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Print

How high will land prices go?

January 05, 2012 at 01:53 PM

The State Journal-Register

An early test of 2012 farmland prices could come with an auction Jan. 16 of nearly 1,700 acres of farm and recreational land about 40 miles north of Springfield.

The Mason City sale also is unusual in size, given the demand for farmland, said University of Illinois Extension educator Matt Montgomery.

“It’s not often that much land comes up for sale at once,” said Montgomery. The 1,682 acres from the Dr. Henry Maxfield Trust are to be sold in 14 tracts.

Farmland prices, which have been mostly rising for more than two decades, set another record in 2011 at an average of $5,800 an acre in Illinois, according to U.S. Department of Agriculture figures. Forecasters ranging from the University of Illinois to the Federal Reserve Bank of Chicago say the trend probably will continue this year, though not at the same rapid pace.

“Some have been real eye-popping, in the five digits,” said Montgomery. “We’ve seen $10,000, $12,000 and $14,000 an acre.”

A bubble in 2012?

University of Illinois farm economist Gary Schnitkey said he thinks farmland price increases will moderate along with commodity prices this year. While there has been speculation in the industry about a 1980s-style price bubble, Schnitkey said there are important differences in the latest run-up for farmland.

“In the 1980s, when prices declined, you had high interest rates and high inflation,” said Schnitkey. “Interest rates are expected to remain low, and low levels tend to support land prices.”

Both the Federal Reserves in Chicago and Kansas City also forecast continued land-price increases in reports released in November.

A Federal Reserve survey of bankers in the regions found 40 percent expect farmland prices to continue to rise through the first half of 2012, while only 2 percent expect falling prices. The rest thought prices would remain about the same.

Creating a buzz

Mason-Menard County Farm Bureau director Dee Dee Gellerman said farmers in the region are well aware of the upcoming sale, which is scheduled for 5:30 p.m. Monday, Jan. 16 at the American Legion Hall, 110 W. Court St. in Mason City.

“It’s one of our larger sales in a while,” said Gellerman,

She said it is difficult to gauge interest in a particular sale, but the recent increase in farmland prices has been unprecedented in her two decades with the Farm Bureau.

“It’ll be interesting to see how many show up and what it goes for,” said Gellerman.

Springfield auctioneer Luke Lee Gaule said the Mason County tracts represent his single largest sale of farmland during more than 50 years in the business.

Gaule also said it is difficult to tell where the upward spiral in farmland prices might end.

“I sold one farm last November (near New Berlin) for $9,300 an acre, and we thought that was a pretty good price,” said Gaule. “Today, that same farm ground might bring $12,000 to $14,000. Nobody knows what these things are going to do.”

***

Illinois farmland price trends since 1990 (average price per acre)

* 1990:  $1,405

* 1995: $1,820

* 2000: $2,260

* 2005: $3,210

* 2010: $4,820

* 2011: $5,800

Source: U.S. Department of Agriculture/University of Illinois Extension

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