Illinois farmland prices will decline between 1 percent and 5 percent in 2015 according to nearly 50 percent of respondents to a survey conducted by The Illinois Society of Professional Farm Managers and Rural Appraisers.
Just 10 percent of respondents, “individuals knowledgeable about the farmland and farmland rental markets”, believe prices will increase during the year, according to the Illinois Land Values and Lease Trends Report, as 30 percent were even more negative pointing to an over 5 percent decline during the year.
Illinois farmland has been a popular location for farmland investment acquisitions in recent years along with other parts of the Midwest. But in 2014, Illinois farmland values fell between 1 percent and 3 percent, depending on land productivity and location, following a trend that started in 2013, according to the report.
Investors are keeping their money in the land, however, according to Dale Aupperle, president of Heartland Ag Group, a farm management company, and general chairman of the society.
“They see the pressure on farm earnings but have said they want to wait and see if returns increase again,” he said. “They have not taken their money away.”
Longer term predictions were a bit more positive as 30 percent of respondents believe farmland will increase between 1 percent and 5 percent yearly over the next five years, although over 50 percent believe they will decrease by up to 5 percent yearly over the same period.
“Land prices are going to depend completely on farmland earnings and net profit,” said Aupperle told Agri Investor. “The big question is if commodity prices will get high enough to drive up farmland earnings.” He added that soybean and corn prices are expected to rise again slowly in the coming years which should help drive up farmland prices.
Recent downward movements in farmland values have pushed investment returns down to between 2 percent and 2.5 percent from the region’s traditional 3.5 percent to 4 percent range, according to the report.
Farmland values declines varied depending on its productivity levels and the second highest productivity land, labelled good productivity, experienced the biggest drop in value declining an average of 3 percent to an average of $10,500 an acre in 2014 from $11,100 in 2013. Average productivity land fell 2 percent on average and excellent productivity land fell just 1 percent from an average of $13,100 per acre in 2013 to $12,800 in 2014.
“Compared to the excellent land we have, the lands of lower quality have higher management issues,” Aupperle told Agri Investor on the phone. “They are more expensive to farm and there are fewer number of buyers looking for that type of land, so the price decline is a bit more in lower quality land” Aupperle noted that problems like soil conservation, fertility, and drainage are all magnified on lower quality land and that’s why investors shy away from this type of land.
Local farmers were the biggest buyers of farmland during the year accounting for 66 percent of deal flow whereas local investors took 13 percent and non-local investors took 5 percent. Estate sales accounted for 49 percent of sales while individual investors sold 12 percent of the land sold and retiring farmers another 12 percent.
For more detailed info on the reasons for sale, land value movements in different parts of Illinois, and more data, read Illinois Land Values and Lease Trends Report here.