Farmland prices

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The vast majority of those attending the University of Illinois farmland market webinar Oct. 28 said they expect farmland prices to increase again in the next year.

That expectation of higher prices comes after Illinois saw a dramatic 20% increase in farmland values in the first half of this year.

Of those answering the survey during the webinar, 60% said they expected an increase of up to 5% in the next year. Another 33% said they expect the price increase to be more than 5%.

“Ninety-three percent of you think farmland will rise in the next year,” said University of Illinois ag economist Gary Schnitkey.

That consensus followed fellow university ag economist Bruce Sherrick’s analysis of factors affecting farmland markets.

Amid “massive signs of inflations,” Sherrick said there is lively debate in the media and among financial experts about whether inflation will be “transitory” or “permanent” following the pandemic.

“We really don’t know. I can’t answer that,” Sherrick said to a question from the audience.

The inflation blip comes in what is called the “shortage economy” — at a time of supply disruptions.

The longer farmland is owned, the stronger the protection against inflation, Sherrick said.

“As an inflation hedge, farmland is a good idea and good for diversity investments,” he said.

Sherrick’s data, the Illinois Society of Professional Farm Managers and Rural Appraisers mid-year results and survey responses from the webinar showed farmland prices have gone up between 10 and 20% in most of the state over the last year.

“The poll results reflect what is happening,” Sherrick said.

The number of transactions is also up over the last six to eight months, he said. Potential tax changes brought some people to the market, he said. Investors looking for value also increased transactions.

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From 2013 to 2021, interest rates have been lower than what can be earned from owning farmland, Sherrick said.

Clearly the last 18 months have been unprecedented during the pandemic with massive support from the federal government, continued low interest rates and dramatic changes in consumer habits, Sherrick said.

But looking back a decade, there are some trends. Between 1990 and 2020, farmland returns in 32 agricultural states have averaged 8.6%.

In Illinois it has been 9.2% and Iowa 10.6% percent, making it a good investment. It is above the S&P 500, which averages 7.62% on an annual basis, but the stock market does better in the long range, he said.

For the Corn Belt, the one-year average annual return is 9.66% and the 20-year is 8.75%, he said

“That’s an absolutely remarkable, remarkable return,” Sherrick said.

The upcoming Farm Bill will also impact farmland prices. Issues concerning water and the environment will be factors, he said.

With the current administration’s emphasis on environmental issues, carbon will continue to get attention. Large companies that pledge to become “carbon neutral” will look to agriculture to buy carbon credits.

If you want to reduce carbon, the only place to store it is in the soil, Sherrick said.

“Agriculture becomes part of the solution instead of part of the problems,” he said

There are still many questions about how that will work — if farmers will be paid incentives and offered opportunities from companies while being required to do certain practices.

How carbon credits will be dealt with in terms of cash rent is another factor to be determined, he said.

As for the longer term, of the farmland webinar attendees more than half said they believe land values will increase by between 10-25% over the next five years. More than a third expect the increase to be between 0-10% over five years.

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