Farmland Interest Rate Volatility
As of last Wednesday, the Federal Reserve (the Central Bank of the United States) has again raised interest rates 75 basis points, or three-quarters of a percentage point.
What first time farmers should know about farm loans
So, you haven’t farmed before but would like to get started? Most folks need a loan to get a new farm operation off the ground. Here are a few things to consider when starting a new farm and taking out a farm loan.
Farm Lenders
An Overview of Farm Lenders
Farm expansion requires capital. If a farmer or investor doesn’t have the capital on hand in the form of cash or equity in other assets (i.e. land), they will likely go to a bank to acquire the necessary funds to grow their business. The question is, what lender is the best to grow your farm?
Hometown Farm Banks
For most farm towns, there is a local bank where farmers can head into town during business hours to set up an appointment with the loan officer to apply for a loan.
Once the farmer has an appointment with the loan officer, they go through the traditional experience of getting a loan: filling out standard paperwork, providing information about their personal and business life, and talking to the loan officer about the intended use of proceeds. Some folks might not feel very comfortable sharing so much information with the banker that they will see at the Friday night football game or at church on Sunday. Others may appreciate the personal relationship with a local banker that comes along with a hometown farm bank.
Commercial Banks
Other lenders that can provide funds for farmers are larger, corporate, commercial banks. They can offer competitive rates for loans, but not all of them provide lending for agriculture related borrowing needs. There are a few commercial banks that specialize in ag lending. They will have remote offices or branches to provide a local presence to farmers. Like a farm bank, larger institutions will have written applications and approval processes to give farmers funds for their growing operations.
Farm Credit Banks
Farm Credit was created in 1916 with the purpose of providing lending for rural communities throughout the U.S. Farm Credit Banks, and their credit associations are cooperatives that lend to customer-owners (borrowers become part owners when they get a loan from a Farm Credit association bank). Farm Credit banks pay patronage dividends back to customer-owners when the banks have had a successful year. Farm Credit banks are regulated by the Farm Credit Administration.
Government Agencies
If working with the local bank or a larger private commercial bank isn’t the right fit for you, another lender for farm needs is Uncle Sam. The U.S. Department of Agriculture and Farm Service Agency (FSA) provide a variety of loan programs for buying land, operating loans, microloans, and down payment assistance.
The government lenders are known for having special assistance programs for first time farmers, minority, women, and Native American farmers.
The FSA offers exceptionally low rates and sometimes lower down payment requirements compared to private lenders, but the application and approval process can be longer to complete. There are very strict criteria to qualify for government loans and the approval and closing process for these loans are known to be longer than a private bank loan. For some, the lower rates and special programs are worth it to work through the loan application and approval process.
Digital Intermediaries
The last of the common types of farm lenders are digital intermediaries. American Farm Financing is a digital intermediary. AFF is not a farm bank or lender and doesn’t actually provide funds to borrowers. Digital intermediaries provide a quick, easy, digital application and approval process that can set borrowers up with multiple lenders that may best suit their needs. Instead of driving into town, a digital intermediary takes the most basic information necessary to get a loan and packages it into a quick online form. A farmer picks out their preferred loan term with the rate that is available Once you hit submit, a decision can be made. Once approved, funds can be accessed within days. You may or may not have a designated loan officer for all digital intermediaries – the goal is to get capital to farmers quickly, rather than spend more time working through your operation.
So, there are plenty of ways to get access to capital to buy farm land or get operating funds. AFF is rapidly providing solutions to simplify and speed up the process for farmers, landowners, and investors alike.
Found the farmland you are interested in purchasing?
Now find your loan partner that will make it a reality. Get approved in seconds with an all digital application from AFF, who will work with you to make sure you get the best rates possible.
See My Rate
Farm Loans in Minnesota
Introduction
Farm sale prices are determined by a number of factors, two of which are the productivity (yield) and the rental income. If a farm is able to produce more bushels of corn or beans compared to the farm down the road from it, it is worth more when it comes time to sell. The same can be said about the rental income from a farm. If your farmer pays you a more competitive rent compared to farms in the area, the farm is worth more in a sale.
