During 2022, we witnessed prime farmland selling in excess of $20,000 per acre, and this trend persisted throughout the balance of 2022 and extended into 2023. Though the rate of appreciation was not as dramatic as observed during the period between July 2021 and July 2022, the increase in value remains substantial.
Following is a brief snapshot of those benchmark changes from the 2022 to 2023 update.
Northern/Western Illinois Illinois farmland is classified under a universally accepted soil survey system that breaks land down into quality classifications based on productivity indexes. While values and yields for each cropland type tend to vary by location, the relative productivity does not.
The chart below illustrates changes by cropland type for the northern and western Illinois benchmarks. Values across A, B and C farm types increased an average of +11.2%. One of 19 benchmarks was unchanged, seven were up less than 10%, six were up 10-20%, and five benchmarks were up in excess of 20%.
New economic drivers are emerging that will forever change the landscape of agriculture and the value of farmland.
Location and yield will always be important, but changes in crop and animal genetics, climate shifts and new technologies are escalating in importance. Subtle and decades in the making, these market movers will create opportunities and challenges for both buyers and sellers of farmland.
North Dakota’s Joe Morken has been watching land prices in the Red River Valley increase for more than 25 years. The third generation to farm in the Casselton area, Morken says a shift out of wheat and into corn has been pivotal for his family’s nonirrigated operation.
“You can’t understate the value of genetics when it comes to corn production here,” he says. “Back in the 1980s, if you could break 100 bushels to the acre on corn, that was really doing something. Today’s earlier-maturing genetics allow us to double that some years. Add to that the growth we’ve seen in the ethanol industries in this region, and we have good reason to keep planting corn. It’s changed the focus of our business model.”
Those opportunities haven’t come without challenges. Morken says extreme volatility in fertilizer prices has been especially tough to adapt to as a corn producer. Last year, he booked urea at $1,000 per ton; this year, he’s looking at $400 to $500 per ton. The other challenge is labor. Morken says hiring drivers to keep trucks and grain carts running for combines in a tight harvest window is a major hurdle. But, the area’s increased productivity and cropping options have positively impacted land values in the region, he believes.
“In the Red River Valley, it’s not just corn that pays the bills, it’s soybeans, and it’s sugar beets,” he notes. All of which has drawn more interest to this land market.
This year, the state’s annual report on rental rates showed a wide range for nonirrigated cropland, from as low as $29.20 per acre to up to $150.50 per acre. In Cass County, where Morken farms, average rents were reported at $120 per acre. The USDA’s annual “Land Values” report, released in August, put North Dakota cropland at an average price of $2,660 per acre, marking a 13.2% increase over 2022.
“Land prices have increased substantially,” Morken explains. “In my opinion, strong profits in 2022 are one of the key reasons. Beans, corn … all commodity prices have been up. So, there is more money out there. And, on the eastern side of the Dakotas, we see a strong investor side to the market pushing prices even higher. They come out of the cities, buy land and don’t even farm it.”
The U.S. Department of Agriculture Deputy Secretary Xochitl Torres Small today announced an investment of $27.9 million across 45 organizations that teach and train beginning farmers and ranchers, including programs for U.S. veterans who are entering into agricultural careers and starting new farming businesses.
“The next generation of farmers and ranchers hold the promise for future American agriculture and rural prosperity,” said USDA Deputy Secretary Xochitl Torres Small. “Under the Biden-Harris Administration, USDA is providing our newest producers with the support they need to succeed and the educational resources to guide their operations on the path toward long-term sustainability and profitability.”
This investment is part of the National Institute of Food and Agriculture’s (NIFA) Beginning Farmer and Rancher Development Program (BFRDP), which supports a wide range of professional development activities and topics, such as managing capital, acquiring and managing land, and learning effective business and farming practices.
“This investment reflects USDA’s commitment to helping new farmers and ranchers realize their dreams,” said USDA Chief Scientist and Under Secretary for Research, Education an Economics Dr. Chavonda Jacobs-Young. “As the average age of our U.S. producers continues to increase, USDA is accelerating efforts to provide meaningful support to a rising cadre of farmers and ranchers-including military veterans interested in starting new careers after their service-so they can cultivate the skills needed to be productive, profitable and resilient.”
According to USDA National Agricultural Statistics Service’s Ag Census data, one-third of the United States’ 3.4 million farmers are over the age of 65.
U.S. producers tour a retail outlet in Cartagena, Colombia, during the U.S. Meat Export Federationââ ¬â„¢s Latin American Product Showcase in July. Photo courtesy Mark Read
Midwest farmers are popping up in Panama, Egypt, Colombia and South Korea more often these days.
Grain and livestock farmers frequently travel with national organizations and state commodity groups to explore export opportunities and to tout the value of U.S. commodities.
Mark Read, a central Illinois corn and soybean farmer, says his time has been well spent on trade missions representing the U.S. Soybean Export Council and Illinois Soybean Association.
“We need exports other than to China,” he said.
Since 60% of Illinois soybeans are exported, if something goes wrong with the main trading partner, there need to be other strong markets for soybeans, he said.
Read was in Egypt this year when the Soy Excellence Center celebrated its 100th workforce training session there. In this case, the training helped Fish World workers cut costs in feeding tilapia by 25%. And at the University of Cairo, students celebrated getting their SEC certificates in poultry production.
The long-anticipated farm bill extension may be in sight. On Saturday, House Speaker Mike Johnson, R-La., introduced a continuing budget resolution to avoid a Nov. 17 government shutdown. The legislation includes a provision to extend the 2018 Farm Bill for one year.
Shortly after the legislation was announced, Senate Agriculture Committee Leaders Debbie Stabenow, D- Mich., and John Boozman, R- Ark., issued a joint statement with House Ag Committee Leaders Glenn “GT” Thompson, R- Pa., and David Scott, D- Ga., praising the decision.
“As negotiations on funding the government progress, we were able to come together to avoid a lapse in funding for critical agricultural programs and provide certainty to producers,” the Nov. 12 joint statement says. “This extension is in no way a substitute for passing a 5-year farm bill and we remain committed to working together to get it done next year.”
Recent crop budget and return projections for the 2023 and 2024 crop years show the potential for much lower, and potentially negative, returns to corn and soybeans across Illinois.
Lower corn and soybean prices in 2023 and 2024 lead to lower returns than in 2020 to 2022, despite some declines in fertilizer costs. Production costs remain high, such that break-even prices are near $5 per bushel for corn and $12 per bushel for soybeans for 2024, assuming trend yields.
Reducing land costs, specifically rental rates, often is needed during periods of lower returns. Fixed cash rent leases, where the farmer pays the landowner a fixed rental rate, can be difficult to re-negotiate to lower levels. Traditional share rent leases provide natural risk sharing between the farmer tenant and landlord but require more intensive management by the landlord and more coordination between both parties.
The variable cash lease has been suggested as a sort of middle-ground approach that provides risk-sharing benefits while also minimizing the management requirements for the landlord.
Graphic courtesy University of Illinois farmdoc daily
Today’s article provides a historical comparison of the fixed cash, variable cash and share lease designs.
The variable cash lease adjusts to fluctuating revenue levels, however, the traditional share lease is more highly correlated with returns since it incorporates both revenues and direct costs in rental determination.
Projections for the 2023 and 2024 crop years are for negative farmer returns under both fixed and variable cash leases, but modest positive farmer returns under a traditional 50/50 share agreement.
