By TIM ALEXANDER
Illinois Correspondent PEORIA, Ill. — An annual survey of Illinois farm real estate values revealed that though the state’s housing and real estate markets may be in jeopardy, the value of farm property continues to grow.
The results of the study, which were announced during the annual meeting of the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA), came as a surprise to virtually no one, said member Norm Bjorling, AFM, of Soy Capital Ag Services in Peoria.
“We’ve seen the rise in land prices coming for the past few years as corn and soybean prices go higher,” said Bjorling, adding that as the biofuel and ethanol boom goes, so will go the farm real estate market in coming years.
“Corn prices are a lot higher due to the ethanol market, as we all know, and bean prices responded to decreased acreage last year.
“Farmland is going to go up in value when farm income goes up, and it certainly went up last year. What ethanol did to the corn market and the reduction of bean acres planted was one of the most interesting factors, to me.”
Bjorling cited a reduction in 1,031 land-exchange transactions as an interesting side effect of the buoyant farm real estate market.
“The survey confirmed for me that 1,031 buyers are not as prevalent in the market as they used to be. The farmers are more aggressive in buying land than previously,” he said.
“And, we’re seeing more of the outside-investor-types in there now. The mix of buyers in the report confirmed what we thought we saw in the market.”
Farmland in DeKalb County sold for $8,200 per acre last June, while 80 acres sold in McDonough County in November 2007 fetched $7,200. Farmland with excellent productivity increased by more than 60 percent in value in some areas of the state, the survey showed.
In the report, ISPFMRA listed several factors influencing the surge, which began in 2000 and has increased steadily each year since.
They include:
•Farmers vs. investors: 1,031 buyers fewer; farm buyers greater (49 percent of farm sales in 2007 were to farmers buying nearby or adjacent land), more investors.
•High yields/high prices: 2007 production was good to outstanding corn and soybean yields. Combined with record grain prices, there is great optimism and lots of dollars to spend in the farming community.
•Globalization: As world population diet improves, more grain is needed.
•Supply/demand: Aging landowners offer a steady supply of land. Strong demand for excellent tracts has shifted demand into “good” and “average” categories. Sources of demand are shifting, but still strong.
•Farmland returns: Income up sharply. Input costs following, but at a slower pace. Real estate taxes beginning to move up for first time in several years.
•Interest rates: Long-term interest rates steady to slightly softer.
•Alternative investments: Current stock and bond markets with the sub-prime mortgage problems have investors thinking about their investment portfolio. Huge dollars into commodity funds and the idea that farms are energy producers, not food producers, are bringing a lot of new investment money into the marketplace.
Farmland now viewed as attractive, safe investment and a hedge against looming inflation.
The survey’s results seem to beg the question of investors: Would you rather have your money in a sub-prime mortgage with a hedge fund at weekly interest rate auctions of 30-year bonds that was stripped out to a CDO (collateralized debt obligation), or in 160 acres of prime Illinois farmland?
Bjorling was predictably coy when asked how long investors could expect farmland values to increase.
“I can’t tell you what the price of corn will be in three years,” he said with a laugh, “but my personal feeling is that we’re not done on this ride yet. We’ve got some more room to go.”
This farm news was published in the April 2, 2008 issue of the Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee. |
