Stable Land Prices – Maybe, but How Long
The University of Illinois had a recent October article on how land prices for Illinois had held steady from January 1, 2008 to January 1, 2009. Prices for both years were slightly more than $4,500 per acre. This contrasts with prior year increases.
Between 2003 and 2008, the average price per acre grew by $2,120 or about an 87% increase. According to a surver of professional farm managers and rural appraisers in the state, prices for all of 2009 are still expected to remain steady primarily due to the expectations of cash land rents not dropping this year or next year.
These stable cash rents indicate an average of about $170 per acre in cash rents. Just in the last three years, this average has gone up by about $38 per acre or a 29% increase. These high cash rents may be leading to a net return to a farmer of almost zero based on a fully costed operation. These returns compare to over a $50 per acre return in 2007 and 2008, which were considerable above average.
These low returns suggest that cash rents should drop, however, there is usually a year or two delay in this drop. If the net return remains low for 2010, then we should expect that cash rents for 2011 and resulting land prices may drop and this drop may be dramatic.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.