Strong commodity prices and low interest rates have sales of top quality farmland setting new highs in western Illinois, while sales of wooded land and average farmland disappoint.

“I’m expecting 6 to 8 percent increases in the second half of 2010, maybe even more than that,” said Gary Schnitkey, a University of Illinois professor in farm management. “It’s been a pretty dramatic increase.”

Local land sales this winter, the primary sales period for farmland, remain consistent with statewide trends. Prices for corn and soybeans at the Chicago Board of Trade this month have increased from year ago levels roughly 50 percent or more in nearby months to 40 percent to 60 percent for futures, based on data from North-And. Co. of Galva. This gives farmers, the primary buyers of farmland, a strengthened price for unsold 2010 crop and increased profit potential for the next harvested crop.

Top farmland values have returned to and exceeded the strong market prices of January 2008, before the economic situation struck, said Herb Meyer, a real estate appraiser for 1st Farm Credit Services in Edwards. He also is project leader in western Illinois for the annual farmland survey of the Illinois Society of Professional Farm Managers and Rural Appraisers.

Good to excellent productivity farmland has increased the most in value, with top quality land exceeding $8,000 per acre in the Knox County area, Meyer said. Some sales of highly desirable farmland in the region surpassed $9,000 per acre, though not in Knox County as of mid-January. Good to excellent farmland classifications generally include soil types with high crop productivity potential, adequate drainage and open land free of ditches and trees.

“The flip-flop is recreational values have two strikes against them,” said Meyer, referring primarily to acreage with trees. “The recession obviously is working against recreational values and the second thing is the 2007 law that was passed for reassessment of land that is deemed not to be productive farmland.”

Fair to average productivity farmland, which often includes irregularly shaped fields or fields with a patchwork of tillable spaces, also has been a disappointing area of the market, Meyer said.

“Quality is certainly an issue when it comes to farmland now,” he said.

Generally, the amount of land for sale is down from previous years, Schnitkey said. However, Meyer has observed that sales of high-quality farmland have increased.

Most of this season’s sellers include heirs selling an estate, some before the end of 2010 when capital gains taxes threatened to take a sharp increase and return to prior levels, Meyer and Schnitkey said. Retiring farmers comprise most other sales.

While farmers looking to expand their businesses remain the primary buyers, outside investor interest is down this season, but not out. One of the big differences for the decline is the lack of pressure from 1031 exchanges, mainly from people who sold land near metropolitan areas and needed to buy land to avoid significant taxes.

“Low interest rates and the recent performance of the stock market have discouraged people from CDs and stock investments,” Meyer said.

Likewise, investors with the option of selling land may be waiting because investment alternatives haven’t been as promising, Schnitkey said.