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Land Trends and Values

Farmland value is the barometer for the health and wealth of the farming economy, said Eric Wilkinson, of Hertz Farm Management, Inc., during his presentation on land trends and values at the Chicago Farmers’ April 4, 2022, meeting.

Wilkinson said values have been flat since 2014, with the last high from 2011-2013. However, the market began “to come alive again” in the fall of 2020 and the market has been trending upward since the fourth quarter of 2020. “In general, everything is up significantly,” Wilkinson shared.

He went on to say that the Chicago Federal Reserve survey of “good” farmland in Illinois, Indiana, Iowa, Michigan and Wisconsin increased in dollar value by seven percent from October 2021 to January 2022, and from January 2021 to January 2022 it increased 22 percent.

In 2021, Illinois Society of Professional Farm Managers and Rural Appraisers indicated that excellent land increased in value by an average of 26 percent; good land, 24 percent; average land by 21 percent; fair land, five percent; and recreational land, 11 percent, Wilkinson said.

Wilkinson also said there is a direct link between the price of corn and soybeans to the cost of land. If the costs of commodities rise, then farmland values rise.

Wilkinson said that the farm economy is expected to slow in 2022 with the net farm income forecast to be at $114 billion from $123 billion in 2021. Many government payments are ending, such as the Market Facilitation program and other ad hoc government programs. At the same time, crop insurance is an important factor in a farmer’s income. He noted that 160 million acres of corn and soybeans are covered by crop insurance and 200 million acres of wheat are covered.

Rising interest rates also are expected to affect the market. Since the start of the pandemic, rates have been extremely low, but they are rising. However, last week Hertz closed a loan with a rate of 4.5 percent on 20-year amortization. Wilkinson said that interest rates are still historically low, and this has helped to fuel the market. “The downward rates are still present,” he noted. “It is going to be hard to get used to higher rates.” Wilkinson observed that bank repayment capacity is good, and lenders are lending.

What is driving this market? Wilkinson said the main drivers are commodity prices, farm income, government support, interest rates, borrowing capacity, and land sale volume. “All major drivers aligned simultaneously,” he said.

Active farmers represent 60 to 80 percent of farmland buyers. Other buyers include local investors (attorneys, accountants, teachers), non-local individuals, institutions, and newer institutional investors, such as Crowd Funding, which allows individuals to buy shares of a farm, according to Wilkinson.

Regarding farmland’s financial performance, Wilkinson said it performed well versus the stock market from 1990-2020. He said there was very little down-side risk for farmland, even when the economy was down.

He noted that in a Purdue University study regarding the ag economy barometer, attitudes improved quickly. “Farmland value is just as much attitude and emotion as it is about data,” Wilkinson remarked. The survey found that since 2016 there has been some optimism. Attitude fell in 2020 due to the pandemic, but it tended to rise in 2021 due to growth and government support. Optimism is decreasing due to higher input costs, government policies, and the looming effects of Covid.

However, most farmers think the ag economy will be stable to higher after 2020. In five years, most farmers think farmland values will be higher.

Regarding long-term value expectations, the thought is that non-farm investor demand and inflation will drive this.

Farm rental saw an increase due to higher income. Although farm income is forecast to be down from 2021, 2022 could still be a very profitable year and cash rents are forecast to continue to increase. Wilkinson said the strength in the farm income in 2021 will drive the 2022 cash rent and 50 percent of farmers thought there would be an increase in cash rent and 50 percent thought it would remain stable, which generally means that the rental market will be stronger.

What are the effects of the Russia-Ukraine war on agriculture? Wilkinson pointed out that 70 percent of Ukraine land is devoted to farming and Ukraine ranks first in the production of sunflower seed, sixth in corn and barley, seventh in rapeseed, and ninth in wheat and soybeans. In global exports this year, Ukraine is predicted to account for 19 percent of rapeseed, 18 percent of barley, 16 percent of corn, and 12 percent of wheat.

The United States is dependent on imported fertilizers:

• Nitrogen, 12 percent imported: Trinidad and Tobago (65 percent), Canada (30 percent), Venezuela (3 percent), other (2 percent)
• Phosphate, 9 percent imported: Peru (85 percent), Morocco 15 percent)
• Potash, 93 percent imported: Canada (83 percent), Russia (6 percent), Belarus (6 percent). other (5 percent)

What to watch in the coming months…

• Commodity prices, 2021 peak in May/June. What will happen this year?
• Interest rates and inflation. How hard will the Fed push rates?
• Sales volume. It was way up for the third and fourth quarters in 2021. Will there be more and can the market strength hold?

In response to a question on drought, Wilkinson said that the market will be paying attention to the growing conditions in the United States and South America; a drought will make the market more volatile. Regarding CRP (Conservation Reserve Program) contracts, Wilkinson said that a significant acreage is expected to come out of CRP and not renew. “The trend is away from CRP,” he said.

Regarding a question on cash-rent, Wilkinson said the rate varies greatly. He said that many farmers made more than the cash rent they paid in 2021, due t good yields, high commodity prices and low input costs. Wilkinson added that while the forecast for 2022 is that income may  be lower than 2021, it should still be a profitable year.