MWA: Murray Wise Associates

Illinois Land Market Continues to Show Resilience

Prices for high quality Illinois land are generally holding firm, even rising in some areas of the state, while farm income has been going down.  This may seem counter-intuitive.  The more cash a property is generating from operations, the more someone should be willing to pay for it.  Conversely, the less cash a property generates from operations, the less someone should be willing to pay for it.  However, the pinch on operating income has not had a drastic effect on the value of high quality farmland.

Why is this?

First of all, many of the farmland buyers that we see have become frustrated with the lack of good investment options available to them.  They can put their money in the bank and get essentially zero return.  They can put their money in the stock market, which seems increasingly pricey and risky to many.  Or they can put their money in farmland which produces a stable and predictable (if not flashy) cash return along with the potential for appreciation.

Secondly, the cost to borrow money remains very low even though we have seen a modest uptick in interest rates recently.  Many buyers today are cash buyers but those who need a little financing are able to do so at still attractive rates.

Lastly, despite lower commodity prices, there are still farmers buying land because they have been able to effectively navigate the commodity downturn and are eager to add to their operations because of their long term belief in the future of Agriculture.

Given the strong demand from farmer and investor buyers we expect values for high quality land in Illinois to remain strong.

Lower quality, less productive farmland will likely continue to remain soft as we do not see the same demand for those types of properties in Illinois.