2014 Farmland Market Review

January 15, 2015

“Resilient” is the way to describe the 2014 land market. The record breaking corn and soybean production of 2014 became the primary factor in the falling commodity prices realized throughout the second half of the year. This shifting market led many to believe that land values would follow to some degree. However, farmland values remained remarkably stable in the last quarter of 2014. Based on 40 sales documented in 13 counties, prime Illinois farmland values are down approximately 2% year over year.

Part of the stability in the farmland market is due to the fortitude of the American farmer. Farmers are a tough breed, risk takers who, for the most part, are optimistic about the future of agriculture. Producers realize that the 2015 crop year may be one of tighter margins, but the long-term outlook of production agriculture still remains very bright. This mindset is supporting the farmland market in two ways. First, farmers remain the number one buyers of farmland. The documented sales show that quality farmland is still finding solid value in the marketplace and the majority of these sales have been purchased by producers. Second, these same farmers are willing to pay higher cash rents that what some may feel is justified. Rent levels holding steady continue to provide a desirable rate of return to landowners. This keeps the spotlight on land as a potential investment to the non-farming land buyer.

The following charts (FIGURE 1) show the deviation from the average price of prime central Illinois farmland ($12,388/acre) recorded in 2013 and the deviation from the average price of prime central Illinois farmland ($12,203/acre) recorded in 2014. These charts illustrate this minor downward shift in averages, yet outlines a more concentrated range in 2014 compared to sales recorded in 2013. This tighter range shows far fewer sales trading above the $13,000/ acre range in calendar year 2014. The green line in both graphs indicates the average sale price while the red line is the reference line of $13,000.

The Farmland Auction chart (FIGURE 2) is a summation of 101 auction sales recorded from the beginning of 2014 to the end. The blue dots indicate sales and dollar amounts per P.I. point (productivity index). The average P.I. of all sales included was 136 out of a possible 147. The red line is the trend line. This trend line is showing a decline of about 5-6%. Since the highest priced sales in 2013 were mostly auction sales, this chart helps support the conclusion that top end sale prices are down 5%.

The final chart (FIGURE 3) illustrates that the correlation between gold and farmland values over time has been fairly strong.

However, please note that gold has a significant divergence from farmland values the past two years. Farmland can provide the safety of gold and, at the same time, provide an income stream. This could be why there is now a divergence – investors want a cash income stream.

The outlook for 2015 is “cautious optimism”. I am optimistic about the future of agriculture and farmland values, but, at the same time, a person needs to remain cautious and aware of macro events. This could be the year the Federal Reserve finally begins to ratchet up interest rates. How much, and when, could have the single largest impact on farmland values in the upcoming year.

TABLE 1 below shows a chart of 40 sales in 13 counties. The sales were all high quality high percent tillable properties.

We are very active in rural real estate brokerage. If you have an interest in buying, selling or exchanges of farmland, please feel free to contact any First Illinois Ag Group team member.

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.