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Land value gains show farmer optimism

Jeff Caldwell 03/21/2012 @ 3:26pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

Farmers buying land in Illinois see the current trend of profitability continuing at least the next year or so, at least based on the current trend in that state, according to the results of the survey of farm managers and farm real estate brokers around the state.

The range for the highest-end farm land in Illinois is between $10,000 and $13,000/acre, according to information released by the Illinois Society of Professional farm Managers and Rural Appraisers Wednesday. It shows Illinois land climbed in value between 20% and 21% across the board, a rate over 3 times the previous annual increase in land values over the last 4 decades, and almost twice the 12% climb during the run-up in values between 2005 and 2011, according to University of Illinois Extension ag economist Gary Schnitkey.

“Prices of excellent productivity farmland was estimated at $8,690 per acre price on January 1 and $10,460 per acre price on December 31st, an increase of 20% during the year. Good quality farmland price was estimated at $7,490 at the beginning of the year and $8,980 at the end of the year, an increase of 20%," Schnitkey says. "Average farmland’s price was $6,080 per acre at the beginning of 2010 and $7,330 at the end of year, an increase of 21%. Fair productivity farmland’s price was $4,880 at the beginning of the year and $5,900 at the end of the year, indicating a price increase of 21%.”

What's more important than the actual amount of the land value increase in Illinois, says Soy Capital Ag services farm manager and real estate broker Don McCabe, who led this year's land values study, is the main implication of that increase. It shows that state's land-buying farmers haven't just seen prosperity in recent years, but generally expect it to continue.

“A good part of this tremendous move in Illinois crop land values is based on increasing farm income returns, and expectations of strong income into the future,” McCabe says.

On top of the land values themselves, land rents are also shooting higher. One key finding in this area: More than 2/3 of leased land is held in a crop share, variable cash rent or other type of agreement in which the farmer and landowner share the profits and risk. Only 32% of the state's rented land is in a traditional cash rent arrangement, the study found.

"For excellent quality farmland, rents increased $60 per acre from $319 per acre in 2011 to $379 per acre in 2012," Schnitkey says. "Increases were $60 per acre for good quality farmland, $50 per acre for average quality farmland, and $35 per acre for fair quality farmland."

Adds McCabe: "Rents drive the rate of return in relation to land values; land prices do not trigger or cause rental returns."

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