By Don Dodson The News-Gazette, Champaign-Urbana, Ill.
CHAMPAIGN - The run-up in farmland prices has slowed considerably, and with farmers getting less money for corn and soybeans, area auction companies say they expect the market for land to continue to soften.
Last August, the Illinois Society of Professional Farm Managers and Rural Appraisers reported that farmland prices were rising an average of 1.9 percent to 3 percent.
That was down considerably from 2011 and 2012, when farmland prices increased about 20 percent each year.
Since August, there's been very little change in prices being paid for Illinois farmland, said Gary Schnitkey, a University of Illinois professor who helps compile data for the society.
"Basically, it's been a flat price since the middle of the year, with no trend up or down," he said.
During the past year, the price paid for corn, which rose as high as $8 a bushel, has fallen to the $4 range. Soybean prices, which at one point topped $15 a bushel, have pulled back to the $12 range.
Murray Wise, whose firm Murray Wise Associates conducts auctions across the U.S., said he is "seeing a cooling" in prices paid for farmland in East Central Illinois and elsewhere.
"That's good because we've had an enormous run-up in value. We've had double-digit (percentage) increases in land value six of the last seven years," he said.
"The dramatic drop in corn and soybean prices has to have some softening effect," he said. "Normally, there's a six- to 18-month lag before it has a major effect on land values."
Wise said he expects farmers to see a drop in revenue from crop insurance in 2014.
"Few people realize what impact that might have on farm income," he said.
Wise said he is looking for "at best, steady land prices" paid for top-quality farmland, but some softening in values for lower-quality land.
According to the farm manager society's midyear survey, "excellent-quality" farmland in Illinois - the kind that normally averages 190 bushels of corn per acre - was fetching an average of $13,200 an acre.
"Good-quality" farmland was going for an average of $11,200 an acre; "average-quality" land, for $9,000 an acre; and "fair-quality" land, for $8,300 an acre.
Jim Clingan, president of Jim Clingan Auction & Realty in St. Joseph, said the market has been flat, with no big pullback in prices. Auctions this year have drawn "big crowds, but not that many serious bidders," he said.
But Clingan expects a drop in land prices soon.
"I think that with $4 corn, it's coming. ... You cannot buy $12,000, $13,000, $15,000-(an-acre) farmland and support it with $4 corn. Inputs are just too high, and it won't work," he said.
But Clingan isn't looking for a sustained and precipitous drop in land prices.
"You're not going to see any big down-down trend in farmland prices like in the 1980s," he said.
Agriculture has too many favorable factors for that to happen, he said.
"We've had good yields through this area, and farmers have had two or three really good years of income and profitability. They want to expand, and that has been driving prices higher the last two or three years," he said.
Plus, the debt-to-asset ratio for farmers is low by historical measures, and interest rates are exceedingly low, making it easy for farmers to borrow to expand operations, he said.
Low interest rates paid on deposits makes farmland a more attractive investment for people with a lot of cash, Clingan added.
"People with money are looking for a good place to put it, and you can't beat flat, black farmland," Clingan said.
Joel Hertz, chairman and owner of Hertz Farm Management in Monticello, said $4-a-bushel corn probably won't make much difference to farmers considering more land purchases as long as they have the cash.
"But if it gets down to $3 a bushel, that will make a difference," he said. "What happens is, the owners won't sell at all. There's not going to be as much land on the market."
Hertz said there's already less land on the market now than usual.
Prices in central Illinois are still strong for quality land, Hertz said. But price varies with location and how much money interested buyers in that area have.
"If it's close to something else someone wants, that makes a whale of a difference," he said. "It might get $1,000 an acre more than you might otherwise expect."
The season for farmland sales generally extends from October to February, and the sale that attracted the most attention in East Central Illinois this fall was the Nov. 1 auction of about 960 acres north of Newman in Douglas County.
Jimmy John Liautaud, founder of the Jimmy John's sandwich chain, was the successful bidder, offering $14 million, or about $14,583 an acre. Beck's Hybrids also bid in the auction conducted by the Bloomington-based Loranda Group, according to FarmWeekNow.com.
"It was a higher price than anticipated, but it was good quality farmland and we knew there was a lot of interest from farmers and investors," said John Moss, president of the Loranda Group.
The land had been appraised last summer for 20 percent less than it ultimately sold for, he added.
Moss said he wondered whether the drop in commodity prices would affect the amounts bid, but "it didn't stop them on this piece."
Fifty-two bidders took part in the 90-minute auction, which attracted 300 people. When prices reached about $11.5 million, the action shifted from a series of farmers to the two final bidders who wanted all eight tracts, Moss said.
The sale is expected to close in early December, he said.
Hertz said the farm was attractive for seed corn production, so investors were ostensibly willing to pay a higher price for that.
The great majority of farmland that goes on the market is sold to farmers, and when investors buy, they usually have a tie to the land in some way, Hertz said.
Wise said 73 percent of the farmland sold during the first nine months of 2013 was bought by farmers.
There's interest from outside investors, but "they're having a difficult time buying on the current return" of 2.5 percent, Wise said. "They would like to see a return of 4 to 6 percent."
Clingan said five to seven years ago, when the economy was flourishing and housing and development were strong, people who owned land on the fringes of Chicago and Indianapolis sold it for development and reinvested the money in central Illinois farmland.
"Farmers were having trouble competing with that kind of money," Clingan said.
But now the scramble for land has subsided.
"Housing starts and developments almost dried up the last few years, and that kind of money also dried up," he said.