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    Here is what you need to know about today’s farmland values

    Both Todd Slock, regional manager appraisal at Compeer Financial, and Eric Wilkinson, accredited farm manager, real estate broker, and auctioneer at Hertz Farm Management, Inc., agree that farmland values have changed little during 2018 and they see a similar situation going forward. The two men were the guest speakers at The Chicago Farmers’ April 8th meeting. Compeer is a Platinum Sponsor of TCF and Hertz is a Gold Sponsor.

    “There has been little change in farmland values in 2018,” said Wilkinson, whose territory covers the northeast quadrant of Illinois. “Excellent quality land is up about one percent, and good quality is down about one percent. The data show average quality land up eight percent, but that is because larger, better quality land with more irrigation sold in 2018 than in 2017. We’ve seen that the primary buyers of good farmland during 2018 were current farmers. Recreational land is up seven percent, with land values highest for plots near metropolitan areas. Transitional land values are spotty and there is a wide variety of values.” The majority of Wilkinson’s information was provided by the 2019 Illinois Land Values and Lease Trends Report by the Illinois Society of Farm Managers and Rural Appraisers.

    Regarding sale prices per acre, Wilkinson said that excellent farmland had an average sale price of $10,722; good farmland, $8,200; average farmland, $7,400; fair farmland, $5,000; recreational land, $3,500; and transitional land, $11,000 across the state of Illinois.

    A long-term view on land sales indicates an increase in the value of average and fair quality land, said Wilkinson. He added that overall, more sales of higher quality property sold in 2018 versus 2017. “We sold a number of bigger farms,” he noted. “A lot of the value comes from the larger, more efficient farms.”

    Wilkinson observed that some investors are seeking second tier and third tier quality land because excellent quality land does not always post the best returns. “These investors believe that the lower quality land can generate a better return on their money in the long-term,” he said.

    Among the buyers involved in the sale transactions, survey results indicate that 59 percent are local farmers, 12 percent are non-local farmers, 15 percent are local investors, and seven percent are institutions.

    Regarding the sellers, 55 percent are estate sales, 13 percent are retired farmers, 14 percent are individual investors, 11 percent are active farmers, and seven percent are institutions.

    “The reasons for selling vary,” said Wilkinson. “Many are settling estates. Some use the money for things other than farming, while others pay down debt with the proceeds. It remains to be seen if active farmers in 2019 will be involved in sales to pay down debt.”

    He said a lot of people are interested in buying farmland, but not as many are interested in selling, unless they are forced into a situation, such as an estate sale.

    “Farmland is a great diversification tool in a portfolio. It is a great long-term, conservative asset class that is difficult to mimic. There is uncertainty in paper assets, but land is tangible and it produces yearly,” said Wilkinson.

    He went on to say that factors that contribute to the current stability of farmland values are farmers and investors willing to compete to control land that is near them or touching their land and they are willing to pay a premium; buyers’ confidence on yields; and the Market Facilitation Program, the federal government’s aid to farmers to help cover losses caused by the trade wars. “A lot of money went to farmers this year through this program,” Wilkinson added. “Farm income increased slightly in 2018, which propped up the land market.”

    Wilkinson shared that survey results show a slightly higher lease turnover rate due to retirements. Overall, operators are willing to take some losses in the short-term to grow their operations in the hopes that something will turn the corner, he said.

    “For land owners and tenants, we suggest avoiding long-term leases so that you are able to capture the current market,” related Wilkinson. “If you are not getting the rent up front, secure a second payment with some kind of irrevocable letter of credit or UCC-1.”

    Slock, whose area includes northern Illinois and parts of Wisconsin and Minnesota, noted that Compeer tracks the benchmark farms that it appraises each July 1st. He said that farmland values have aligned with corn prices. He noted that from 2010 to 2014, the peak in land values was driven by low interest rates and strong commodity prices. From 2016-2018, the benchmark farms range from an increase of 17 percent in land values to a decrease of seven percent. There are 19 benchmark farms in Slock’s Illinois territory, one of which is recreational land.

    In discussing cash rents per acre, Slock noted that on Class A farms, they range is $240-$350; Class B, $220-$328; and with Class C, $215-$300. “We anticipate these ranges to be fairly consistent from last year to this year,” said Slock.

    While land values did not surge ahead during 2018, Slock said prices were fairly steady from 2017 into 2019. “A lot, of course, depends on location,” he said. “Additionally, commodity prices will keep downward pressure on land values in 2019. There was an increase in interest rates in 2018, but this had a minimal affect. Generally, things were not as bad as we had anticipated.”

    During a panel discussion moderated by David Oppedahl, a TCF director, Slock and Wilkinson responded to questions posed to them by audience members. Their responses included:

    • If there is an increase in the real estate tax rate, which has been discussed, it could put land values under a lot of pressure.
    • Both Slock and Wilkinson said that the occurrences of farmland auctions are down. They noted a lot of emotion is involved in the auctions and a straight real estate sale dealing with one buyer is preferred. They saw a downward trend for auctions in 2019.
    • The value of turbines on farm property varies on how the leases are structured. The income is derived from the turbines and can range from $6,000 to $12,000 per year. If the wind turbine does not adversely affect production on the land, then there is minimal impact on the land value. The size of the access lane could be an issue.
    • Regarding trade with China, anything that disrupts the United States’ relationship with China will have an impact on commodities. China will seek cheaper soybeans, which South America can provide. More influx of cash for American farmers from the Market Facilitation Program is not expected. On the other hand, there are other markets for U.S. soybeans and the demand is still there, which is why prices are not significantly lower.
    • Regarding the aging of the American farmer, Slock said there was an even trend in estate sales of farmland; he did not see a significant shift. However, the age of the average farmer is increasing and it is harder for younger people to get into beginning farmer programs. Wilkinson commented that the floodgates of available land could open eventually through estate sales and the concern is that there will be a greater supply of land that can be handled.
    • In discussing the recent legal battles involving Round-Up, it was noted that Round-Up does not have the impact on farming that it once had due to the appearance of many resistant weeds. If unable to use Round Up, progressive farmers would work around it, although it could be a concern for some farmers because of their wide use of the product.
    • A question regarding drainage was addressed. It was noted that tile contractors are busier than ever. “It is not hard to see how one can improve a farm and pick up gains by properly draining the property,” said Wilkinson. Added Slock, “Tiling and irrigation systems are very cost effective because you are spending money on something that will add bushels to your production.”