Minnesota Average Corn Yield for 2021
| County | State | Year | Commodity | Average Value | |
|---|---|---|---|---|---|
| 1 | Waseca | Minnesota | 2021 | Corn | 213.7 |
| 2 | Watonwan | Minnesota | 2021 | Corn | 210.1 |
| 3 | Freeborn | Minnesota | 2021 | Corn | 208.1 |
| 4 | Steele | Minnesota | 2021 | Corn | 206.2 |
| 5 | Sibley | Minnesota | 2021 | Corn | 203.9 |
| 6 | Nobles | Minnesota | 2021 | Corn | 203.3 |
| 7 | Blue Earth | Minnesota | 2021 | Corn | 201.5 |
| 8 | Martin | Minnesota | 2021 | Corn | 195.3 |
| 9 | Cottonwood | Minnesota | 2021 | Corn | 195 |
| 10 | McLeod | Minnesota | 2021 | Corn | 194.4 |
Minnesota Average Cash Rent for 2021 – $177
Minnesota traditionally has competitive cash rents for non-irrigated tillable row crop farmland in the Midwest. The average cash rent earned throughout the state in 2021 was $177 an acre. Below is a chart of the highest average cash rents by county. 2021 Non-Irrigated Cash Rent County Leaderboards
| State | County | 2020 Avg. Cash Rent | 2021 Avg. Cash Rent | |
|---|---|---|---|---|
| 1 | Minnesota | Sibley | $249 | $250 |
| 2 | Minnesota | Rock | $224 | $249 |
| 3 | Minnesota | Blue Earth | $217 | $238 |
| 4 | Minnesota | Faribault | $223 | $237 |
| 5 | Minnesota | Watonwan | $226 | $235 |
| 6 | Minnesota | Martin | $221 | $232 |
| 7 | Minnesota | Dodge | $210 | $232 |
| 8 | Minnesota | Le Sueur | $221 | $231 |
| 9 | Minnesota | Jackson | $198 | $229 |
| 10 | Minnesota | Mower | $217 | $229 |
When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%) Here is an example of the ROI method: Rent = $750,000/100 acre X 2.5% Rent = $10,000 X 2.5% (0.025) Rent = $250 per acre. What this means: If land has traditionally been under-rented compared to its potential yield productivity (bushels per acre) it can lower the overall value (price per acre) of a farm in the event of a sale. This is why it is crucial to track cash rent and evaluate it compared to the productivity of the farm and track soil testing and nutrient application.
Minnesota Average Soil Productivity (PI) – 66.36 CPI
Minnesota has very productive soil for an array of agricultural purposes. Minnesota is known for its corn, soybean, sugar beets, and wheat production. The Minnesota Crop Productivity Index (CPI) ratings provide a benchmark for different soil types and how well they are suited for row crop production. Soil ratings range from 0 to 100 in Minnesota. Like most soil rating scales, the closer to 100 translates to higher potential productivity for that soil. Here are the top 10 Counties by average soil PI in Minnesota:
| County | State | Crop Productivity Index | |
|---|---|---|---|
| 1 | Nobles | Minnesota | 90 |
| 2 | Chippewa | Minnesota | 89 |
| 3 | Martin | Minnesota | 89 |
| 4 | Traverse | Minnesota | 89 |
| 5 | Cottonwood | Minnesota | 88 |
| 6 | McLean | Minnesota | 88 |
| 7 | Douglas | Minnesota | 88 |
| 8 | Sibley | Minnesota | 88 |
| 9 | Jackson | Minnesota | 87 |
| 10 | Redwood | Minnesota | 87 |
Minnesota Average Farm Sales – 2021 – $8,200.93/acre
As one might suspect, the counties with the highest average yields, cash rent, and soil productivity are typically the highest counties in the state for average sale prices for farmland*. All of these extremely important pieces of data about farmland go hand-in-hand. Minnesota is known for its soil and crop diversity, growing different crops throughout the state to match the appropriate soil types. Land sale values will vary throughout the state to reflect this diversity. The average sale price for the top 10 counties in Minnesota in 2021 was $8,200.93/acre. Below is a chart showing the top 10 counties for average prices of farms for sale in Minnesota in 2021.
| County | Sold Year | Median Price per Acre | Total Acres | |
|---|---|---|---|---|
| 1 | Carver | 2021 | 10,392.16 | 2,401.20 |
| 2 | Scott | 2021 | 9,859.61 | 4,708.70 |
| 3 | Sherburne | 2021 | 8,848.43 | 3,205.90 |
| 4 | Wright | 2021 | 7,951.09 | 6,108.10 |
| 5 | Olmstead | 2021 | 7,754.38 | 10,182.80 |
| 6 | Jackson | 2021 | 7,669.40 | 8,013.50 |
| 7 | Nicollet | 2021 | 7,512.01 | 7,131.60 |
| 8 | Sibley | 2021 | 7,490.18 | 8,852.80 |
| 9 | Faribault | 2021 | 7,488.48 | 10,848.30 |
| 10 | Mower | 2021 | 7,043.60 | 11,938.10 |
*We’ve removed sales of residential and development property to the best of our ability to accurately portray the sale values of farmland throughout the state.
