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Farm prices across region still booming from development
By Angela Shultis

   Despite tough times in other real estate arenas, farmland prices across Southern Illinois and the nation are still high, leading some to wonder how long such inflated prices can hold strong.

   According to the University of Illinois Extension, farmland prices have increased by an astounding 78 percent between 2003 and 2007, rising on average $1,900 per acre.

   Driving the prices to record heights are a number of factors, not the least of which is an increased interest in ethanol production. According to Wayne Barber, principal of Swansea-based BARBERMurphy Group, ethanol "has generated an increased demand for corn and other grain products," meaning that more land has been devoted for that purpose and higher yields mean higher land prices."

   Buyafarm.com broker Wayne Keller, based in Sparta, concurs, pointing to high commodity prices - driven in large part by an interest in ethanol - as a major factor in pushing farmland prices skyward. In addition to the steady climb over the past few years, he said, "we've seen a drastic increase since Christmas." According to Keller's figures, acreage in Central Illinois is sitting at about $5,500 to $6,000 per acre, while in Southern Illinois, the market is seeing an average of around $3,400 per acre. The University of Illinois Extension puts the average acre of Illinois farmland at about $4,330 per acre.

   Residential development, too, has played its part in the farmland price increases, where residential developers "can and do pay more for agricultural ground than what farmers can pay for that same ground," Barber said. "That's helped to spike the prices, but by the same token residential development has recently fallen off, therefore residential development ground [sales] have leveled off," he added.

   Still, Keller said, he expects that recently reduced interest rates are continuing to keep prices steady.

   "The development part has eased off a little bit, but people buying recreational property has not," said Keller, adding that recreational use is another primary reason folks are snapping up farmland in the region. "The recreational market is strong," Keller said. "We're seeing a lot of people from Georgia, South Carolina, Louisiana and Florida looking for hunting properties."

   Barber said such purchases have been on the rise especially in Southern Illinois, in more hilly, timber areas where there previously had not been a demand for those types of properties.

   From an investment perspective, the attitude toward farmland has changed drastically along with the prices in recent years. According to Tim Guthrie, vice president of investments at Stifel, Nicolaus & Co. in Belleville, "There's been such a change in attitude that farmland is such a valuable asset to actually own. Farmland is now looked upon and priced almost as if it were a stock or bond."

   Which, while good for those trying to sell property, gives Guthrie pause from a financial standpoint.

   "[Farmland] is not the best asset to do those quick turns with," he said. "If somebody buys individual stocks and for whatever reason needs to sell, you can sell within seconds to get rid of it, and if it's too low you can sit on it for a month or so, sell it when it goes back up and recoup most of your expenses. Farmland, on the other hand, is such a hard asset that it can change; if it dries up and the value goes down, you can wait years to get back to where you want to be."

   So will farmland prices continue to climb, or is the picture due to change? The slowdown in residential development will certainly have an impact, says Barber, and the rush to ethanol has likewise cooled in recent months.

   "There have been some [ethanol-related] projects that have slowed down, been put on a shelf, some have been cancelled," Barber said, but that doesn't mean that prices will necessarily drop. "I think it's going to have more of a stabilizing effect than a continuing spiral of the prices."

   Keller takes a cautious approach to predicting what's next for farmland prices.

   "We're in uncharted waters," he said. "There are so many factors we've never seen. We could kind of follow trends before." Keller is reminded, too, of a similar situation that took place in the 1970s and 1980s when farmland prices grew artificially high and then crashed, leaving lots of property owners financially devastated - a situation Guthrie also alludes to.

   "In the 70s and 80s, land prices drove up and people paid some really high prices," said Guthrie. "Then the ag industry went into a slow period and that's what pushed a lot of bank foreclosures."

   According to Guthrie, what are currently driving high farmland prices, from the farmers' perspective, are historically high crop revenues.

   "But they'll also tell you," he adds, "that eventually every balloon that goes up really quickly will eventually come down."