BLOOMINGTON, Ill. — Farmland prices in Illinois continued their upward ascent during 2012 and are expected to continue to rise into the foreseeable future, according to an organization of farm managers and rural appraisers.

The 2013 Illinois Land Values and Lease Trends Report was released at the Illinois Society of Professional Farm Managers and Rural Appraisers Land Values Conference and reflects the results of a survey conducted by the group’s members in each of the state’s 10 crop reporting districts.

“The price of excellent productivity farmland was estimated at $10,510 per acre price on Jan. 1, 2012, and $12,670 per acre price on Dec. 31, 2012, an increase of 21 percent during the year,” said Dale Aupperle, president of the Heartland Ag Group in Forsyth and general chairman annual report,

Farmland rated excellent has a productivity index of 133 to 147.

“It’s the third year of double-digit increases that, according to our members, totaled 65 percent over the last three years. Hang on to your hat, so it doesn’t blow off,” Aupperle said.

“The excellent category of farmland has been everyone’s favorite. “Good quality farmland price was estimated at $8,980 at the beginning of the year and $10,500 at the end of the year, an increase of 17 percent.

“Average farmland price was $7,560 per acre at the beginning of year and $8,770 at the end of year, an increase of 16 percent. Fair productivity price was $5,980 at the beginning of the year and $6,980 at the end of the year, indicating a price increase of 17 percent.”

Farmland rated good has a productivity index of 117 to 132, average farmland is between 100 and 116 and land rated fair is less than 100.

“The excellent category is the favorite, but the good, average and fair are right behind it. There was real strong market activity in the good land,” Aupperle said.

“Those who conducted the survey noted the (average farmland) buyers are likely to be the neighbors in the local community. Fair farmland is a popular category that attracts residential, recreational and non-farm use.”

For the recreational land, Aupperle said, “the poor economy limited discretionary income and kind of kept the lid on prices — that’s not agricultural money buying that land, and the poor economy kept the lid on that.”

“We think recreational land went up 5 percent maybe. It was hard to measure. It was all over the board,” he said.

Prices for transitional land — tracts that are well located and have good potential for development uses within a few years for commercial or residential purposes — remained flat in 2012.

“It was pretty flat. If you think about it, you come to Decatur and farmland is selling at $13,000 an acre, how are you going to mark that up by 2X or 3X to sell building lots on it to people who don’t have any money,” Aupperle said.

“There was limited activity. Also in a lot of regions of the state, farmland value and transitional land value are about the same, and that’s never happened in my career.”

The statewide per acre mid-range averages for farmland sales by category were: excellent, $11,400; good, $9,200; average, $6,700; fair, $5,400; recreational, $3,575; and transitional, $11,000.

“This isn’t year-end. Year-end 2012 farmland values surged another 10 percent on average. The averages are going to be 10 percent higher if you want a year-end price,” Aupperle said.

He said farmland currently is an attractive investment, “when you look at the combined return to farmland at 10.77 percent and the return to the stock market of 6.4 percent over 40 years, alternate investments don’t have a chance compared to agriculture land.”

“Other combinations are going to be important to fit into a more annual pattern. Weather and yields, commodity prices, whether or not we have good crop insurance are just some things that our members are watching and will be drivers when farmland values change from what they’re doing now,” he said.

The report also included a survey to determine the outlook of ISPFMRA members.

“Most survey respondents expect farmland prices to increase in 2013,” said Gary Schnitkey, University of Illinois farm management specialists and ISPFMRA secretary-treasurer.

Forty-seven percent of respondents expect farmland prices to increase, with 11 percent expecting prices to rise more than 5 percent and 36 percent expecting prices to rise between 1 percent and 5 percent. Of the respondents, 23 percent expect farmland prices to remain the same, while 9 percent expect farmland prices to decline.

“However, price increase expectations are more cautious for 2013 as compared to similar responses last year for 2012,” Schnitkey said.

“When asked last year, over 63 percent of respondents expected prices to increase for the coming year. This year, only 47 percent expect price to rise in the coming year.”

“As a society, we’re positive on farmland, but I think most of us would like to return to the underlying 5 or 6 or 7 percent per year annual increase rather than having 21 and 31 percent and the 65 percent over three years,” Aupperle added.

ISPFMRA representatives conducting the surveys also commented on other findings in their respective locations. Aupperle noted the following observations from across Illinois:

* Mother Nature slashed corn and soybean yields in 2012, which resulted in skyrocketing grain prices — $7 to $8 per bushel corn and $15 to $18 soybeans were significant and offset much of the yield drop;

* Farmland truly is what it earns. Net farm income across Illinois was stable to increasing this past year due to higher commodity prices and the payouts from crop insurance programs;

* The drought resulted in some of the largest corn and soybean yield reductions members had ever witnessed. On an average, corn yields were down nearly 50 percent and soybeans were reduced by one-third;

* Crop insurance products were available to all producers and until this year were viewed as an expensive way to manage your risk — not anymore! The overall revenue protection it provided Illinois farms and landowners was amazing. Many net farm incomes were stable to rising in spite of the drought;

* On most Illinois farms drainage was critically important. Farmers took advantage of their profits and expanded their farm drainage through an amazing amount of tiling systems. Millions of feet of tile have gone in across Illinois;

* Interest rates on operating loans and farm mortgages are at the lowest ebb in anyone’s memory. Savings that resulted from “cheap money” allow interested landowners to bid more for farmland and farm operators to pay more for cash rent. Agricultural participants worry that our next move in interest rates is higher;

* An auction is an exercise in price discovery. There has been a sharp increase in the number of auction sales as farmland values continue to rise. Those auction results are instant knowledge to a wide variety of participants and observers in the land market;

* The threat of higher capital gains taxes caused a surge in the volume of land being offered for sale at year-end. Most sellers wanted to avoid the additional tax and rushed to close their transactions prior to year-end;

* Most participants in Illinois agriculture view our government’s deficit spending as a formula for significant future inflation. Farmland is a hedge against that possibility, attracting widespread buyers to Illinois farmland;

* Illinois is experiencing an energy boom. Farmland owners across the state are becoming sensitive to the prospect of coal, oil and natural gas under their properties, which drives the value of the property and income from it;

* An uncertain environment for wind energy had caused many projects to be placed on hold through 2012. There was a flurry of activity at the end of the year, when legislation extended the tax benefits to the wind energy participants for one year;

* Rising farmland values are putting significant pressure on the estate tax exemption and are a major concern of landowners across the entire state; and

* There is little need for price-supporting programs in this environment, and the farming community is not focused on the safety net at this time. There is a general understanding that conservation funding also will be limited by funds available.

Other points noted in the survey include:

* Estate sales accounted for 58 percent of the volume of land on the market. The next category was retiring farmers;

* Farmers accounted for 72 percent of the purchases made in 2012 as they reinvested into their businesses. Individual investors were the next largest group; and

* Forty-four percent of the transactions were sold by public auction, 13 percent by multi-parcel auction and 35 percent privately.