Farm Loans in Minnesota
With all of this data about yield, cash rent, soil, and sale prices, the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?” Farm loans and mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment. If you are ready to purchase your next farm you can explore our farm mortgage rates here and get a decision in 15 minutes without ever having to go to the bank and fill out pages upon pages of paperwork for an approval.
Found the farmland you are interesed in purchasing?
Now find your loan partner that will make it a reality. Get approved in seconds with an all digital application from AFF, who will work with you to make sure you get the best rates possible.
Farm Loans in Michigan
Introduction
Farm sale prices are determined by a number of factors, two of which are the productivity (yield) and the rental income. If a farm is able to produce more bushels of corn or beans compared to the farm down the road from it, it is worth more when it comes time to sell. The same can be said about the rental income from a farm. If your farmer pays you a more competitive rent compared to farms in the area, the farm is worth more in a sale.
Michigan Average Corn Yield for 2021
Michigan has a productive and consistent yield with a statewide average of 164.94 bushels per acre. The average yield for the top 10 counties in Michigan is 192.37 bushels per acre.
| County | State | Year | Commodity | Average Value | |
|---|---|---|---|---|---|
| 1 | Huron | Michigan | 2021 | Corn | 213 |
| 2 | Sanilac | Michigan | 2021 | Corn | 212 |
| 3 | Tuscola | Michigan | 2021 | Corn | 205.3 |
| 4 | Monroe | Michigan | 2021 | Corn | 193.8 |
| 5 | Arenac | Michigan | 2021 | Corn | 187.8 |
| 6 | Bay | Michigan | 2021 | Corn | 187.8 |
| 7 | Lenawee | Michigan | 2021 | Corn | 184.1 |
| 8 | Midland | Michigan | 2021 | Corn | 182 |
| 9 | Hillsdale | Michigan | 2021 | Corn | 179.1 |
| 10 | Barry | Michigan | 2021 | Corn | 178.8 |
Michigan Average Cash Rent for 2021 – $85.93
Michigan has modest values for cash rent averages throughout the Midwest. The average cash rent earned throughout the state in 2021 was $85.93 an acre. Below is a chart of the highest average cash rents by county.
2021 Non-Irrigated Cash Rent County Leaderboards
| State | County | 2021 Avg. Cash Rent | |
|---|---|---|---|
| 1 | Michigan | Huron | $215 |
| 2 | Michigan | Gratiot | $162 |
| 3 | Michigan | Ionia | $162 |
| 4 | Michigan | Tuscola | $159 |
| 5 | Michigan | Monroe | $151 |
| 6 | Michigan | Lenawee | $149 |
| 7 | Michigan | Clinton | $146 |
| 8 | Michigan | Ingham | $136 |
| 9 | Michigan | Bay | $134 |
| 10 | Michigan | Van Buren | $134 |
The average cash rent of the top 10 cash rent earning counties in Michigan in 2021 was $154.80/acre. When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%) Here is an example of the ROI method: Rent = $1,000,000/100 acre X 2.5% Rent = $10,000 X 2.5% (0.025) Rent = $250 per acre. What this means: If land has traditionally been under-rented compared to its potential yield productivity (bushels per acre) it can lower the overall value (price per acre) of a farm in the event of a sale. This is why it is crucial to track cash rent and evaluate it compared to the productivity of the farm and track soil testing and nutrient application.
Michigan Average Soil Productivity (PI) – 40.54 NCCPI
Michigan is agriculturally diverse due to the average quality of the soil in regards to productivity. There are a multitude of types of crops grown and livestock raised. The statewide average for soil productivity is 40.54. In all states (except Illinois, Iowa, and Minnesota) soil productivity ratings are determined by the overall NCCPI (National Commodity Crop Productivity Index) developed by the NRCS (Natural Resources Conservation Service) The average soil productivity in the top 10 most productive counties in Michigan is 58.6.
