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Not Excited About Illinois Land Values...Think Again!

11/27/2015

 
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I've been reading a lot about the hustle and bustle in land values and cash rents, and it has not been good. However, very recently, there have been some changes on Illinois' farmland value outlook. If you'd like to read about one of the biggest land deals in Illinois history, as well as some of the fundamentals and trends in Illinois farmland, stay tuned.
Farmland Partners (NYSE: FPI), an agricultural real estate investment trust company, recently purchased 22,300 acres of farmland for $197 million (about $8,850 per acre). This, in addition to their existing portfolio, brings them to nearly 100,000 acres under management. Surprisingly, most of this was acquired in the past 3 years and with FPI now holding the title of largest landowner in Illinois, this is a good sign.

The folks they bought the land from were likely focusing on their current return on investment, which slumped to about 2.25% compared to 3.75% traditionally. Most of this slide was caused by low prices, and the unexpected likelihood of another run up in prices like we saw in 2012. And I'm sure you know the old saying, "Buy em' when they're cryin' and sell em' when they're yellin".

According the Illinois Society of Professional Farm Managers and Rural Appraisers, 2/3 of land buyers are local farmers and 1/2 of the sellers are doing so to settle their estates. That basically means the value is still staying in the community. And we think it's important to also note that, compared to 2013, there are 10% less sellers selling because they "received a good price".
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The chart above comes from the same Illinois Society of Farm Mangers and Rural Appraisers report I referenced above. Here we see land values from 2001 till the most recent 2014 data. I think it's important for everyone to see the human element of these prices, that element being fear. Fear that price will have a very difficult time reaching 2012 levels again. Fear of imposing foreign export markets. Fear of losing soil quality. All these things come to fruition when the money element goes south, clearing a path for the smart money to swoop in and grab it up.

Fortunately for farmers, y'all are known for your patience and calm temperaments. I say fortunately because in a land values context, this is EXACTLY the time to be patient. Let prices rebound, and let the long term price trends drive your decisions.

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