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Farmland Prices, Sales Activity Flat Across Illinois

Prices being paid for farmland as well as sales activity have basically flattened during the first half of 2017, with a trend that will apparently continue for the balance of the year, according to a survey done by the Illinois Society of Professional Farm Managers and Rural Appraisers. The result of the survey were released at the Farm Progress Show, being held in Decatur.

The information is from a mid-year ‘snapshot survey’ of ISPFMRA members conducted by Gary Schnitkey, Ph.D, with the University of Illinois Department of Agriculture and Consumer Economics.

“There was a very slight drop in farmland values, only 1.6 percent for Excellent Quality land, in the first half of 2017” Schnitkey said, “with most respondents indicating this trend will continue through the balance of the year.”

The survey shows that Good Quality land dropped in value by 3.0 percent while Average Quality land saw a drop of 3.8 percent and Fair Quality land fell back 4.4 percent.

“At the same time, our members are telling us that the volume of farmland being sold in the first half of 2017 was the same as the last half of 2016 and they see no change in that level sales activity for the balance of this year.”

“The survey indicated prices paid for Excellent Quality land in Illinois averaged $10,900 per acre as of July 1,” explained David Klein, AFM, ALC, Soy Capital Ag Services, Bloomington, IL, who co-presented the information with Dr. Schnitkey. “Good Quality farmland averaged $8,900 with $6,900 being the average for Average Quality land and $5,000 for Fair Quality land.”

Klein qualified the land categories by explaining that in a normal year, Excellent Quality farmland averages over 190 bushels of corn per acre with a soil productivity index of 133 or higher. Good Quality farmland averages between 170 and 190 bushels per acre with a soil productivity for index of 117-132. Average Quality farmland averages between 150 and 170 bushels per acre with a soil productivity index of 100-116 and no irrigation, and Fair Quality farmland averages below 150 bushels per acre with a soil productivity index under 100.

Rents to be Similar to Slightly Lower

“Respondents expect slight decreases in rents going into 2018, reflecting the same trends as land values changes by productivity class,” Klein stated. “Rent paid per acre for Excellent land will likely see a drop from $305 to $300 on average. The same dip in rents will be true for Good land with prices going from $260 to $255 per acre; Average going from $220 to $210; and Fair land from $166 to $160.”

He explained that the cause of the decreases stems from anticipated lower yields and corn prices that are expected to average $3.66 for 2018. Expectations on input costs were mixed with 52 percent predicting costs will stay the same or increase slightly while 48 percent expect production costs to decrease slightly.

Variable cash rents are the preferred option with 89 percent of respondents having a base rent that is paid regardless of prices, yields or incomes. A full 72 percent indicated they are satisfied or very satisfied with the peformance of this type of lease options.

Highlights of the Survey

1. Respondents indicate that buyers of farmland were:

70% were farmers,
15% were local investors,
8% were non-local investors,
6% were institutions, and
1% were other buyers.

2. During the last half of 2017, most respondents expect farmland price decreases

2% expect farmland prices to increase,
39% expect farmland prices to remain the same,
54% expect farmland prices to decrease between 1 and 5%, and
5% expect farmland prices to decrease between 6 and 10%.

3. Almost all respondents expect farmland returns to decrease in 2017 as compared to 2016:

26% expect returns to decrease between $25 and $50 per acre,
43% expect returns to decrease between $1 and $25 per acre,
21% remain the same,
8% expect returns to increase between $1 and $25 per acre, and
2% expect returns to increase between $1 and $25 per acre.

4. Most respondents believe that interest rates will remain the same in the last half of 2017, with most expecting relatively small increases. More expect increases this year than last year.

18% expect interest rates to remain the same,
71% expect interest rates to increase between 0.1 to 1 percentage points, and
11% expect interest rates to increase between 1 and 3 percentage points.

5. Most respondents expected farmer demand to remain the same in 2017:

28% expect decreases
70% expect no changes, and
2% expects an increase in farmer demand.

6. Opinions on non-farm investor demand were more mixed:

12% expect decreases
76% expect no change, and
12% expect an increase non-farm investor demand.

7. Respondents expect slight decreases in cash rents between 2017 and 2018, reflective of the same trends as land value changes by productivity class. Average expected decrease is $8 per acre.

8. More of the respondents expected 2017 corn yields to be below average than above average.

2% expect yields to be above average
14% expect yields to be slightly above average
25% expect average yields
37% expect yields to be slightly below average
22% expect yields to be below average

9. Respondents expect corn prices on the 2018 corn crop to average $3.66 per bushel.

10. Respondent expectations on production costs in 2018 were mixed:

32% expect production costs to increase slightly,
20% expected production costs to remain the same, and
48% expect production costs to decrease slightly.

Rental Arrangements

11. Respondents indicate the following use of alternative leases:
25% are share rent leases,
15% are modified share rent leases,
30% are cash rent leases,
22% are variable cash rent leases, and
8% are custom farming.

12. Respondents indicate they expect little changes in leases from into next year.

13. The average supplemental rent on a share rent lease is $25 per acre.

Variable Cash Rent Arrangements

14. For variable cash rents, the most common term of variable cash rents is to have a base rent.

89% of variable cash rents have a base rent that is paid regardless of prices, yields, or incomes,
77% have a payment if revenue exceeds specified levels,
14% have a payment based on price,
5% have a payment based on yield, and
7% have costs of production enter into the calculations of rent.

15. When yields enter into rent calculations, farm yields are almost always used.

16. When price enters into rent calculations, multiple prices at delivery point is the most common method for arriving at the price.

57% of leases use multiple prices at a local delivery point,
36% use futures prices,
4% use actual marketing, and
3% use one delivery point price.

17. Crop insurance payments are used in calculating rent payments in only 12% of the leases.

18. When gross revenue is used to calculate a bonus, the average percent used to calculate the bonus is 35% for corn and 40% for soybeans.

19. Most respondents are satisfied with the performance of variable cash leases

24% of respondents indicated they were very satisfied,
48% of respondents indicated they were satisfied,
34% of respondents indicated are neutral, and
4% of respondents indicated that they were dissatisfied.

20. Most respondents indicate that variable cash rent arrangements make negotiations easier as compared to fixed cash rent arrangements.

16% of respondents indicate that negotiations were much easier,
60% of respondents indicate that negotiations were somewhat easier,
9% of respondents indicate that negotiations were about the same, and
16% of respondents indicate that negotiations were harder.
21. Most respondents indicated that lease terms did not change every year
14% of respondents indicated that lease terms change seldom,
54% of respondents indicated the lease terms change periodically,
6% of respondents indicated the lease terms change every other year, and
26% of respondents indicated that lease terms change every year.

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