Farmland Prices:
What Happened in 2018
By Mason Spurgeon, Certified General Real Estate Appraiser
Two Brown County, Illinois Farm Appraisals, Two Years Apart
At the end of December 2018, I completed two farm appraisals on properties in Brown County, Illinois, that I had appraised previously in 2016. One of the farm properties was over 80% tillable while the other property was more of a recreational tract, less than 40% open. After completing the appraisal reports, I looked back to see how much the appraised values had changed. The differences in value were shocking. The farms had only declined in value between 2.6% and 3% over the past two years. This is not a large decline in land value and could be attributed to any of three factors.
Brown County, Illinois
Same Farms, Two Years Apart
Two farms appraised in 2016, then again at the end of December 2018.
Change in appraised value, 2016 to 2018
−2.6% to −3%
Not a large decline in land value over two years.
Farm 1
80%+
tillable
Farm 2
<40%
open, more of a recreational tract
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Three Factors Behind the Change in Farmland Values
1. Difference in Comparable Sales Data
I have always said that a farm appraisal is only as good as the farm sales data used, and this could have been the case for the small decline. As farm appraisers we do our best to estimate the value of a farm property using the best market sales we have available from the area. The sales data used in my farm appraisal reports could have been more like the subject in one year and slightly different in the other. This is a matter of opinion and is difficult to quantify. Also, the total number of comparable sales could have been different. There were limited farm sales in late 2015 and early 2016, but more sales in 2018.
2. Commodity Prices
We often hear that commodity prices are falling. However, according to the chart below from macrotrends.net, the price of corn was on the rise in 2018. While the prices are nowhere near the prices of 2011 and 2012, they are currently on an upward tick. The change from 2016 to 2018 was upwards by about 6.5%, but everywhere you turn someone is talking about the falling commodity prices. This may be a good indicator that popular opinion can be contrary to factual data.
3. Interest Rates
Again, we hear about interest rates on the rise. While this is true, they are not jumping to the extremes of the 1980s—but they are still jumping. As you can see from the graph below from macrotrends.net, the 30-year fixed rates have fluctuated over the past five years. In January of 2016 the average rate was 3.79%, and in December of 2018 the average rate was 4.55%. This is an increase of about 20%. While this appears to be a larger change in the interest rates on a percentage basis, it is still much lower than the 10-18% interest that was seen in the 1980s.
Interest Rates
Rising, But Not 1980s High
Average 30‑year fixed mortgage rate.
0%
5%
10%
15%
3.79%
4.55%
10–18%
range
About 20% increase
Jan 2016
Dec 2018
1980s
Source: macrotrends.net, as cited in the article
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
What Happened in 2018?
Three Possible Factors
Why the farms declined only slightly in value.
Comparable Sales Data
A farm appraisal is only as good as the farm sales data used. Limited sales in late 2015 and early 2016; more in 2018.
Hard to quantify
Commodity Prices
Corn price change from 2016 to 2018, on an upward tick despite talk of falling commodity prices.
+6.5%
Interest Rates
Average 30‑year fixed rate, Jan 2016 to Dec 2018: 3.79% to 4.55%, about a 20% increase. Still far below the 1980s.
+20%
Corn and rate figures: macrotrends.net, as cited in the original article.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Farmland Prices in Missouri, Illinois, and Iowa
While I still don’t know the exact reason for the small decrease I noted in my farm appraisals, it is evident that uncertainty in the market is a driving force. Farmers in Missouri, Illinois, and Iowa still appear willing to pay a premium for higher end farm properties, while marginal farms appear to have held steady or declined somewhat in their prices. This is evident from the farm sales that were seen at the end of 2018.
Is the Farmland Market Holding Steady?
In conclusion, I still have not seen the large drop in farmland prices that everyone in the real estate world has been predicting. Sure, there are sales of properties that have sold at the upper end of the market and the lower end of the market, but nothing out of the ordinary. Overall, the market appears to be holding steady and farmland is still a great long-term investment.
Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.
