farm Managers and Rural Appraisers. Prices generally edged 2% to 4.1% lower, according to the Midyear Land Values Snapshot Survey conducted by the professional group.
The decline in values is for the first half of 2014 and survey respondents expect the trend in prices paid to be either stable or declining modestly over the next year, says Dale Aupperle, Heartland Ag Group, LTD., Forsyth, IL. Aupperle is overall chair of the survey. He explained that survey responded indicated that during the first half of 2014 land values decreased by 2% for excellent-quality farmland; decreased by 3.7% for good-quality land; dropped by 4.2 % for average-quality land, and by 6% for fair quality farmland.
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, average-quality farmland averages between 150 and 170 bu. per acre, and fair-quality farmland averages below 150 bu. per acre. On July 1, 2014, farmland prices averaged $13,000 for excellent-quality farmland, $10,700 for good-quality farmland, $8,600 for average-quality farmland, and $6,700 for fair-quality farmland. This compares to $13,200, $11,200, $9,000, and $8,300 prices respectively for the same time period in 2013, said Gary Schnitkey, Ph.D., University of Illinois College of ACES, who conducts and compiles the twice-a-year surveys.
Schnitkey adds 64% of those responding indicate less farmland was sold in the first half of 2014 as compared to a year prior. "Participants were evenly divided on expectations for volume in the second half of 2014: 33% expect more land being offered for sale in the second half than last year while 38% expect the same amount of land and 29% expect less."
Farmers still leading buyers. "Local farmers are still the primary buyers," Schnitkey says, consisting of 71% of all buyers. Anticipating the future, over half (55%) expect land prices to decrease between 1% and 5% in the next year while a modest 29% expect the decrease to be larger -- between 6% and 10%.
"When you look at what is causing this softening of prices, there are a number of factors that come in to play," Aupperle explains. "The most dramatic is the drop we’ve seen in commodity prices."
He says most respondents expect corn prices to average $3.75 per bu. for the 2014 crop year. "This translates into lower returns on a per-acre basis and makes it more difficult to justify higher prices being paid for the land. Couple that with an expectation of interest rates to possibly rise over the next year, higher inputs costs and the potential for very high costs for propane this winter, and there has been a dampening of attitude."
He also expects there will be drops in cash rents going into 2015 with a decrease of $33 per acre being forecast by the survey respondents.
"This softening in prices has been expected for some time and this is not a doom and gloom scenario," Aupperle warned. "Land prices are still in ranges that have never been seen before and mindful land owners and operators can still be profitable with the correct management programs in place. Some of survey respondents indicated a one-in-10 chance for large price declines over the next five years, but 31% expect that range to be only a negative 1% to 5% per year."
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