Here are the top 10 Counties by average soil in PI in Michigan:
| County | State | Crop Productivity Index | |
|---|---|---|---|
| 1 | St. Clair | Michigan | 62 |
| 2 | Sanilac | Michigan | 60 |
| 3 | Shiawassee | Michigan | 60 |
| 4 | Genesee | Michigan | 59 |
| 5 | Macomg | Michigan | 59 |
| 6 | Saginaw | Michigan | 58 |
| 7 | Hillsdale | Michigan | 57 |
| 8 | Ingham | Michigan | 57 |
| 9 | Lenawee | Michigan | 57 |
| 10 | Tuscola | Michigan | 57 |
Michigan Average Farm Sales – 2021 – $6,406.37/acre
As one might suspect, the counties with the highest average yields, cash rent, and soil productivity are usually the highest counties in the state for average sale prices for farmland*. All of these extremely important pieces of data about farmland go hand-in-hand. The average sale price for the top 10 counties in Wisconsin in 2021 was $6,406.37/acre. Below is a chart showing the top 10 counties for average sale prices offor farms for sale in Wisconsin in 2021.
*We’ve removed sales of residential and development property to the best of our ability to accurately portray the sale values of farmland throughout the state.
Farm Loans in Michigan
With all of this data about yield, cash rent, and soil the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?”
Farm mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment. If you are ready to purchase your next farm you can explore our farm mortgage rates here and get a decision in 15 minutes without ever having to go to the bank and fill out pages upon pages of paperwork for an approval.
Found the farmland you are interesting in purchasing?
Now find your loan partner that will make it a reality. Get approved in seconds with an all digital application from AFF, who will work with you to make sure you get the best rates possible.
Farm Loans In Wisconsin
Introduction
Farm sale prices are determined by a number of factors, two of which are the productivity (yield) and the rental income. If a farm is able to produce more bushels of corn or beans compared to the farm down the road from it, it is worth more when it comes time to sell. The same can be said about the rental income from a farm. If your farmer pays you a more competitive rent compared to farms in the area, the farm is worth more in a sale.
Wisconsin Average Corn Yield for 2021
| County | State | Year | Commodity | Average Value | |
|---|---|---|---|---|---|
| 1 | Milwaukee | Wisconsin | 2021 | Corn | 185.7 |
| 2 | Pepin | Wisconsin | 2021 | Corn | 176.8 |
| 3 | Lafayette | Wisconsin | 2021 | Corn | 117.2 |
| 4 | Grant | Wisconsin | 2021 | Corn | 115.15 |
| 5 | Dodge | Wisconsin | 2021 | Corn | 111.25 |
| 6 | Rock | Wisconsin | 2021 | Corn | 108.95 |
| 7 | Green | Wisconsin | 2021 | Corn | 108.95 |
| 8 | Fond du Lac | Wisconsin | 2021 | Corn | 108.75 |
| 9 | Dane | Wisconsin | 2021 | Corn | 107.9 |
| 10 | Columbia | Wisconsin | 2021 | Corn | 107.6 |
Wisconsin Average Cash Rent for 2021 – $138
Wisconsin reports solid and consistent cash rent year over year compared to other states in the Midwest. Although most tracts are smaller than other states, the land is productive and experiences consistent crops.
The average cash rent earned throughout the state in 2021 was $138 an acre. Below is a chart of the highest average cash rents by county.
The average cash rent of the top 10 cash rent earning counties in Wisconsin in 2021 was $186.80/acre.
2021 Non-Irrigated Cash Rent County Leaderboards
| State | County | 2020 Avg. Cash Rent | 2021 Avg. Cash Rent | |
|---|---|---|---|---|
| 1 | Wisconsin | Lafayette | $217 | $214 |
| 2 | Wisconsin | Grant | $209 | $210 |
| 3 | Wisconsin | Brown | $183 | $190 |
| 4 | Wisconsin | Green | $198 | $183 |
| 5 | Wisconsin | Walworth | $181 | $181 |
| 6 | Wisconsin | Dane | $182 | $180 |
| 7 | Wisconsin | Rock | $195 | $179 |
| 8 | Wisconsin | Kewaunee | $183 | $178 |
| 9 | Wisconsin | Columbia | $176 | $177 |
| 10 | Wisconsin | Calumet | $177 | $176 |
When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%)
Here is an example of the ROI method:
Rent = $1,000,000/100 acre X 2.5%
Rent = $10,000 X 2.5% (0.025)
Rent = $250 per acre.
What this means: If land has traditionally been under-rented compared to its potential yield productivity (bushels per acre) it can lower the overall value (price per acre) of a farm in the event of a sale. This is why it is crucial to track cash rent and evaluate it compared to the productivity of the farm and track soil testing and nutrient application.
