(Decatur, IL August 30, 2023) – After periods of unprecedented highs and volatility, farmland values across Illinois are “stable to slight declines” for the period January 1 through July 1, 2023, according to the MidYear Snapshot Land Values Survey sponsored by the Illinois Society of Professional Farm Managers and Rural Appraisers and presented here at the 2023 Farm Progress Show today.
According to the survey results, prices paid for Excellent and Good Quality farmland has been stable while Average and Fair Quality land saw a slight decline of 2 percent. Of those responding to the survey 44 percent expect prices to remain the same for the balance of the year while 36 percent expect prices to drop between 1 and 3 percent. Only 13 percent of those responding expected values to increase and then only between 1 and 3 percent.
The survey was conducted by Gary Schnitkey, Ph.D., Professor of Farm Management and Soybean Industry Chair in Agricultural Strategy at the University of Illinois and secretary/treasurer of the Illinois Society. Joining Schnitkey in the presentation was Luke Worrell, AFM, ALC, Worrell Land Services, Jacksonville, IL, Chair, 2024 Land Values Conference.
Schnitkey explains that in a normal year, Excellent Quality farmland averages over 220 bushels of corn per acre with a soil productivity index of 133 or higher. Good Quality farmland averages between 200 and 220 bushels per acre, with a soil productivity index of 117-132. Average Quality farmland averages between 180 and 200 bushels per acre with a soil productivity index of 100-116 and no irrigation. Fair Quality farmland averages below 180 bushels per acre with a soil productivity index under 100.
The survey is done annually as a mid-year addendum to the much more expansive Land Values and Lease Trends done by the Illinois Society which covers transactions by state over an entire year. The 2024 survey will be done by the Society in December 2023 and January 2024 and will be reported at the 2024 Illinois Land Values and Lease Trends Conference set for March 21, 2024 in Bloomington, IL.
The stability of prices paid for the land will likely be short-lived, according to the respondents with a full 53 percent expecting land values to drop over the next two years while 38 percent are optimistic that prices will remain static.
In the meantime, 63 percent expect interest rates will continue climbing from .25 percentage points to over 1.0 points. A third of respondents expect stable interest rates.
Cash Rents in 2024
Most farm managers expect 2024 cash rents to remain the same or decline from 2023 levels. Average declines are -$7 for Excellent farmland, -$5 for Good farmland, -$5 for Average farmland, and -$3 for Fair Quality land.
Illinois Society members were asked their expectations of the selling prices of the 2023 crop. The average across all responses is $4.87 per bushel for corn and $13.05 per bushel for soybeans. Survey participants expected continued lower prices for commodities in 2023 compared to 2021 and 2022.
Rental Arrangements
It was noted that little has changed in recent years in terms of farmland lease alternatives. According to the survey, 27 percent are share rent leases; 9 percent are modified share rent leases; 26 percent are cash rent leases; 32 percent are variable cash rent leases; and 6 percent are custom farming. If anything there is a movement from share and modified share arrangements to variable cash rent. The average supplemental rent on a share rent lease is $35 per acre.
Variable Cash Rent Arrangements
He explains that for variable cash rents, the most common cash rent has a base cash rent regardless of prices, yields, or incomes. A bonus payment enters the calculation based on revenue.
- 93 percent of variable cash rents have a base rent that is paid regardless of prices, yields, or incomes
- 77 percent have a payment if revenue exceeds specified levels
- 13 percent have a payment based on revenue where the revenue begins at $0
- 26 percent have a payment based on price
- 23 percent have a payment based on yield
- 7 percent have costs of production enter the calculations of rent
Schnitkey notes that when yields enter rent calculations, farm yields are used in 96 percent of the cases. County yields are used in the other cases. When price enters into rent calculations, multiple prices at delivery points are the most common method for arriving at the price.
- 41 percent of leases use multiple prices at a local delivery point
- 52 percent use futures prices
- 7 percent use actual marketing
Crop insurance payments and/or government payments are used in calculating rent payments in 23 percent of the leases.
When gross revenue is used to calculate a bonus, the average percentage is 34 percent for corn and 39 percent for soybeans.
He says most respondents are satisfied with the performance of variable cash leases:
- 50 percent indicate they were very satisfied
- 47 percent indicate they were satisfied
- 3 percent indicate they are neutral
Schnitkey added that most respondents indicate that variable cash rent arrangements make negotiations easier as compared to fixed cash rent arrangements:
- 17 percent indicate that negotiations were much easier
- 63 percent indicate that negotiations were somewhat easier
- 13 percent indicate that negotiations were about the same
- 7 percent indicate that negotiations were harder
Seller and buyers have changed little since the first of the year. Sellers of farmland were estate sales (67 percent); farmers (9 percent): local investors (8 percent); non-local investors (7 percent); and, institutions (5 percent).
Of those buying farmland 65 percent were farmers; 16 percent were local investors; 10 percent were non-local investors; and, 7 percent were institutions.
Breadth of Alternative Energy
A total of 34 percent of the farm managers have at lease farm with an arrangement with a wind company and 31 percent of them manage at least one farm with an agreement with a solar company.