Illinois Land Value and Land Rent Trends Gary Schnitkey University of Illinois

Topics Current farmland prices Current farm returns Rent and price projections Uncertainty in the future

Illinois Land Values and Cash Rents 2006: $3,640 2014: $7,700 2015: $7,650 2016: $7,450

Illinois Farmland Values 2017 Illinois Farmland Values & Lease Trends Understanding Our Farmland Categories Using the Productivity Index from the University of Illinois (Bulletin 811). Excellent Productivity – 147 to 133 Good Productivity – 132 to 117 Average Productivity – 116 to 100 Fair Productivity – Less than 100 Recreational Tracts Transitional Tracts

2016 Excellent Quality Farmland Mid Range Land Value Comments Region 1 $10,500 Higher supply of land south of Illinois River led to more decrease there. Some new 1031 exchange money in the market supporting values. Region 2 $11,500 Farmers still the main land buyers. Tight supply. 9 sales still over $12,000/acre. Region 3 $11,000 Low volume with sellers resisting lower prices. Location has become much more important to high sales prices. Region 4 $10,750 Wider range of prices than 2015. Bare, square, high percentage tillable bringing a premium. Low volume. Region 5 $10,325 Prices down 5-8%. Same notes as Region 4 on volume and price for premium tracts. Especially strong in Champaign & Douglas Counties. Region 6 $10,525 Down 8-9%. Larger disparity between low priced tracts and high priced sales (Over $4,100/ac). Location important. Region 7 $12,200 This region sustained the high quality land values better than any other region. Evidenced by 888 ac. Auction -March ‘17 Region 8 -- Region 9 $10,250 Region 10 $10,880 (average)

2016 Good Quality Farmland Region 1 $8,200 Region 2 $8,000 Region 3 Mid Range Land Value Comments Region 1 $8,200 Prices down ~7%, most found in Will County area. Prices higher in the south and west side of this Region. Region 2 $8,000 Median sales price down 11%. Mostly farmer buyers but investors were picking up opportunities. Wide price range. Region 3 $8,250 Less liquidity than the highest quality farmland. Field shape & percent tillable really influenced price negatively. Region 4 $8,750 Higher volume than 2015. Prices declined early and leveled out later. Region 5 $7,950 Sought out by investors and farmers when “excellent” land seemed not available. Price down~11%. Volume -20%. Region 6 $9,425 Better quality “good farms” sold in 2016 vs 2015. Longer marketing timeframe to move most tracts. Region 7 $8,755 Several option or easement payments being “1031’ed” into farmland purchases by local landowners. Region 8 $10,700 “The best soils” in this region. This average actually rose likely as compared to 2015. Region 9 $8,800 Very similar price to 2015. Region 10 Similar price average to 2015-or a little higher. Wide range in price per acre.

AgLetter Chicago FED, May 2017

Source: 2016 Farmland Value Survey Iowa State University, December 2016

Net Farm Incomes on Grain Farms

Why 2016 Income Higher? Good corn soybean yields Relatively good soybean prices Reductions in non-land costs 2015 ARC payments received in 2016 Inventory gain: Corn: $3.60 end-of-year 2015 inventory price, $3.65 old crop price Soybeans: $8.60 end-of-year 2015 inventory price, $9.40 old crop price

Financially What Is Happening Strong financial farms at the end of 2012 Since 2012, many farms are eroding working capital Grain inventories and prepaid expense down Operating loan balances up Most farm have strong equity and solvency Some farms have difficulty showing positive cash flow

Components of Current Assets ($ per acre)

Operating Notes ($ per acre)

Debt-to-Asset Ratio

Market Year Average Prices and Forecasts ----------------------- Period --------------------- 75-05 06-13 14 15 16P 17P Corn ($/bu.) 2.33 4.70 3.70 3.61 3.40 Soybeans ($/bu.) 5.95 10.91 10.10 8.95 9.55 9.30 Wheat ($/bu.) 3.25 6.25 5.99 4.89 3.90 4.25 Projection for 2016 and 2017 are WASDE projections, Fall 2017 bids (east-central Illinois, June 2): $3.65 corn $8.96 soybeans Long run projection have 94.5 million acre planted of corn in 2016, down to 90 in 2017

November 2017, CME Soybean Prices

2016 15 billion production = 86.8 million x 174.4 bu/acre 2016 4.2 billion production = 83.0 million x 51.4 bu/acre

Monthly Corn Prices, U.S.

Gross Revenue, Corn, Central Illinois, High Productivity 2015 2016 2017 Crop revenue (200 bu. x $3.77) $754 Crop revenue (228 bu. x $3.54) $807 Crop revenue (200 bu. X $3.70) $740 ARC 45 20 15 Crop insurance 31 5 Gross revenue $830 $832 $6740 Yields up in 2016 but prices are lower

Corn, Revenue and Costs, Central Illinois, Low-Productivity

Gross Revenue, Soybeans, Central Illinois, High Productivity 2015 2016 2017 Crop revenue (66 bu. x $9.08) $599 Crop revenue (69 bu. x $9.85) $680 Crop revenue (61 bu. x $9.00) $549 ARC 45 20 15 Crop insurance 7 4 Gross revenue $651 $6704 $564 Yields and prices are higher in 2016

Soybeans, Revenue and Costs, Central Illinois – Low-Productivity

Central Illinois, High-Productivity, 2017

Operator and Land Return and Cash Rents, Central Illinois, High-Productivity Farmland Average Cash Rent ISPFMRA Cash Rent

Cash Rents, Illinois

Cash Rent by County, 2016 Released by USDA, September 9, 2016 2016 cash rents Average cash rents for each county

Average Rents and Corn Yields, Illinois Trend Corn Yield Average Cash Rent 140 $167 160 $178 180 $230 200 $281

Average and Professionally Managed Farmland, Illinois

2018 Operator and Land Returns Estimates

10-year Treasury Note Yields Nov 7, 2016: 1.83% Dec 1, 2016: 2.45%

Land Values Price have risen because of Increasing returns Lower interest rate 𝐂𝐚𝐩𝐢𝐭𝐚𝐥𝐢𝐳𝐞𝐝 𝐕𝐚𝐥𝐮𝐞= 𝐂𝐚𝐬𝐡 𝐑𝐞𝐧𝐭 𝟏𝟎−𝐲𝐞𝐚𝐫 𝐓𝐫𝐞𝐚𝐬𝐮𝐫𝐲 𝐫𝐚𝐭𝐞

Illinois Farmland Price and Land Values

Uncertainties in the Future

Electric Cars

Work to grow hamburger in a Petri dish inside a laboratory

http://www. worldometers http://www.worldometers.info/population/china-eu-usa-japan-comparison/

Long-term Challenges Electric cars Change in diet away from meat Exports to China and other income-growth countries

Summary Stable to eroding land prices Cash rents into 2018 Stable if $3.70 corn/$9.30 corn Decreasing if mid to low $3.00 Uncertainty on demand