Wisconsin Average Soil Productivity (PI) – 47.70 NCCPI
For most, Wisconsin is known for its rolling hills full of dairies that produce some of the best cheeses in America. But Wisconsin also produces its own fair amount of corn and soybeans with some of the most fertile land in the Midwest.
In all states (except Illinois, Iowa, and Minnesota) soil productivity ratings are determined by the overall NCCPI (National Commodity Crop Productivity Index) developed by the NRCS (Natural Resources Conservation Service)
The average soil productivity in the top 10 most productive counties in Wisconsin is 64.6.
Here are the top 10 Counties by average soil in PI In Wisconsin:
| County | State | Crop Productivity Index | |
|---|---|---|---|
| 1 | Kenosha | Wisconsin | 70 |
| 2 | Racine | Wisconsin | 70 |
| 3 | Pierce | Wisconsin | 67 |
| 4 | Dodge | Wisconsin | 65 |
| 5 | Vernon | Wisconsin | 65 |
| 6 | Crawford | Wisconsin | 64 |
| 7 | Grant | Wisconsin | 63 |
| 8 | Walworth | Wisconsin | 62 |
| 9 | La Crosse | Wisconsin | 61 |
| 10 | Iowa | Wisconsin | 59 |
Wisconsin Average Farm Sales – 2021 – $6,406.37/acre
As one might suspect, the counties with the highest average yields, cash rent, and soil productivity are usually the highest counties in the state for average sale prices for farmland*. All of these extremely important pieces of data about farmland go hand-in-hand.
The average sale price for the top 10 counties in Wisconsin in 2021 was $6,406.37/acre. Below is a chart showing the top 10 counties for average sale prices offor farms for sale in Wisconsin in 2021.
| County | Sold Year | Median Price per Acre | Total Acres | |
|---|---|---|---|---|
| 1 | Kenosha | 2021 | 9,962.96 | 11,839.00 |
| 2 | Ozaukee | 2021 | 7,880.63 | 5,556.20 |
| 3 | Washington | 2021 | 7,500.00 | 14,095.00 |
| 4 | Walworth | 2021 | 6,552.23 | 25,019.00 |
| 5 | Racine | 2021 | 5,833.33 | 10,251.00 |
| 6 | Brown | 2021 | 5,681.82 | 16,258.00 |
| 7 | Sheboygan | 2021 | 5,570.97 | 18,101.00 |
| 8 | Dane | 2021 | 5,147.06 | 40,371.00 |
| 9 | Lafayette | 2021 | 5,059.65 | 34,732.00 |
| 10 | Calumet | 2021 | 4,875.00 | 13,012.00 |
*We’ve removed sales of residential and development property to the best of our ability to accurately portray the sale values of farmland throughout the state.
Farm Loans in Wisconsin
With all of this data about yield, cash rent, soil, and sale prices, the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?” Farm mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment.
If you are ready to purchase your next farm you can explore our farm mortgage rates here and get a decision in 15 minutes without ever having to go to the bank and fill out pages upon pages of paperwork for an approval.
Found the farmland you are interesting in purchasing?
Now find your loan partner that will make it a reality. Get approved in seconds with an all digital application from AFF, who will work with you to make sure you get the best rates possible.
See My Rate
Farm Loans In Illinois
Introduction
Farm sale prices are determined by a number of factors, two of which are the productivity (yield) and the rental income. If a farm is able to produce more bushels of corn or beans compared to the farm down the road from it, it is worth more when it comes time to sell. The same can be said about the rental income from a farm. If your farmer pays you a more competitive rent compared to farms in the area, the farm is worth more in a sale.
Illinois Average Corn Yield for 2021
Farmland in Illinois that sells for the highest price is more than likely the most productive land when discussing corn and soybean yields. Here is a list of the top 10 counties in Illinois by corn yield (bushel per acre) in the 2021 growing season.
| County | State | Year | Commodity | Average Value | |
|---|---|---|---|---|---|
| 1 | Champaign | Illinois | 2021 | Corn | 222.4 |
| 2 | Moultrie | Illinois | 2021 | Corn | 221.8 |
| 3 | Macon | Illinois | 2021 | Corn | 221.1 |
| 4 | Woodford | Illinois | 2021 | Corn | 220.2 |
| 5 | Coles | Illinois | 2021 | Corn | 220 |
| 6 | Christian | Illinois | 2021 | Corn | 218.6 |
| 7 | Stark | Illinois | 2021 | Corn | 217.2 |
| 8 | Sangamon | Illinois | 2021 | Corn | 215.6 |
| 9 | Peoria | Illinois | 2021 | Corn | 215 |
| 10 | Marshall | Illinois | 2021 | Corn | 214.5 |
Illinois Average Cash Rent for 2021 – $227
Illinois typically has some of the highest and most competitive cash rents for non-irrigated tillable row crop farmland in the Midwest. The average cash rent earned throughout the state in 2021 was $227 an acre. Below is a chart of the highest average cash rents by county.
