Unlike many other assets whose value have tank this retiring year , farmland price have not fall , accord to a late University of Illinois Farm Economics Facts and Opinions report .
“ presently , farmland price in Illinois are in line with historical relationship suggested by capitalized time value , ” tell Gary Schnitkey , a UI professor of agricultural and consumer economic science and farm - management specialist . “ These capitalize values take into condition hard currency - rent and interest - rate levels . The emanation in commodity prices experienced this summer and fall likely will lead to upward pressure on hard currency rents , thereby lead to even high farmland prices . ”
Schnitkey ’s full written report , gentle “ Farmland Price Outlook : Are Farmland Prices Too High Relative to Returns and Interest Rates ? ” is utter with data point and commentary . In it , Schnitkey key what seemed like a roller coaster of ploughland prices .
“ In the early 1980s , we project a really big declination in the Mary Leontyne Price of farmland , primarily due to low farmland returns and in high spirits interest pace , ” he says . “ But since 1986 , we ’ve check farmland prices steadily increase . They really submit off in 2004 and 2008 , average out 15 percent increases each yr . During that 2004 to 2008 flow , a pot of the growth was due to urban pressures and 1031 [ revenue enhancement - deferred ] substitution . But the last several years , tilth damage , according to the USDA , have been fairly stable . ”
The USDA indicated that damage of Illinois ’ farming area per acre were comparatively static between 2008 and 2010 : $ 4,850 in 2008 , $ 4,670 in 2009 , and $ 4,820 in 2010 .
“ There was a set of concern from 2004 to 2006 , when we were seeing price step-up due to urban move out from Chicago , ” Schnitkey says . “ We thought that when the buying ended , we ’d see a decline in farmland prices . But fortuitously , about the fourth dimension that that boom in urban development terminate , commodity prices increased , and that cause John Cash economic rent to increase and farmland toll have been carry steady . ”
The report states that the last sentence Illinois ’ farmland monetary value decline was during the agrarian financial crisis of the mid-1980s . During this crisis , middling farmland price decreased from $ 2,023 per acre in 1981 to $ 1,149 per acre in 1987 , a declination of 43 percent over a five - year full stop .
From 1987 through 2004 , cultivated land prices averaged a yearly increase of 4.8 per centum per yr . The rapid rise in Mary Leontyne Price between 2004 and 2008 was triggered by demands for converting farmland to housing and other commercial uses .
“ These development demands had a rippling effect , even impacting farmland that had no possibilities of ontogeny , as people who trade farmland for development purchased farmland elsewhere , often using a 1031 exchange planning in the tax code to shelter increase from contiguous taxation , ” Schnitkey says .
He does n’t expect the price of farmland to plunk any prison term soon .
“ If we look at where cash rents are on cultivated land and where pursuit charge per unit are , tilth Leontyne Price in Illinois appear to be reasonable and in bank line with historical kinship , ” he says . “ We would anticipate that if we have stable interest rates , cash rent as percentage of ground prices should rest roughly the same . But involvement pace have turn down and reach historically low levels of late . As an instance , the pastime rates on key treasury notes in 10 years have gone from 14 per centum in 1982 down to below 4 percent latterly . ”
According to Schnitkey , the future looks static . He expects that a 2- to 3 - percent cost increase in land price would be consistent with cash rip gain over the next several years .
“ If I were concerned about land price in the future , interest rate increment would be the factor that would have the largest wallop , ” he sound out . “ Sometime in the future , we ’re likely to see interest pace increases , and that could have a minus impact on realm prices . ”
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