Farm Business

[rswfarms]

Article on Illinois farmland, but it has some interesting facts/data in regard to cash rents and how and why this farmland is being sold. One fact that I wasn't aware of but found interesting was that Estate sales accounted for 58% of the volume of farmland on the market today. This is probably related that farmland is being passed down to the next generation, but many of these people that are inheriting the farmland are making the decision to sell it, rather than keeping it as an investment. I would imagine that all these people live away from the actual farmland in a big-city and have a big city job, rather than being actual farmers. I bet 90% of these people will use the money generated from the farmland sales to take there lifestyle to the next level meaning buying those 8,000 finished square foot 7 bedroom/6 bathroom houses, along with 2-3 $40,000+ SUV's or fancy cars in the driveway. It does seem that this next generation of farmland owners are more of a "ME" generation than the past generation was. Meaning that they are mainly interested in spending this money today and increasing there lifestyle to the next level, rather than trying to preserve this money to pass to the next generation (there kids). Pretty selfish I believe of this new generation of farmland owners. Also, the average yearly increase of farmland between the years 1970 to 2012 was 7%. A 7% farmland appreciate rate for 42 straight years is a **bleep** good long-term average, and even more so since the 1981 to 1986 Farm Crisis years are also calculated into the data. We should look at the 7% rate as compared to the stock and bond markets over the last 42 years. That would be an interesting piece of data I believe. Article is below:

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Survey: Excellent-quality Illinois Farmland Up 21% in 2012

Mar 14, 2013

A survey of the state's farm managers and appraisers found the value of Illinois farmland again rose by double-digits in 2012 and farmland values are expected to rise in 2013 as well, according to the 2013 Illinois Land Values and Lease Trends Report released today at the Illinois Land Values Conference sponsored by the Illinois Society of Professional Farm Managers and Rural Appraisers.

"The price of excellent productivity farmland was estimated at $10,510 per acre price on Jan. 1, 2012 and $12,670 per acre price on Dec. 31, 2012, an increase of 21% during the year," says Dale Aupperle, AFM, ARA, general chairman for the annual Land Values Report program sponsored by the Society. "Good quality farmland price was estimated at $8,980 at the beginning of the year and $10,500 at the end of the year, an increase of 17%. Average farmland price was $7,560 per acre at the beginning of year and $8,770 at the end of year, an increase of 16%. And Fair productivity price was $5,980 at the beginning of the year and $6,980 at the end of the year, indicating a price increase of 17%."

The survey was done late in 2012 and early in 2013 by members and affiliates of the organization and reflects activity across the state throughout 2012. The data were compiled by Bruce Sherrick, Ph.D. at the University of Illinois and Gary Schnitkey, Ph.D., also with the University’s Colleges of ACES.

"Land price increases in 2012 were comparable to 2011 increases, when all land classes has close to a 20% increase. Increases in 2011 and 2012 were above average. Average yearly increases in land prices averaged 7% across all of Illinois between 1970 and 2012." Schnitkey explains. Yearly increases averaged 12% from 2006 to 2012.

The drivers supporting the higher prices are many, Aupperle states. "Leading the way are prices being paid for corn and soybeans. Mother Nature slashed corn and soybean yields in 2012 which resulted in skyrocketing grain prices. $7.00 to $8.00 per bushel corn and $15.00 to $18.00 per bushel soybeans were significant and offset much of the yield drop," he notes.

"Farmland truly is what it earns! Net farm income across Illinois was stable-to-increasing this past year due to higher commodity prices and the payouts from crop insurance programs," he continues.

No Slowdown In Sight

"Most survey respondents expect farmland prices to increase in 2013," Schnitkey says. Forty-seven percent of respondents expect farmland prices to increase, with 11% expecting prices to rise more than 5% and 36% expecting prices to rise between 1% and 5%. Of the respondents, 23% expect farmland prices to remain the same while 9% expect farmland prices to decline. "However," Schnitkey adds, "price increase expectations are more cautious for 2013 as compared to similar responses last year for 2012. When asked last year, more than 63% of respondents expected prices to increase for the coming year. This year, only 47% expect price to rise in the coming year."

Rents Up, Too

In general, land rental incomes received by landlords were higher in 2012 compared with 2011 figures. "For excellent quality farmland, traditional crop shares had average income of $345 per acre, cash rent had $348 per acre, and custom farming had $490 per acre," Schnitkey explains. Returns from share rent and cash rent leases were near one another in 2012 across all land qualities. Custom farming had the highest returns. He notes that 43% of the leases in 2013 will be share rent leases. Rates for cash rent leases are expected to stay the same for the coming year unless commodity prices decline to significantly low levels. The majority of the lease arrangements are still one year in length

Other points noted in the survey include:

• Estate sales accounted for 58% of the volume of land on the market. The next category was retiring farmers.
• Farmers accounted for 72% of the purchases made in 2012 as they reinvested into their businesses. Individual investors were the next largest group.
• 44% of the transactions were sold by public auction, 13% by multi-parcel auction and 35% privately.