2021 Non-Irrigated Cash Rent County Leaderboards
| State | County | 2020 Avg. Cash Rent | 2021 Avg. Cash Rent | |
|---|---|---|---|---|
| 1 | Illinois | Macon | $294 | $311 |
| 2 | Illinois | Moultrie | $284 | $297 |
| 3 | Illinois | Piatt | $281 | $297 |
| 4 | Illinois | Logan | $287 | $291 |
| 5 | Illinois | Sangamon | $292 | $280 |
| 6 | Illinois | Christian | $272 | $278 |
| 7 | Illinois | Menard | $260 | $278 |
| 8 | Illinois | De Witt | $266 | $275 |
| 9 | Illinois | Champaign | $274 | $270 |
| 10 | Illinois | Carroll | $264 | $268 |
When landowners and farmers calculate cash rent, one common method is the Return on Investment (ROI) approach. In this method: Rent = Value of Land/Acre X ROI (~2.5% – 4%)
Here is an example of the ROI method:
Rent = $1,000,000/100 acre X 3%
Rent = $10,000 X 3% (0.03)
Rent = $300 per acre.
What this means: If land has traditionally been under-rented compared to its potential yield productivity (bushels per acre) it can lower the overall value (price per acre) of a farm in the event of a sale. This is why it is crucial to track cash rent and evaluate it compared to the productivity of the farm and track soil testing and nutrient application.
Illinois Average Soil Productivity (PI) – 110 CPI
Illinois has some of the best soil in the world, let alone the Midwest. Central Illinois and North Central Illinois farmland are home to the best soil productivity in the state. Prime agricultural land classes (Class A, Class B, and Class C) soil types can be categorized as follows:
Class A: 133-147 CPI
Class B: 117-132
Class C: 100-116
Soil ratings equal to or below 99 on the CPI are not classified as prime agricultural land.
Here are the top 10 Counties by average soil PI in Illinois:
| County | State | Crop Productivity Index | |
|---|---|---|---|
| 1 | Piatt | Illinois | 135 |
| 2 | Macon | Illinois | 134 |
| 3 | Champaign | Illinois | 133 |
| 4 | DeKalb | Illinois | 133 |
| 5 | Logan | Illinois | 131 |
| 6 | McLean | Illinois | 131 |
| 7 | Douglas | Illinois | 130 |
| 8 | LaSalle | Illinois | 129 |
| 9 | Woodford | Illinois | 129 |
| 10 | Kendall | Illinois | 128 |
Illinois Average Farm Sales – 2021 – $11,394/acre
As one might suspect, the counties with the highest average yields, cash rent, and soil productivity are the highest counties in the state for average sale prices for farmland. All of these extremely important pieces of data about farmland go hand-in-hand. Illinois is known for its renowned soils and agricultural production and this is reflected in the land sale values. The average sale price for the top 10 counties in Illinois in 2021 was $11,394/acre. Below is a chart showing the top 10 counties for average sale prices for farms in Illinois in 2021.
| County | Sold Year | Median Price per Acre | Total Acres | |
|---|---|---|---|---|
| 1 | Kane | 2021 | 15,821.21 | 5,064.79 |
| 2 | Macon | 2021 | 11,515.15 | 3,021.12 |
| 3 | Marshall | 2021 | 11,433.23 | 4,406.59 |
| 4 | Champaign | 2021 | 11,305.305 | 12,831.15 |
| 5 | Woodford | 2021 | 11,236.38 | 4,579.40 |
| 6 | Sangamon | 2021 | 11,000 | 8,891.99 |
| 7 | De Witt | 2021 | 10,654.76 | 4,221.90 |
| 8 | DeKalb | 2021 | 10,405.595 | 9,385.65 |
| 9 | McLean | 2021 | 10,325.905 | 15,110.97 |
| 10 | Ford | 2021 | 10,251.24 | 4,503.23 |
Farm Loans in Illinois
With all of this data about yield, cash rent, soil, and sale prices, the next step in one’s journey in farmland ownership and investment is, “how do I pay for it if it is such a valuable asset?” Farm mortgages are very common when investing in farmland or expanding your operation. Unlike home mortgages, farm mortgages typically require 25%-35% of the purchase price of the farm as a down payment. This can also be represented as a Loan-to-Value ratio. Now, if you already own farmland with equity, you are able to pledge farmland as collateral for the new farm purchase which can lower the amount required for a down payment.
