|
|
|
|
|
|
| Value of Illinois farmland continues its steep climb |
|
|
|
| By TIM ALEXANDER
Illinois Correspondent
URBANA, Ill. — Recently released studies by a University of Illinois (UOI) Extension farm management specialist and the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA) confirm that the value of Illinois’ rich farmland continued its upward climb in 2007.
Extension specialist Dale Lattz issued a report on Aug. 24 citing a 92 percent increase in farmland values since 2000, based on a study including the value of all land and buildings.
“The average farm real estate value for Illinois in 2007 was $4,330 per acre, the highest on record. The figure was 13.9 percent higher than the 2006 average of $3,800 per acre,” Lattz reported. “The current strength in farmland values seems to be driven by higher corn and soybean prices and the expectation that these prices will remain high due to strong demand.”
Based on figures from the USDA’s National Agricultural Statistics Service, the 2007 increase marked the third consecutive year of double-digit increases, Lattz noted. In 2005 Illinois farmland values increased by 27.6 percent and gained another 14.1 percent in 2006.
“The 2007 increase was the third highest since 1979. Farm real-estate values have shown a year-over-year increase every year since 1988, or 20 consecutive years,” Lattz said, adding that farmland values have averaged an increase of 18.5 percent each year since 2004.
In addition to Lattz’ report, the ISPFMRA released their study on Illinois farmland values during the Farm Progress Show in Decatur on Aug. 29. Their study found Illinois’ farmland values increased by 5.9 percent in the first half of 2007. Bob Swires told reporters that most buyers of farmland are farmers with plenty of cash, and that the softer housing markets in Chicago and St. Louis have cooled land exchanges, the Illinois Soybean Assoc. reported.
The survey, done in conjunction with UOI, polled ISPFMRA members and found that northern Illinois farmland values averaged $9,900 for excellent-quality farmland. Similar farmland in central Illinois averaged $5,000-$6,000 per acre.
Eleven factors were found to have driven the continued rise in farm real estate in Illinois, including:
•Ethanol
•Commodity prices
•Farmer interest
•Tax-free exchange (1031)
•Supply and demand
•Size and quality
•Technology
•Competing interest
•Absentee ownership
•Inflation threat
•Auction sales
Only 36 percent of land parcels sold involved 1031 exchanges in 2007, according to ISPFMRA members. The figure was down significantly from 2005’s mid-year survey, when 56 percent of farmland transactions involved 1031 land exchanges.
“Our theory on farmland value is based on future earnings potential. Some say, ‘Land is worth what it can earn,’ and that can come in two forms - through cash returns or value appreciation,” said David Klein, vice president and managing real estate broker with Soy Capital Ag Services.
“When interest rates started to decrease and urban expansion rates picked up speed, several 1031 exchanges - a method of deferring the capital gains tax on the sale of an asset by finding a like-kind replacement - started to occur. So, residential expansion was an initial driver. As interest rates have risen slightly, we’ve seen residential expansion slow. Yet, commercial development continues.
“As a result, the 1031 like-kind exchange continues to be a factor in the base strength of farmland values. In 2006 and 2007, the improvement in cash returns through higher commodity prices bolstered farmers’ interest in adding to their land holdings – and their confidence that future earnings could be very profitable. Outside cash investors have noticed this as well. The result has been a very balanced mix of buyers for farmland during the first half of 2007.”
A similar surge in farmland values occurred in the 1970s, only to crash within 10 years. Experts claim investors are not headed down the same road.
“One of the main differences between the 1970s and the 2000s is the
source of financial ownership. A good percentage of the farmland purchased in the 1970s was purchased by farmers that had borrowed the money at high interest rates, and the inflationary theory of higher land values,” Klein said.
“When values stopped rising and farmer financial statements became unbalanced the market began to see forced land sales to improve cash flow. The majority of the sales during the past seven years have been purchased with cash or a low percentage of financing.
“As a result, if the ag economy becomes soft, the owners of land won’t be forced to sell by their banker. That fact should allow the market to keep from being over-supplied with forced sales. The current financial health of farmland owners and improved cash returns should allow the land market to remain strong.”
Lattz’ report is online at www.farmdoc.uiuc.edu/manage/newsletters/fefo07_14/fefo07_14.html |
| 9/5/2007 |
|
|
