By TIM ALEXANDER
Illinois Correspondent

COLUMBIA CITY, Ind. — Farmland sales in Corn Belt states and beyond are setting records for high prices during recent real estate auctions, a trend confirmed by new studies from the USDA and Purdue University.

R.D. Schrader, president of Schrader Real Estate & Auction Co., Inc. in Indiana, agreed they are peaking in Indiana, Illinois and other corn- and soybean-producing states. “Farmland values continue to be very strong. There are a lot of examples that would indicate values here in the Midwest could be up as much as 20 percent over the last year,” he said.

“There is currently a lot of demand, a lot of pressure for farmland. Farmers are aggressively buying, as are investors.”

Schrader indicated strong Asian demand for American soybeans, corn and other crops has helped fuel strong commodity prices, in turn increasing demand for farmland.

“Without a doubt, the worldwide demand for high-quality foodstuffs is benefiting (land prices). The pressure from the ethanol industry is helping our commodity markets, and there is a pretty close correlation between the corn and bean markets and the land market,” said Schrader.

His comments are supported by a recent USDA report indicating Illinois farmland prices have risen by 18 percent, along with Purdue’s 2011 Farmland Value Survey, which shows a 24 percent increase in the price of farmland in the Hoosier State over the past year.

University of Illinois agricultural economist and farm management specialist Gary Schnitkey said the 2011 increase in Illinois farmland values continues a string of large increases that began years ago.

“Since 2004, Illinois farmland prices have increased by 222 percent,” Schnitkey stated in an Aug. 18 UoI news release. “The last seven-year period in which land prices increased an equivalent amount was from 1975 through 1981. During this period, Illinois farmland increased from $846 per acre to $2,188 per acre in 1981.”

The price of Illinois farmland averaged $5,800 per acre in 2011, up from $4,900 last year, according to the USDA.

The 2011 Purdue Farmland Value Survey revealed Indiana increases in farmland values ranged from 22.8-25.3 percent because of strong grain prices, strong farmland demand, low interest rates and a limited supply of farmland on the market.

“With high crop demand and prices, the outlook for agriculture is very optimistic relative to other industries,” commented Craig Dobbins, Purdue extension agricultural economist, in an Aug. 19 university news release. “As long as those strong grain profit margins continue, farmland values are likely to increase.”
Schnitkey said 2011 farm prices are $221 above the capitalized per-acre value of farmland. The last time farmland prices exceeded capitalized value by such a margin was in the early 1980s, immediately prior to a steep decline in prices for Illinois farmland in the early to mid-1980s. “Currently, the situation in 2011 is not like the 1980s,” Schnitkey said. “This suggests that either farmland returns have to decrease or interest rates have to increase before farmland prices fall.”

Cash rent prices are lagging behind the increase in farmland prices, but are still on the rise, both studies show. The average cash rent in Illinois was $183 per acre in 2011, an increase of 8 percent over 2010.

Cash rents increased 13-14 percent in Indiana over the same period, according to the Purdue study.

“(Cash rents) are driven by the same factors as the farmland value increases,” noted Dobbins.

“But because lease arrangements are made up to 12 to 16 months prior to harvest, it is difficult for landlords and tenants to determine an appropriate cash rent.”

Farmland values are on the rise in other states as well, as recent auction results prove.

Schrader recently auctioned approximately 850 acres of farmland near Omaha, Neb., for $5.97 million.

Tillable land from the Sarpy County property brought prices ranging from $3,500-$14,700 per acre, while lower-end tracts sold for less.
“The demand was strong across the board, reflecting the continued strength in prices of agricultural land,” stated Schrader.

“On the 380 acres that were comparable to similar tillable land in Nebraska, the price was almost $5,800 per acre, which is extraordinary by historical standards.”

Bidders paid well over $11,000 per acre for tillable land in Mason County, Ill., during a late-June auction conducted by Murray Wise Associates. Several tracts of land were sold to three bidders for $4.46 million, according to Joe Bubon, executive vice president of Murray Wise.

“These prices may raise a few eyebrows, but I think they are opening some eyes, too. Farmers and perceptive investors recognize the impact of today’s strong global demand for corn and soybeans,” Bubon said following the auction, which attracted more than 50 registered bidders.

Murray Wise will have several more chances to gauge the demand for farmland this summer, with auctions scheduled for 565 acres in Woodford County, Ill., on Aug. 31, 2,040 acres in LaSalle, Marshall and McLean counties on Sept. 6, 386 acres in Jasper and Newton counties, Ind., on Sept. 6, 480 acres in Texas County, Mo., on Sept. 20 and 2,054 acres in Henry County, Ill., on Sept. 21.
Bubon said the farmland auction landscape is now largely populated by local farmers who wish to add to their holdings.

“To be sure, we continue to see growth in demand by portfolio managers for investment funds, but those who know the land the best – local farmers – see the value better than anyone,” he explained.

“Someone who is already farming in the area can often farm the land without buying new equipment, so at today’s commodity prices, it can be immensely profitable.”