Land Market Update
September 20, 2016
Typically, the most popular questions we receive are regarding land values. “Is the market up? Is it down? Who is buying? What type of land? Is this a good time to sell? Etc.”
In March of each year, The Illinois Society of Professional Farm Managers and Rural Appraisers publishes a comprehensive statewide Land Values and Lease Trends Report that analyzes actual land market data from across the state of Illinois, specifically studying individual regions within the state. Then in late August, The Society publishes a mid-year survey in which its members are polled regarding the trends they’ve seen in the first half of the year. The results of the 2016 mid-year survey were just released at the Farm Progress Show. Here’s the latest according to the survey, and what we are seeing in Central Illinois…
Depending on the region and quality of soil, the land market appears to have dropped by 3.3% to 7% during the first six months of 2016. That follows an 8% to 10% decline in 2015. The survey indicates that the smallest decrease was experienced on the Class A or “excellent” land (as categorized by soil type) with more noted declines in farms classified as Class B, C or D soils. The survey confirms what we are seeing locally – that continued pressure on commodity prices has had a strong impact on land values.
The survey respondents felt it likely that we will see additional downward pressure. Of course this is very speculative and will be greatly influenced by commodity prices, interest rates and 2016 crop yields.
The land market can now best be characterized as erratic. We have seen sales in our market area that have remained quite strong, depending on local influences. The right property in the right area, particularly if it has Class A soils, continues to do very well. Specific geography of farms can be key. You won’t find as much softening in areas with numerous aggressive farm-buying families. At the same time, the market has been very soft in other locations. The result is a great deal of variability in sale prices of farms that appear to be of comparable quality. We continue to see good demand, but there are fewer buyers and they are more apprehensive and selective.
Along with the decline in land values is the continued pressure on rents and returns. While there are many different lease types in the marketplace, it appears this fall and winter will generate some difficult conversations between landowners and operators, particularly if they have cash rents. We manage many farms that have cash rent leases, so we will analyze each lease and renegotiate if needed on behalf of our clients. Lenders might play a significant role in guiding some of those conversations.
As we know, the only constant is change. I am confident that the dynamics will look different yet again in a couple of months.
Author: Allan Worrell