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Serving: IL

Illinois farmland jumps 20% in first half of year

Mike Wilson University of Illinois ag economist Gary Schnitkey
UNKNOWN: “The unknown of what’s ahead is definitely playing a role,” says farmland realtor Luke Worrell, shown here in the background as University of Illinois ag economist Gary Schnitkey presents land survey results at the Farm Progress Show. “We see that because a lot of people want to sell and close before the end of the year.”
Inflation and high grain prices fuel one of the biggest land value surges in 50 years.

Illinois farmland owners saw a whopping 20% increase in the value of their asset in the first half of 2021. This is only the fourth time there has been that degree of positive change in land values since 1970, according to a new survey by the Illinois Society of Professional Farm Managers and Rural Appraisers.

“Every year is interesting, but this one may be more so than usual,” says Luke Worrell of Worrell Land Services, Jacksonville, Ill. “These are remarkable findings.”

Worrell and University of Illinois ag economist Gary Schnitkey presented the results of the survey at the 2021 Farm Progress Show. The survey was conducted in mid-August among ISPFMRA members and others associated with farmland sales and valuations.

Cash rent higher

According to those surveyed, Illinois cash rents for 2022 are expected to increase as much as 11% compared to 2021 values. High-productivity land is expected to move from $315 to $350 per acre, with values on good-productivity land moving from $279 to $299 per acre. Average land will rise from $226 to $249 per acre and fair land will move from $188 to $210, on average.

The survey showed more interest in flexible land leases. This lease sets a base cash rent and then offers additional payment — or none at all — to landowners based on a combination of yield and price, so both parties share risk and rewards. The average supplemental rent on a flex rent lease is $29 per acre, based on the survey.

“We see an uptick in flex leases,” Worrell says. “There are a large number of ways to handle flex income, and we see them continue to grow in popularity.”

Trending higher

Those surveyed expect 2022 grain prices to be higher than 2014-19 averages, but lower than 2021 averages.

Of those surveyed, over three-quarters expect land to continue increasing in value, but at a more moderate rate. A third expect land prices to increase more than 3%, while 45% expect prices to increase zero to 3% and 22% expect land prices to remain the same through December.

Nearly half of those surveyed expect inflation will rise up to 1%, while the other half expect inflation to be stable.

As for the 20% jump? Even Worrell sounded surprised as he made the announcement. “We’re continuing to chase this thing upward, is what these numbers are telling us,” he says.

Other gleanings from the survey:

  • Nearly a third of those participating said they have had more interest in organic practices. This trend continues to pick up interest.
  • Just over half those surveyed expect no change in interest rates through 2021; some 26% expect rate increases by ½ percentage point, and another 14% expect interest rates to increase over 1 percentage point.
  • Those surveyed were asked for expectations on 2022 crop sales prices. The average figures came to $4.86 per bushel for corn and $12.52 per bushel for soybeans.
  • Members were asked to guess what conditions would be like in five years. Most expect rising but not explosively higher interest rates; modestly higher cash rents and land values; and moderate to low increases in inflation.
  • While some 37% of those surveyed still use traditional cash rent and 22% use share rent, nearly 1 in 5 parties now use some kind of variable (flex) cash rent lease. Another 16% use a modified share rent lease. Those surveyed said they expect a 58% increase in the use of flex leases in 2022; some 8% said the increase would be “significant.”

Uncertainty could spur sales

So, what spurred the 20% jump in values? Mainly high cash grain prices and historically low interest rates. And now, with land prices strengthening, tangible assets are worth more as collateral.

“It’s not one factor but a combination of several that is driving prices,” Worrell says.

With strong land prices combined with uncertainty over future tax policy, Worrell suggests the upcoming farmland sale season could be very active.

“There’s a lot of absentee owners in the state of Illinois, and I think they are thinking now more than ever about selling,” he says. “There was a healthy pent-up demand across Illinois. There is some concern [about unknown tax change policies]. The unknown of what’s ahead is definitely playing a role. We see that because a lot of people want to sell and close before the end of the year.

“The second half of the year is going to be wild,” he concludes. “The next several months will tell a lot as we enter the typical land sales season.”

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