Illinois Farmland Values

September 01, 2013

Where are we and where are they headed?

Each year-end, Hickory Point Bank Agricultural Services Department evaluates area farmland sales and estimates the change in value from the previous year. Listed below are the results for the past five years:

More than typical farmland was sold prior to the end of 2012 due to possible tax law changes beginning with 2013. This resulted in less land for sale in the first half of 2013, having a supporting effect on farmland values.

The Illinois Society of Professional Farm Managers and Rural Appraisers, along with the University of Illinois, conducted a 2013 mid-year land value survey.

Key points of the survey follow:

  • For the first half of 2013, respondents indicate that land values increased by 3% for excellent and good quality farmland (170-190 bushel per acre), 2.5% for average quality farmland (150- 170 bushel per acre) and 1.9% for fair quality farmland (below 150 bushel per acre).
  • On July 1, 2013, farmland prices averaged $13,200 for excellent quality farmland, $11,200 for good quality farmland, $9,000 for average quality farmland, and $8,300 per acre for fair quality farmland.
  • 70% of the respondents indicated that less farmland was sold in the first half of 2013 as compared to the second half of 2012. Partially explaining lower volume was a surge in farmland sales at the end of 2012 on account of uncertainties concerning income tax treatment in 2013 and beyond. 95% of respondents indicate there was an increase in land sales at the end of 2012.
  • Volume of sales in the last half of 2013 is expected to remain about the same as the first half of 2013. 23% expect more volume, 43% expect the same volume, and 34% expect less volume. Respondents indicate that buyers of farmland were:
    • 73% farmers
    • 12% local investors
    • 8% non-local investors
    • 5% institutions
    • 2% other buyers
  • Respondents indicated that farmers have increased as a percentage of buyers while local investors, non-local investors, and institutional investors have declined.

Farmland price expectations for the next 12 months:

  • Respondents were divided in what was expected to be the price change over the next 12 months. 20% expect farmland prices to increase, 41% expect farmland prices to remain the same, and 39% expect farmland prices to decrease. Of the 39% expecting decreases, 77% expect a price decrease from 0-5%.
  • Respondents were asked how likely a small price decline (less than 10% decline) is in the next 12 months. - 7% believe a small price decline will happen, 38% indicate there is over a 50% chance of a small price decline. - 53% indicates there is less than a 50% chance that it will happen and 2% indicate that it will not happen.
  • Respondents were asked how likely a large price decline greater than 10% is in the next 12 months. Most respondents believe there is a small chance of a large price decline. - 6% indicate that there is over a 50% chance of a large price decline, 38% indicate there is between a 10% and 50% chance of a large price decline, 33% indicate a 1-10% chance of a large price decline and 24% indicate that a large price decline will not happen.

Factors impacting farmland prices:

  • Respondents were asked to list factors that would have a negative effect on farmland values.
    • Corn prices falling
    • Subsidies on crop insurance reduced, farm bill does not pass, and rising interest rates
  • Respondents listed factors that would have a positive impact on farmland prices.
    • U.S. economy grows
    • Inflation increases

There is much discussion in the Ag world about a possible “farmland bubble” forming with a 1980’s style price decline over the next five years. Most respondents indicate none or a small chance of an event of this nature.

39% of the respondents indicate that a 1980’s style decline will not happen, 44% indicate a less than 10% chance of 1980’s style price decline of happening, and 17% indicate that there is between a 10% and 50% chance of it happening.

Our sense is most people believe that with the recent run-up in farmland values, present lower corn prices, and slightly higher interest rates that farmland values will be hard pressed to push substantially higher and could experience an easing of values. Conditions that led to the 1980’s crash, extremely high interest rates and high levels of farm debt, are not factors in 2013.

If you would like additional information on the farmland value market in general or your farmland in particular, please feel free to contact us.*

We keep abreast on many of the current issues facing rural landowners, these trends and topics are highlighted in our “Field Notes” newsletter. Below are some key topics for owners and farmers.