While tough economic times have affected most markets, including housing, farmland has risen in value, particularly in Illinois and other Midwestern states. Economic recovery in 2011 has been slow and many experts fear another dip in the economy and perhaps another recession. With little to put their money in, investors have seen opportunity to make gains, or at least limit losses, by putting their money into farmland. This has led to appreciable price gains in many important markets. In Illinois, for example, farmland prices per acre were up 18% year-over-year in September 2011, while this number climbed to 23% in October. There were rises in value in Indiana, Wisconsin, and Michigan as well, while Iowa had a 31% year-over-year increase in farmland value in October.

Gary Schnitkey, an agricultural economist and farm management specialist at the University of Illinois, said that farmland prices are 2.2 times what they were in 2004. The trend of falling interest rates has something to do with it. Schnitkey has also attempted to determine whether farmland prices are rising too much by using capitalized value analysis. This is the average cash rent, divided by the interest rate; future returns in value are also factored in. If these returns are high, then capitalized value increases; this trend is also supported by low interest rates.

From a historical perspective, according to Schnitkey, a similar trend occurred in the early 1980s, after which Illinois farmland prices declined for several years. Assets such as farmland are considered safe by many investors, and are perceived as favorable during times of economic instability. Experts suggest that if the economic outlook turns more stable, farmland prices may rise at a slower rate.

It is not only the state of the economy that is impacting the prices of farmland. The costs of corn and soybean have some effect, as well as the technology used to produce these crops. Economist David Oppedahl cited the fact that farmers can produce more than twice as many bushels of corn per acre than they could in the 1970s. This also makes farmland more valuable. On the worldwide market, the American dollar has weakened compared to other currencies, increasing the demand for farm products grown in the United States.

The local business climate in many farmland communities is contributing as well. Local farmers sometimes bid against each other for the same land, so many factors come together to make the situation perfect for prices to continue to rise. With many local farm economies doing well in rural areas, Oppedahl also suggests that other types of economic growth, at least on the local level, may follow. The economic success of farmland is not immune to downward trends, however. China is a growing market and imports many U.S. farm products. If its economic growth slows in combination with other geopolitical events around the world, then land values could fall. That all depends on whether the demand for products being exported by the U.S. drops, making their production less profitable. With various factors in play, even experts are unsure whether the persistent rise in farmland prices in Illinois and other states will continue, or if the trend will moderate or even reverse in the future.

Sources:

University of Illinois (http://web.extension.illinois.edu/bdo/news/news26092.html)

 Quad City Times (http://qctimes.com/news/local/farmland-values-in-iowa-illinois-skyrocket/article_fbd83fe2-2484-11e1-8115-0019bb2963f4.html)