Unprecedented describes the land market throughout 2021 and into the early stages of 2022.
“We ended 2021 incredibly strong with lots of action and we sit here in early 2022 trying to decipher where the wild ride will end” These are the opening comments from Luke Worrell, AFM, ALC, Worrell Land Services, Jacksonville, IL, chair of the 2022 Land Values Conference held here today. The annual event is sponsored by the Illinois Society of Professional Farm Managers and Rural Appraisers.
Citing increases being paid for farmland as high as 26 percent compared to a year ago, Worrell says “Across the state we have seen meteoric rises in prices across all classifications of land. Leading the charge was Class A or ‘Excellent’ acreage which saw a jump of 26 percent. It is a number that can take your breath away, but across the entire state the regions with Class A farmland experienced a rise of 30 percent from two years ago.”
Worrell notes that the dramatic increases didn’t end with Class A acreage. “Lower land category classifications like Good were up 24 percent. Average farmland was up over 20 percent. Even Fair land was up 5 percent and recreational or mixed-use properties elevated significantly throughout certain pockets of the state.”
He adds, “There is no doubt we ended 2021 strong with some legs left to this market. If anything, the sales that took place in the first half of 2021 likely reduced the overall averages. The calendar flipped at the end of December with land sales on the upswing and not retreating.”
Worrell noted that many growers were able to sell their 2021 grain nearly 50 percent higher than they did with their 2020 grain. ” It stands to reason that when potential gross farm income can see that jump, values could rise. Additionally, interest rates are still historically low. Borrowing strength is strong and there are many cash buyers out there as well. Historically speaking, land can be very bullish in unsettling turbulent times as many see it as a hedge on inflation,” he continues. “Also, the supply of readily available farms was down in 2020 meaning that pent up demand loomed throughout 2021.”
|Land Category||Average for All Regions||2020 Change|
One of the more interesting phenomena of 2021 was the sheer number of sales, particularly auctions, that took place in the fall, Worrell notes. “We saw more Class A, Excellent quality acres be put on the auction block than in recent memory. With those auctions came a wide variety of auction methods as that world changed thanks to COVID-19. While we still see a majority of local buyers, the presence of large institutional buyers and “mega-wealthy” interest has increased over the last year.”
Cash rents are also on the rise
According to Gary Schnitkey, Ph.D., University of Illinois, who shared the podium with Worrell, “The mid-year survey we did last August projected an average rise in rent fees of 12 percent, but our year-end numbers show that a figure closer to 20 percent is what ended up happening more frequently than not.”
He explained that Per Acre Cash Rents for 2022 for Excellent farmland ranges from $400 at the top end to $300 in the lower 1/3. Those same ranges for Good land vary from $360 at the top to $250 at the lower 1/3. Average farmland varies from $300 at the top to $215 at the bottom. Fair land ranges from $250 per acre to $160.
“There are two types of cash rent leases: traditional and variable,” Schnitkey explains. Under a traditional lease, a fixed amount of cash rent is negotiated between the land owner and tenant, typically at the beginning of the crop year. Under a variable lease, the amount of the cash payment depends on revenue. A typical variable lease has a fixed base payment and then a “bonus” payment. The bonus payment is a percentage of gross revenue when gross revenueexceeds a specified level. In 2022, traditional crop share arrangements will account for 28 percent of leases while variable cash leases had a 36 percent share of leases.
“Farm managers typically use short lease terms on cash rental arrangements. Of cash rents, 81 percent of the leases were one-year in length,” he notes.