If you are ready to purchase your next farm you can explore our farm mortgage rates here and get a decision in 15 minutes without ever having to go to the bank and fill out pages upon pages of paperwork for an approval.
Found the farmland you are interested in purchasing?
Now find your loan partner that will make it a reality. Get approved in seconds with an all-digital application from AFF, who will work with you to make sure you get the best rates possible.
Understanding Farm Loans and Farm Financing Terms
Introduction
There are several types of farm loans, including 1) operating loans to fund day-to-day running of the farm, 2) cash rental loans to fund annual farm rentals, 3) farm mortgages to finance the purchase of farmland, 4) farm refinancings to refinance a farm mortgage into a better rate / terms, and 5) term loans to fund equipment and machinery. We’ll dive into each of these farm loan types as well as some farm financing terminology below.
The Farming Cycle
Before we get into each of the farm loans, it’s important to explain why they all exist. Some (like farm mortgages) are self-explanatory: farms are expensive and most folks need a farm loan to make the purchase. An operating farm loan is necessary for most farmers in the Midwest because of the agricultural cycle. For row crops, planting occurs in the springtime (usually from March to May). Harvest occurs from September through Thanksgiving. After harvest, farmers sell their grain, earning their revenue anywhere from September through December. So there’s a big mismatch between when most expenses are made and when revenue is earned. Farmers have to buy seed, new equipment, finance labor, and any fertilizers at the start of the season but won’t make revenue for at least six months. Operating farm loans help provide funding during the first half of the year. Farmers pay off the loan with the revenue earned post-harvest.
The same concept is true for cash rent loans. Cash rent is usually due at the start of the season (March 1st) and can be as much as 40% of a farmer’s full-year expenses.
Operating Farm Loans
Operating loans are typically structured as credit facilities. This means that farmers can draw (or borrow) as much as they need while the loan is outstanding. A typical operating farm loan is signed a month or two ahead of planting season (March 1) and is due back to the bank anywhere from 12 – 15 months later. Usually, a borrower only pays interest on the funds they actually borrow. For example, a farmer could sign a $1m operating loan, but only end up using $800k. The farmer would only pay interest on the $800k borrowed. It’s advisable to create a business plan for the year and apply for a farm loan that would cover unforeseen expenses. That way, it’s easy to access funds as and when needed. It is possible to make an operating loan larger during the season but could just take time to be approved.
Operating farm loans are typically secured by collateral, or property that the borrower owns and the bank could claim if the loan is in default. Collateral can be tractors or even the crops that the farmer grows.
Cash Rent Loans
Cash rent loans are unsecured loans to finance cash rent. Unsecured loans are not secured by collateral. Our cash rent loan has a springing lien, meaning that if the loan is in default, collateral will then be required. This is beneficial for borrowers who do not have to assign collateral at the start of the loan.
Farm Mortgages
Farm mortgages are loans used to purchase farmland. They can be both fixed and variable. Fixed rate loans maintain the same interest rate throughout the life of the loan. Variable rate loans can have a fixed rate for the first months or years of the loan – they will then change rate in line with a pre-determined benchmark. Farm mortgages can be up to 30 years in duration. The longer the loan, the more interest a borrower will pay to the lender – however, the longer term could provide more affordability. A $1m loan spread over 30 years results in smaller annual payments than a $1m loan spread over 10 years.
Farm Refinancings
Farm refinancings are done when better terms are available for a farm mortgage. If a borrower has a 30-year farm mortgage outstanding at a 5.0% rate and rates drop down to 4.0%, a borrower would want to refinance, or change their loan, into the lower rate option to save money. If a borrower also makes more income or has paid off other personal debt, lower rates might be available to them that were unavailable at the time of the original farm loan. Before deciding to do a refinance, a borrower should compare the total savings to any fees to be taken out at the time of the loan.
