Source: Illinois Society of Professional Farm Managers and Rural Appraisers
The limited amount of land for sale, along with current returns and the safety of farmland as an investment, kept farmland values steady across the state in 2009. This is according to the 2010 Farmland Values and Lease Trends Report issued at the Illinois Land Values Conference.
"There is a limited amount of land for sale," said Bob Swires, AFM, Swires Land and Management, Danville, Ill., and overall chairman of the annual survey and conference hosted by the Illinois Society of Professional Farm Managers and Rural Appraisers. "For example, there were 11,000 acres sold in northwest Illinois in 2008. That compares to only 5,900 acres sold in the same region in 2009."
"Add to that the fact that potential sellers like the current returns, capital appreciation and safety of their farmland investment when compared to the low interest rates on CDs and bonds and certainly the past performance of the stock market. They are just not letting go of the land," he said.
Swires explained that the survey is conducted by members of the organization with the state divided into 10 geographic regions. The information that they collect on sales around the state is then summarized by staff at the University of Illinois.
"In 2009 land values started out steady, possibly lower, depending on the region. During the summer the limited number of sales appeared to have steady movement, and we finished out the year with a very strong land market in almost all the regions," Swires reported.
Land prices in the spring of 2009 were soft with a few auctions resulting in "no sale." Most were sold in private negotiations after auctions. In the fall and winter of last year there were not very many sales, and auctions had some very high prices.
Farmers are buyers
The majority of the buyers are local farmer buyers expanding their current operation, followed by a mix of local and non-local investors. Investors are looking to diversify their portfolio into a more safe and sound investment after the 2008/2009 financial crisis, he noted. "There are no 1031 tax-deferred investors. Now farmers are the primary buyers, not 1031 investors."
Swires said that most of the sales were for cash, although low interest rates continue to make financing more affordable. "Most sales do not have recordable mortgages."
"There is strong demand for land in the Excellent Productivity category. Investors and farmers who are more return sensitive may be looking to invest in Good and Average tracts. New seed and chemical technology increases the productivity (returns) of land in the Good/Average Productivity categories."
Recreational tract demand has softened along with the price and the number of transactions. "This would be in keeping with what has happened to the economy in general. It seems to be region-sensitive on both the overall price and direction."
The northern counties of the state had most of the Transitional Tract sales volume, which is down sharply. "The Transitional tracts appear to be headed towards farmland values. Land in this area is even more location and price sensitive. Down state, where there were few transactions, the prices seem to have been tied to specific projects and many are either government or quasi-government projects such as schools and hospitals.
"There have been a few transactions where a farmer from northeast Illinois sold land for development six years ago, and with a 1031, moved those proceeds downstate. With the drop in the land values in the northeast, and the increase in land values downstate, we have seen a few isolated incidences where they are selling the downstate property and reinvesting in specific properties back in the northeast," he continued.
Wind farm development is still very active, especially in the northern two-thirds of the state. "Some of the farms have been up long enough to result in some sales of tracts with turbines. It is met with a mixed approach on the sale of the tracts."
Land Values Summary
Excellent Good Average/Fair Recreational
Northern Region -4% to steady -4% to steady 0 to +10% -15%
(1 & 2)
Central Region 0 to +10% 0 to +10% 0 to +12% -5% to -30%
Southern Region -- -10% to +15% 0 to +13% -10% to +5%
(8, 9 and 10)
"The variation within the three regions is wider than we have seen in the past. That could be a function of the low number of sales and the different micro-markets that we are seeing develop not only within the state, but within the regions," Swires said.
"It is difficult to identify cash rent the way it is to set value on farmland. However, skilled, professional farm managers can help a client determine rent to meet the owners' goals. As you go down a country road, there can be upwards of a 40 percent differential in cash rents on identical types of ground.
"This deals only with cash rents, although share rents and to some extent, flex rent is still available and possibly growing in numbers. In 2009 many of the flex lease bonuses did not activate because of low grain prices.
"A professional farm manager can help sort out the social-versus-business aspects of a farm operation. The analysis and communication can help the owner arrive at the best decision to attain their goals. The farm manager can help provide a lease, the implementation of a lease, and monitoring the farming operations. Cash rent levels varied widely as you might expect throughout the regions."
Excellent Good Average/Fair Recreational
Northern Region $180 - $375 $150 - $325 $100 - $275 --
(1 & 2)
Central Region $240 - $400 $200 - $300 $100 - $225 --
Southern Region -- $150 - $180 $175 - $400 --
(8, 9 and 10)*
*These regions have more share rents and less cash rent leases.
Copies of the complete report can be ordered by downloading an order form at www.ispfma.org.