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Illinois Land Values have Positive Outlook

“Despite the tumultuous year that 2020 was due to the Covid-19 epidemic, farmland values in our Benchmark program have been resilient and overall highly stable,” said Andrew Weidner, certified real estate appraiser with Compeer Financial and guest speaker during The Chicago Farmers’ April 12 webinar. Compeer is a sponsor of The Chicago Farmers.

He said that Compeer has approximately 4.6 million acres of farmland linked to its benchmark program. The properties include 19 farms in Illinois, 10 in Minnesota, and nine in Wisconsin, all of which are appraised on an annual basis.

Weidner, who is based in Compeer’s Sycamore office and covers northeastern Illinois, said that the last three-year value trend for the farmland in the benchmark program shows less than a five percent value change during that period. In noting the trend, Weidner shared the following:

  • A quality cropland, +1.2 percent
  • B quality cropland, -2.3 percent
  • C quality cropland, +4.1 percent
  • Recreational land, +11.8 percent

Weidner said that recreational land typically tracks more in-line with the general economy as opposed to agricultural tracts, and the upward trend seems to be associated with buyers applying discretionary dollars to other areas in place of trips or other family-oriented things they would have done, had pandemic restrictions not been in place.

In discussing cropland quality, Weidner noted the importance of the soil’s productivity index (PI). For example, Class A land has excellent productivity and ranges between 133 and 147 PI. “In Northern Illinois, it is typical for A quality cropland to produce 185 bushels of corn per acre or more,” said Weidner. “The land has tremendous yield potential. We are very fortunate to live where we live because Illinois has a lot of highly productive soils. There is a high correlation between the price paid for land and its soil class and productivity.”

Class B, with a PI range of 117-132, has the potential to produce 150-185 bushels per acre, and Class C, with a PI range of 100-116, typically produces 120-150 bushels per acre, Weidner said.

The rates of return, measured as a capitalization rate, on the benchmark farms show:

  • Class A averaged 2.07 percent with a range of 1.92 to 2.23 percent
  • Class B averaged 2.25 percent with a range of 2.16 to 2.73 percent
  • Class C averaged 2.50 percent with a range of 2.13 to 3.30 percent

In calculating this return, Weidner said that Compeer assumes that the property is professionally managed and that expense, along with insurance and general maintenance expenses, is included in the figuring.

Weidner also discussed the cash rent market. He noted that soil productivity, drainage, land access (e.g., good road frontage), topography, and field size are taken into consideration when setting prices. For the 2020 year, cash rent in Illinois for cropland A averaged $309 per acre, with a range of $255 per acre to $345 per acre; cropland B averaged $283 per acre, with a range of $230 per acre to $328 per acre; and cropland C averaged $248 per acre, with a range of $215 to $282 per acre.

In Wisconsin, the average cash rent was $211 per acre, with a wide range of $100 to $300 per acre.  Similarly, in Central Minnesota the average cash rent was $213 per acre, with a range of $195 to $230; Southern Minnesota reflected those rates, averaging $235 per acre with a range of $215 to $250 per acre.

Generally speaking, Covid-19 had no effect on land values.  This can be partially attributed to the fact that the Midwest was already late into the heaviest sale season when restrictions began to be put into place in March, observed Weidner.

He did note that the auction format shifted dramatically to online auctions during Covid. Weidner referenced a comparison for the number of online auctions relative to “in-person” auctions throughout the year.  Generally speaking, it appeared that there was a slight premium paid for those auctions in an in-person format as opposed to the online format.  “I think that much of the differences in prices have to do with people’s familiarity and agility with technology,” remarked Weidner.

Regarding the future, Weidner said that many individual investors and investment groups have been reinvesting their stock market gains in farms and he believes that trend will continue. Operators also are in a better position now regarding liquidity and cash flow as a result of the continuation of emergency government funds due to Covid-19. Additionally, the Federal Reserve remains committed to keeping interest rates low. “We are beginning to see a surge in land values across Illinois,” Weidner said.

Weidner drew comparisons of recent farm sales in the DeKalb County market that indicated similar and significant changes in value from late 2020 to early 2021.  “Land values have responded in dramatic fashion given the increase in corn and soybean prices over the past six months.” Weidner said.  In some locations, recent land sales are being recorded at levels not exhibited since 2014.  The optimism surrounding agriculture right now is widespread with 2021 poised to be one of the most profitable in years for both operators and landowners.

Weidner spoke on green energy and related that Facebook intends to build an $810 million data center in DeKalb and recently purchased 502.14 acres.  The company touted the site for its accessibility to green energy due to its proximity to a wide swath of wind turbine farms operating in the area, its location to the interstate, and the potential workforce from Northern Illinois University.

In discussing wind turbines, Weidner said that initial leases for the wind turbines are typically 25 years in length, with the intention to extend the lease beyond the 25 years. He said there is often an increase in the operational fee that either tracks inflation or has a set percentage increase over the term of the lease.  Lease payments are often paid annually. He added that the newer turbines have higher contract leases because they are more productive and up to date.

In discussing green energy, Weidner spoke of a proposed 5,000-acre solar farm in Lee County, Illinois that will provide electricity for 116,000 farms and produce 600 megawatts. In contrast, a single wind turbine produces approximately 1.5 megawatts, Weidner said. “Interest in solar energy is steadily increasing, but currently there is limited information on it,” he added.

Weidner encouraged webinar attendees who are looking at farmland to contact Compeer’s financial offices to take advantage of its Farmland Finder program, which is free. He said it offers helpful information about farms such as the overall quality of the parcel including the soil’s productivity rating, topography maps, regional cash rent information, and even groups the 10 farmland sales closest to the property in question.

In response to a question from a webinar audience member, Weidner said the benchmark data were completed as of July 1, 2020, and new data will be completed this July. He said it is widely expected that there will be an increase in land values across Illinois for the benchmark farms.

This piece, written by Denise Faris, was published with permission from The Chicago Farmers.

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