“Not much has changed” was the basic message regarding prices paid for Illinois farmland presented during the 2021 Farmland Values Conference held as a webinar today. The annual event is sponsored by the Illinois Society of Professional Farm Managers and Rural Appraisers.
“Statewide data suggests we witnessed mild increases in values for excellent, good, and fair soil types. A stable, yet slightly decreased, value was experienced amongst average soil types,” says Luke Worrell, AFM, ALC, Worrell Land Services, Jacksonville, IL, overall chair of the Farmland Values Survey and Conference.
“The largest increase was in ‘Class A’ farms, as high-quality farmland continues to carry the flag across the state,” he states. “Findings suggest the table has been set for what should be an exciting 2021 in Illinois’ agricultural economy.”
Worrell cites three economic events that played a role in the state of agriculture today.
COVID-19 – He notes the bulk of land sales traditionally take place from October through March. “The virus and its impacts hit right when the market typically slows on volume of transactions anyway. By the time late September and October rolled around, commodity prices were on the rise and we had somewhat acclimated to our pandemic surroundings.”
Low Interest Rates – Worrell says interest rates continue to be incredibly low, allowing borrowers to be more aggressive than they normally would in acquisitions. This dynamic continues to be extremely supportive to land values.
Government Policy – “An enormous amount of money was paid out through various government programs in 2020. By the time commodities showed strength late in 2020, many operations had already been substantially buoyed by lingering MFP payments that came in during the first quarter, in addition to CFAP and CFAP2 payments,” he adds. “The recent transition to the Biden administration will be closely observed as it deals with tariffs, trade and other issues that need clarity. It is a global economy in which the development and/or resolution of issues in Asia, Europe, Africa and South America affects all of us here in Illinois.”
Average sales prices of completed sales across the state remained stable. Excellent category land averaged $10,870 per acre in 2020 compared to $10,435 in 2019. Good category land was $8,446 compared to $8,335 in 2019. Average was $6,409 ($6,502); Fair was $5,353 ($5,090); Recreational land was $3,689 ($3,904). “These are statewide averages,” he stresses. “One would need to look through the entire Report to see the region-by-region statistics.”
Upward Change Forecast for 2021
In a survey of farm managers and appraisers, 89 look for prices paid for farmland to increase during 2021, with 52% seeing increases of between 5% and 10% and higher. A scant 9% predict values will stay the same with even fewer predicting reduced values. Most cite modest expansion of the Illinois agricultural economy. However, 58% forecast modest increases in interest rates which could put a damper on sales activity. “Stable’ was the word used most often to describe general sales activity.
Optimism was the key word on prices paid for cash rents with modest increases seen for all land types except Average and Fair quality properties. In the study conducted by Gary Schnitkey, Ph.D., University of Illinois, for excellent quality farmland, traditional crop shares had average income of $229 per acre, cash rent had $250 per acre, and custom farming had $300 per acre. Across all productivities, crop share had the lowest returns. Custom farming had higher returns than the other arrangements.
Overall, farm managers were asked their expectations of 2022 cash rent level:
• 79% expect 2022 cash rents to increase over 2021 levels,
• 11% expect 2022 cash rents to be the same as in 2021.
Farm managers expect the agricultural economy to remain strong in 2021, according to Schnitkey. Twenty percent expect 2021 to be a better year than in 2020 while 67% 2021 to be the same as 2020. Thirteen percent expect 2021 to be a worse year then in 2020. “Overall, 2020 was a good income year in agriculture.”