The collapse of real estate and credit markets, especially in the Chicago suburbs, should make central Illinois farmland more affordable — for farmers — say the authors of an analysis of record-high 2008 prices.

The study concludes that the “once in a lifetime” surge was driven in part by the same non-farm speculators who drove residential and commercial land prices to unsustainable highs.

“In some cases, people who sold their land in the Chicago fringe for development took the money south and bought farmland in the center part of the state,” said Fred Hepler, president of the Illinois Society of Professional Farm Managers and Appraisers.

The group conducts the analysis each year.

Hepler explained that non-farm investors often used a “1031 tax exchange,” named after a provision in the federal tax code, to shelter profits from residential and commercial sales from capital gains by reinvesting in downstate farmland.

“The 1031 money was driven by commercial and residential development in the go, go, go days. ... Then everything dried up,” said Hepler, a resident of Champaign and a senior adviser for Wexler Capital Industry.

The analysis of 2008 farmland prices showed statewide increases per district averaged 5 percent to 20 percent per acre, depending on the location and type of land. In Sangamon County, an average price of $7,300 an acre for prime farmland in 2008 was up 22 percent from 2007, while $9,000 an acre for land used for commercial or residential development was up 20 percent.

Land for development in the Chicago collar counties still went for as high as $18,000 an acre, down 45 percent from 2007.

“Even guys who have been at this longer than I have, have never seen anything like it. It’s uncharted territory,” Hepler said.

An auction in January of 4,000 acres of land near Litchfield drew about 800 people to the Crowne Plaza in Springfield. A partnership of 20 local farmers purchased more than 2,400 of the acres for nearly $6,200 an acre.

That kind of interest is still there among farmers, said Gene Meurer, Region 7 representative for the appraisers’ group. Meurer, who lives in Chatham, also is a senior partner in Heartland Ag Group in Rochester.

“Active farmers are still buying and, remarkably, buying for cash,” Meurer said, explaining that, after two good years of commodity prices, farmers find themselves able to make prudent investment in expansion.

And while prices have leveled off from last year’s record highs, Meurer said there are no signs farmland will follow residential and commercial real-estate prices.

“There were some areas that were off a little toward the end of the year because of the economy. But interest rates are still down, and commodity prices are still up,” Meurer said.

A University of Illinois forecast released in the past week warned that farm prices, too, are at risk from the general volatility in world commodity, financial and credit markets.

University farm economist Dale Lattz said farmers generally are in better shape than the overall economy as a result of strong grain prices the last two years. But corn is now closer to $4 a bushel compared to last year’s high of nearly $8, and soybeans have been selling below $11 on the Chicago Board of Trade compared to a high of nearly $16 last year.

Lattz said a Federal Reserve survey in the last three months of 2008 showed farmland prices in the northern two-thirds of Illinois were down 4 percent to 5 percent from a year earlier. But that was heavily influenced by the plunge in collar-county land prices.

“The housing industry is in the dumps there. You had land that was selling for $30,000 to $40,000 an acre that is now selling for probably half that,” Lattz said.

He said non-farm investors in farmland will begin to drift back to Wall Street and other traditional investments now that there are signs of stabilization there.

“It couldn’t keep going up one way or the other. Farmland prices have gone up double-digits the last three our four years now, and that just can’t be sustained,” he said.

Tim Landis can be reached at 788-1536.

Price per acre around the state

Average per-acre prices in 2008 and the change from 2007 for excellent or good, and “transitional” farmland by region in Illinois. Transitional farmland is considered likely to be used for commercial or residential development.

Northeast (Rockford, Chicago collar counties)

• Excellent: $8,500; down 5 percent.
• Transitional: $18,000; down 45 percent.

Northwest (Freeport)

• Excellent: $6,100-$7,200; up 21 percent.
• Transitional: $6,300-$6,500; minimal change.

Western (Peoria)

• Excellent: $6,000 to $7,700; up to 10 percent.
• Transitional: Not available.

North Central: (Bloomington-Normal)

• Excellent: $6,000-$7,500; up 13 percent.
• Transitional: $8,500 to $40,000; steady.

Eastern (Champaign-Urbana)

• Excellent: $5,500-$6,700; up 10-15 percent.
• Transitional: $8,000-$24,000; steady.

Central (Decatur)

• Excellent: $5,000-$7,500; 15 percent.
• Transitional: $7,000-$25,000; steady.

West Central (Springfield)

• Excellent: $7,300; up 22 percent.
• Transitional: $9,000; up 20 percent.

Southwest (Belleville)

• Good: $7,000-$9,000; up 10 percent.
• Transitional: $10,000-$21,000; steady.

Southeast (Effingham)

• Good: $4,200; up 17 percent.
• Transitional: $8,000-$12,000; unchanged.

Southern (Harrisburg/Carbondale).

• Good: $4,700; up 9 percent.
• Transitional: Not available.

— Source: 2009 Illinois Farmland Values & Lease Trends; Illinois Society of Professional Farm Managers and Appraisers