What are Land Values Doing?

April 18, 2018

Spring is here (finally!) and with it comes the beginning of another growing season. Each spring, we try to acknowledge and hopefully answer the two predominate questions we receive most often: “How is the farm business?” and “what are land values doing?”

Some might think those are the same question, but they are actually very different. Farmland values have an obvious connection to the overall Ag economy, but they don’t always directly correlate. By now, we are all aware that 2008-2014 was an incredible time to be in Agriculture. Commodity prices soared and land values went right along with them. It has already been dubbed a “Golden Era”. It was an unprecedented time. When you come out of a cycle like that, it often takes time to come to some realizations. Since that extraordinary period, things have started to tighten, tighten, tighten.

From a farmer’s perspective, you can only stack so many tight years on top of each other until you really feel the pinch. We have reached that point. When farmers feel the burden, land values feel it as well. It seems like every one hears about that big investor or fund that comes in to buy land, but truthfully a vast majority of the buyers out there are local farmers.

Recently the Illinois Society of Farm Managers and Rural Appraisals released the updated Farmland Values and Lease Trends Book. We touch on this publication every spring. The data is based off of actual recorded sales and professional input statewide from farmers, managers and lenders. What the data revealed was a continued decrease in land values ranging anywhere from 2-10% depending on quality. If you go back and look at these books dating back to 2014 data, you will see that farmland has decreased in value somewhere between 17-25%. Marginal land or farms with lesser quality and recreational land have seen slightly larger decreases.

Farm income has actually experienced even rougher conditions than land values. Huge surplus of grain, tariffs, trade agreements, ethanol, farm bill changes are just a few of the factors that have led to declining farm income. Needless to say, there is A LOT going on right now affecting us in Agriculture. A sobering case study came to light recently when I was doing some analysis for a farm management client. This is a 280 acre farm in Scott County, Illinois that raises corn and beans. I took a snapshot of what we were able to sell grain for off of this farm periodically since the highs of 2011. In 2017, we sold corn bushels on average for $3.55. That is 42% less than we obtained just six years ago. Our average bean bushel sold at a 28% decrease.

I say all of this not to depress or dishearten. Believe me, I don’t like typing these words! I relay this because it is important to know where we stand in an ever-changing time. I believe we are in “the new normal,” but with macro-economic factors in a state of flux, that is subject to change. Many professionals, me included, expect commodity markets to be sideways for a while. Regarding land values, I think we will see some additional yet slight softening throughout 2018. I would anticipate next year’s farmland values book figures to be similar those released this March.

Written by: Luke Worrell – Accredited Land Consultant, Accredited Farm Manager