2023 Land Market, Agricultural Predictions

January 17, 2023

What a wild time it has been here in the Illinois Ag World! Trying to concisely summarize what has occurred over the last two years is about as challenging as getting my two sons to agree on where our family should go out for dinner (Spoiler: it is nearly impossible). We have experienced a historic rise in land values and a return to stronger commodities. That leads us to the question I’m asked nearly every day – “How long will it last?”.

Through my involvement with the University of Illinois and Illinois Society of Farm Managers and Rural Appraisers, I am fortunate to help produce two large events per year regarding land values that help me have a well-rounded understanding of land values across the state. The long and short of it is that from January 2021 through June 2022, the average price of Illinois farmland increased around 40%. That is not a typo! In fact, some specific areas of the state had “Class A” farmland go even higher. For some context, the record price per acre here in Morgan County (for farmland sold with the intent of remaining in row-crop production) was $16,000 an acre from March 2013 until winter 2021. In February 2022, we had the privilege of having a Morgan County “Class A” land auction. My OPENING bid that day was $16,000. What had been a long-standing record became merely an opening bid in a very short amount of time. We saw an enormous number of farms hit the market between September 2021 through March 2022. Records were being broken so frequently throughout the Midwest that I am not sure anyone can confidently state a record high price at this juncture.

It comes as no surprise to any of us that markets, including agricultural economics, can be cyclical. While we have enjoyed the “boom,” there is reason to believe we will see some softening here in 2023. I want to be clear with my word “softening”. Please don’t read this as jumping off a cliff. I suspect and hope for a moderate softening. There are several factors at play here:

The first is that dreadful word that has been uttered countless times of late…inflation. The cost of putting in a crop has risen substantially. Fertilizer, seed, chemicals, diesel fuel and everything else used to produce a crop has gone up in a big way. Farmers and operators are still the predominant buyer of farmland. If their margins are tighter and the cost of production is rising, one could assume inflation will have a negative impact on available capital and the willingness to bid aggressively. Additionally, you have all heard about rising interest rates. For a long time, buyers were enjoying historically low rates and strong purchasing power. That has started to change in a hurry.  At last check, the prime interest rate had risen from 3.25% to 7.00% in 2022 alone. While there is a lot of cash out in the market, this rise will undoubtedly give some buyers pause.

Fear not friends, many know I am an optimist! While I personally expect a decrease in values over the course of 2023, I still see many reasons to be grateful. For one, the commodity prices are still strong. So, while input costs have gone bananas, we are still at levels where money and profit is to be made by farmer and landlord alike. We are also coming off two very strong years in a row which should help soften any blow that might be felt by a decreasing market. I also draw some relief from 2015-2019, the years following the last big boom market. Annual decreases occurred during 2015-2019, but they were gradual and palatable. When we do definitively see the market retract, I believe we can take a similar course.

Long rambling article made short, it has been a wild ride up to historic levels. I do believe we will start a definitive land value softening soon. While we will still see some sales that leave us speechless, I think there will be fewer sales overall as people take a minute to catch their breath and chart their next move. From a farm management perspective, I am still very positive regarding the commodities and looking forward to seeing what the 2023 growing season has in store. 2023 will have its own unique flavor like all years do. I feel confident that those of us in the industry are up for the twists and turns. I, for one, look forwarding to the challenge of driving our business forward through that winding path on the horizon and further enhancing the service we provide to our clients.

Written by Luke Worrell – Managing Broker, Accredited Land Consultant, Accredited Farm Manager