I recently attended the Chicago Farmer’s Farmland Investment Fair in Joliet, IL. It is an event that I look forward to every year because it gives me a chance to visit with other professionals in my line of work and to chat about what they are seeing in the areas they work in. Throughout the day, many small-group sessions are offered that cover a wide range of topics, from wind and solar energy and eminent domain issues to land values and lease issues. I sat in on a very interesting land vales session hosted by Ed Wiesbrook & Todd Sclock of 1st Farm Credit Services. For the most part, they confirmed what most people already know…that farmland prices have risen a great deal recently. 1st FCS has numerous benchmark farms around the state they they appraise every year so they can keep tabs on where the farmland market is throughout the state and look at year to year (and longer) trends. According to their research, their Class A benchmark farms have more than doubled in value since 1999 and their Class B farms have more than tripled in value in the same time period. In many of their benchmark farms across all classes they saw a 20 – 30% jump in prices since late 2010.
As I said, not a huge surprise. If you have followed agriculture at all the last 12+ months, I am sure you have read about at least one record-breaking land sale in your area. If not, you probably will soon. However, the intriguing part of Ed and Todd’s presentation to me was where they discussed where they see the market headed. I was pleased to see that they shared many of the same thoughts that we shared in our recent Land Facts market update. What we spoke about in the market update, and what was also talked about by Ed and Todd, is that the main item to keep an eye on in 2012 will be the crop yields. The farmland market has been fueled by multiple factors, but none bigger than commodities prices. It makes sense that the more money that farmers make from their crop, the more aggressive they can be in bidding for more acres and the higher the land prices rise. However, if we were to see a bumper crop and there is an overproduction of corn (and/or soybeans), the prices for those crops will drop due to basic supply and demand. That will eventually affect the land market because there will be less dollars available to farmers to spend on farms. Right now there are still a lot of buyers sitting on a lot of cash waiting for a farm to become available in their area. And from what Ed & Todd spoke of, Farm Credit typically requires a 40% down payment (either in cash or existing equity) and many buyers are putting down more than that. For that reason, I think the short-term prospects for the land market remains strong. As far as long-term, I think we will need to see how the crop yields develop before speculating more.
Tags: farmland, Farmland Real Estate, land market, land value, projection