Farm Term Loans
Term loans are mid-length loans that can be used for more intermediate expenses. Unlike operating loans that cover expenses to be paid off in one year, term loans are usually 3 – 7 years in length and are used to pay for equipment, machinery, and livestock. Term loans have both fixed and variable rates and also use a Loan to Value (LTV) concept.
Farm Loan Fees
Farm loans are subject to similar fees as personal and residential loans. An origination fee is a fee for the bank to originate, or create, the loan. It covers general paperwork and processing. A servicing fee is an ongoing fee to cover the maintenance of the loan. Banks may or may not charge these fees, but it is important to ask at the outset.
For farm mortgages, there will be additional fees for appraisals and title services. An appraisal is an authorized check of value by a bank or a verified third party. The bank will need the appraisal done before originating the farm mortgage. This is to verify that the land will produce income and the loan value is defensible. A title check is performed to ensure that the farm is being sold without debt or obligations attached to it.
How are Farm Loan Fees Calculated?
Farm fees are typically calculated by basis points (bps). A basis point is 1/100th of a percent. In other words, 100 basis points = one percent. A standard origination or servicing fee is 50bps (0.5%) of the loan value.
Appraisals and title checks are usually done for a fixed fee. Appraisals can typically be anywhere from $300 – $1,500.
Conclusion
AFF can help with any of your farm financing needs. Reach out to us at (872) 246-9087 for more on our interest rates and no-fee loans.
Make Your Farm Mortgage Work For You
Farmland is a unique asset class. It continues to steadily appreciate in value and produces annual cash income. As a farmer, revenue is derived from crop sales. But as a non-operating landowner, annual cash rent can be in the range of 2 – 5% of the farm’s value. And if you’re setting a fair cash rent, your income will increase with commodity prices or inflation.
But as we all know, farmland is very expensive. Farm mortgages are readily available, though an average Loan-to-Value ratio (LTV) is 70% – meaning that a borrower should expect a 30% down payment at the time of purchase. While that’s certainly a hefty price, farmland is worth it, in more ways than one. This article will lay out how to structure a capital-efficient farmland purchase or in other words, how to make your farm mortgage work for you.
Down Payment
While farmland is generally seen as a stable equity investment, lenders have a riskier view. Farmer bankruptcy protections (for more information, see here) are very helpful for family farmers but make it more difficult for a lender to recoup payment on a defaulted loan. And since a farm mortgage could be a second mortgage for folks who already have a home mortgage, it’s seen as a riskier asset. As a result, interest rates on farmland are significantly higher than home mortgage rates (think ~2.0% across all maturities as a frame of reference) and down payments are a lot higher (30% vs a residential down payment of 10%).
These factors can make farmland entirely unaffordable for lots of people. But for non-operating landowners, the annual rent income on the farm could cover a farm mortgage payment each year. This means that the only actual cash to be invested is the down payment. In other words, a landowner could spend 30% of an asset’s value to own 100% of the appreciating asset.
A Real-Life Example
Let’s look at a real example. A 100-acre farm in Illinois is available for sale for $12,000/acre, or $1.2m total. For that purchase value, let’s assume a 65% LTV, meaning a buyer must have 35% available as a down payment ($420,000).
For the remaining farm mortgage value ($780,000), let’s look at a 30-year fixed payment schedule. At a 6.50% interest rate (remember, farmland rates are materially higher than home mortgages), we can expect an annual payment of $59,730.40.
Let’s assume a cap rate on the farm of 4.0% – that means annual cash rent in Year 1 would be $48,0000. This income can offset the annual mortgage payment in Year 1, requiring the landowner to pay only $11,730.40 to service a farm valued at $1.2m.
That still requires a cash outlay from the landowner – but remember that farmland steadily appreciates over time. According to the USDA, over the last 50 years, farmland has appreciated 5.7% annually. So the value of the farm purchased in 2022 ($1.2m value + $48,000 cash rent) could now be worth $1.27m. Keeping the same 4.0% cap rate, 2023 cash rent could be $50,736. By year 5, the farm would theoretically have appreciated enough where annual cash rent would be greater than the mortgage payment. At the end of the 30-year mortgage, the farm could be worth $6m. The entire farm mortgage would have cost just over $2.2m (the $420k down payment plus $1.8m in principal and interest). And assuming a 4.0% cap rate is maintained throughout the 30-year period, the farm would have generated an additional ~$3.6m in cash rent. Excess cash returns over the 30-year period would be roughly $1.4m. For a $420,000 one-time payment, the farm could sell for over $6m. Not too shabby!
