The Central Illinois Farmland Market is like “A Tale of Two Cities”. You may recall that this story opens with “It was the best of times, it was the worst of times”. This resembles some of the sales of farmland in Central Illinois. While commodity prices are experiencing their third year in a row of suppressed prices, high quality farmland continues to sell fairly well. However, if a farm has imperfections, such as poor drainage, waterways, tree lines, old building sites, etc., you can usually anticipate a much weaker result.
The following sales illustrate the “Tale of Two Cities”. A 160 acre parcel in Sangamon County was a very nice property located between two farm operators who were motivated buyers. This resulted in a very strong sale at $13,400 per acre. Then one can look at the 244 acre parcel in Shelby County. This property had the perception of being poorly drained and there were no highly motivated farm operators at the sale. The result, a less than stellar sale at $8,100 per acre. These farms sold at auction, were nearly all tillable and both had high quality soils of over 140 PI (PI-Productivity Index) out of a possible 147 and yet the price differential is $5,300 per acre.
While farm operators approach farmland purchases like a business, it is far more difficult for them to remove the emotional tie to the land. Buying the farm next door is high on many a farmer’s list. Thus, a significant factor in farmland values, in addition to quality, is having two nearby farm operators who are active buyers. If the land is out of their area, their interest diminishes quickly. They become purely an investor and will only buy if it is what they consider a good deal. Outside investors are still very active in the current farmland market, but they are not pushing the value of farmland. With investors, it is all about the Rate of Return, and no emotions are involved, it is all business. Following is a list of sales that occurred in the last third of 2016.
Based on the 50 sales from 14 counties, documented in this report, the Central Illinois farmland market has declined 8% in the last year. These sales were taken from the last third of 2016 and averaged $10,620 per acre. This compares to an average of $11,548 per acre for the same time period last year. Farmland values have now declined nearly 20% from their peak achieved in mid-2013 when sales frequently surpassed $13,000 per acre. However, there are positives on the horizon. Input costs are down significantly and demand for US corn and soybeans are at very high levels. Interest rates are rising, but will remain a non-factor for the next few years. These factors should lend support to farmland prices in 2017. The bottom line is that farmland is still a safe and viable investment alternative.
Chart of Correlation of Gold to Prime Central Illinois Farmland
1968 is the base point utilized as the price of gold was not free to fluctuate prior to that time period.
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 Jim Schroeder, Dale Kellermann, Logan Frye or myself.
-Bruce Huber, Senior Vice President / Managing Broker