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Illinois Land Values and Market Drivers

Date: 
Author: 
David Dinderman
Educational Opportunities: 
Articles
Interests: 
Grain, Appraisal
Home > Education & Events > April 2019 > Illinois Land Values and Market Drivers
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Highs, Lows and Status Quos – A look at Illinois land values and market drivers

Much like the weather this winter and spring, the Illinois land market has been erratic with brief glimpses of normalcy. Some sales that have set the highs, lows and midpoints of the range with the optics of 20/20 hindsight but with less conformity than was present in the past.

Status QuoThe 2019 Illinois Land Values and Lease Trends, published by the Illinois Society of Professional Farm Managers and Rural Appraisers, indicates Excellent and Good tracts in Northern Illinois compared to the previous year:

Region #1 - Excellent: Down 3% and Good: Down 1%.
Region #2 - Down 0-5% for both Excellent and Good classes while the median value of all land was up slightly from $8501/acre to $8532/acre.
Region #3 – Excellent: Up 3% and Good: Down 3%,
Region #4 – “Similar” year to year for Excellent and Good tracts, alike.

Given the large geographic/market areas, difficult farm economies and numerous professionals that compiled this data; on the surface sales appear to be fairly status quo as compared to last year. Despite the challenges that faced farmers for the prior year, value indications seem very resilient. However, these broad indications do not tell the entire story.

LowsLow values in general are harder to measure. Farms that sell toward the bottom end of the range are often a combination of a weak market area, soils with low Productivity Indexes (PI), or ease of farming issues such as a low percentage of tillable acres or drainage concerns. Historically, these issues are detrimental sales price.
 
The difference with the current market for these types of farms is the extent of discounts. Take for instance the comparison of two auction sales in Stephenson County. These auctions occurred about ten days apart and within six miles of each other. One of the sales was a 139 acre tract that had good soils and good ease of farming. This farm sold for $9,578/acre or almost $80/PI. The other sale was 113 acres “cut-up” by waterways into four tillable fields with two small patches of woods and a creek that divides the farm diagonally. This farm only brought $,5110/acre or about $56/PI, a differential of nearly 43% on a dollars/PI basis.
 
Even harder to quantify are “No Sales.” No sales generally occur when a property is offered for sale at auction and the high bid does not meet seller expectations. Since September we have noted seven no sales. This is more than prior years. Perhaps seller expectations were unrealistic in the current market or there are fewer capable buyers in the market. In some cases the farms still end up being sold, but usually less than sellers anticipated.

Highs. Despite all of the hurdles facing agriculture and the land market, Central and Western Illinois sales generated some of the highest prices in the state. Warren, Woodford, McLean and McDonough had 27 sales, with roughly 2700 acres exceeding $12,000/acre.  Sixteen of these farms sold for $13,000/acre or more. What is driving this market? In 2016, 2017 and 2018 this region produced record corn yields.  Another factor heavily influencing high prices were investor buyers who set the tone early in the sales season.
 
Numerous areas of Northern Illinois still have “micro-markets” or pockets of very strong buyers and demand. While we may not be seeing high prices equal to those in 2013, many of the very best farms are still selling in the $10,000 to $12,000/acre range.

Overall, the land market in northern Illinois has been a mixed bag of results, with indications at both ends of the spectrum and many sales that appear to be the status quo. Two main factors seem to be pronounced in driving the direction of values:  Location and ease of farming.

In terms of location, it used to be what part of the county the farm was in, proximity to urban sprawl and linkage to grain terminals. Recently, “location” seems to be shorthand for whether or not your immediate neighbors are motivated and positioned to buy the property.

The role that ease of farming plays in the market is also significantly more evident. Buyers are very discerning when it comes to which tracts and what price they are willing to pay. In some cases, ease of farming is more of a predictor of price than PI. As equipment has gotten larger, smaller fields with numerous waterways or impediments have gone out of favor and prices followed.

A lot of farmers seem to be constantly dreaming and thinking about obtaining more acres. The thing to keep in mind is how changing interest rates, yields, commodity prices and cash rents all impact the value of the land they own or are considering purchasing.
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