Decatur, Ill. — “Static” is likely the best way to describe what is happening with prices being paid for Illinois farmland when comparing sales activities from Jan. 1 through the end of July this year. This is according to the annual Mid-Year Snapshot Survey done by the Illinois Society of Professional Farm Managers and Rural Appraisers among its members and those closely allied to the industry. The results of the survey were released today at the Farm Progress Show being held in Decatur, Ill.
“We have seen a minute drop of 1% in the value of Excellent Productivity farmland to $10,497 per acre in the first half of the year,” says David Klein, AFM, ALC, vice president of First Mid Ag Services and overall chair of the Society’s Land Values and Lease Trends project. “There was no change in the price of Good Productivity farmland and it is holding at $8,240. Average Productivity land is stable at $6,081 and Fair Productivity land saw a 4.6% decrease in value to $4,898 per acre.”
The Productivity Indexes are based on Bulletin 811 standards where 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 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.
“The expectations are that land prices are either going to stay the same or decrease by less than 3% over the next 6 months,” Klein reports.
“A driver on sales prices is the land that is available and there has not been a great deal of that out there. It has been tight,” Klein says, and the heavy majority of respondents do not expect that to change in the last half of the year.
Two trends that have remained steady over the past few years are they types of sales — 63% are estates — and the buyers — 64% being farmers. “This has changed very little over the years,” he notes.
“Factors that could impact prices in a positive way are the obvious ones,” Klein explains, “those being increases in commodity prices, any changes in interest rates, domestic biofuel policy and the successful negotiation and implementation of new trade agreements with other countries.
“We’re all closely watching what happens with the trade situation with China, the need for passage of the USMCA agreement by Congress and the recent agreement by Japan to buy large amounts of U.S. produced corn.”
Cash rents for 2019 and 2020 are tracking along with the prices being paid for land in that there is little expected in terms of changes,” says Gary Schnitkey, Ph.D., University of Illinois Department of Ag and Consumer Economics. He notes that rental rates for Excellent Quality land averaged at $302 per acre for 2019 and is expected to be set at $298 per acre for 2020. Good productivity land is at $261 and is expected to fade very slightly to $254. Average Quality land is at $212 and is expected to drop to $205 and Fair Quality land will adjust from $170 per acre to $167.
He notes that the factors that could impact rental rates positively will be higher corn prices — respondents expect 2019 prices to average $4.05 per bushel, which could come about with the possibility of trade resolutions with China. Negative factors will be higher production costs for 2020 as well as yields and soybean prices, also impacted by China’s demand for product with their outbreak of African Swine Fever.
As with rental rates, the types of leases are also only slightly changed. “Share rents are currently at 26% and that is expected to drop slightly in 2020 as we anticipate an upward tick in cash rent leases — currently at 33% — and variable cash leases, currently at 22%,” Schnitkey says. He notes that the survey revealed an average supplemental rent on a 50/50 crop share lease is $18 per acre.
Schnitkey explains that for variable cash rent 97% have a base rent that is paid regardless of prices, yields or incomes. If yields enter into rent calculations farm yields are used in 93% of the cases with county yields used in the others.
If price is the major consideration multiple prices at the delivery point is the most common method (58%) for determining the prices. Other determinants are futures prices (32%), actual marketing (6%) and a single price at a delivery point (3%.)
Crop insurance and/or government payments are used in calculating rent payments in 41% of the leases. Overall, 84% of respondents are satisfied with the performance of variable cash leases and indicate this type of arrangement makes negotiations easier compared to fixed cash rent agreements. Only 15% indicate that rent terms changed annually or every other year with 59% report changes occur “periodically” and 26% saying there are seldom any changes in variable cash rent lease terms.
Impact of Prevent Plant Program
The survey indicates that 31% of the farm managers reported some USDA Prevent Plant Program participation on the farms they manage. Of those that experienced prevented planting on managed acres, 15% of the corn acres and 5% of the soybean acres were Prevent Plant. The major reasons for taking Prevent Plant were that the farmland was never fit to plant and Prevent Plant had higher expected returns than planting. Lowering of the farm’s crop insurance Annual Production History yield was indicated as important in 35% of the cases.
Interest in Solar Farms
“With all the discussion and meetings going on regarding solar farms, I find it very interesting that 47% of the farm managers indicated they had discussion on solar farm installations on property they manage, but none had any installations or development occurring other than option signatures,” Klein states.
The Mid-Year Snapshot Survey is done annually by the Society. It augments the annual Illinois Farmland Values and Lease Trends Survey which is conducted each winter. The results of that omnibus survey are released annually at the Illinois Land Values Conference and are summarized in the annual Illinois Land Values and Lease Trends Report. The 2020 Conference will be held March 19 in Bloomington, Ill.