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Farmland Value Trends Worth Watching
Since we launched the weekly Successful Farm Sale column in March, we've tracked more than 150 farmland auctions in 14 states and talked to dozens of auctioneers in the process.
Early on, it was an easy deal: Land prices remained high, and farmers still had plenty of cash to buy that piece of property that may be just a tad out of their neighborhood or had slightly inferior quality. In the last six months, however, the situation has changed. Lower crop prices are forcing farmers to hold back just a little. They may still have corn in the grain bins at home, but they're not willing to clean them out just to buy marginal land.
Here are some other trends we've noticed in the last few months.
All About Quality
We've said it many times before: Farmers will pay good money for top-quality land, no matter what commodity prices are doing. The reason is simple: "A good farm will make you money. A poor farm will nickel-and-dime you to death," says Matt Maring, who runs Matt Maring Auction in Kenyon, Minnesota.
For that reason, Maring reckons the selling price of poor-quality land is down 30% from two years ago, while high-quality farmland is down only about 10% or so.
Who's Your Neighbor?
Beloit, Kansas, auctioneer Bob Thummel has presided over several land sales in the last few months. While it is true that land in Kansas is going to fetch less money than that in say, Illinois, this one fact is universal: It's good to have two or more neighbors fighting over the same piece of property.
Thummel has sold property that far exceeds market value, just because in many cases, land changes just once each generation. Therefore, neighbors are willing to bid a little more to get the land - even if it makes them uncomfortable.
"If the land is in the right location, you can make some money," Thummel says. "But location is everything."
Here's another example, to the opposite extreme. Schrader Auction offered 210 acres of Elkhart County, Indiana, farmland on August 11. The tract sold for $2.95 million, or over $14,000 per acre. The room was packed, the energy level was high, and four or five prospective buyers bid on the land. When the gavel fell, a neighbor bought the tract.
"It depends on the neighborhood," says Arden Schrader, auction manager at Schrader Auction. "That makes a lot of difference."
Investors Are Getting Back in the Game
In the last two months, auctioneer Jeff Dankenbring has sold nearly 1,500 acres in 12 tracts. Of those 12 tracts, just one went to a local farmer. The rest were bought by investors.
"In the last five years, we haven't had more than a few farms sell to anyone but farmers. Everything went to the local guy. It appears things are changing a bit," says Dankenbring, who runs Midwest Land and Auction in Marysville, Kansas.
"I don't know that you'll see the softening of real estate values that we thought we might see because investors are jumping in at or near market value," he adds.
Witness the sale of five tracts in Cedar and Scott counties in Iowa on November 18. Three tracts were bought by investors, each of whom paid $11,500 and $12,500 per acre. Farmers bought the other two tracts. Hertz Real Estate Services had the sale. Troy Louwagie, real estate broker at the company's Mt. Vernon, Iowa, location, says investor buying makes sense.
"There are a lot of wealthy people, and they are sick and tired of getting low interest rates," Louwagie says.
Mac Boyd, sales agent at Farmers National Co. in Arcola, Illinois, says investors are looking for good farmers to buy. "And they're willing to pay for it, too," he adds.
It's happened all over the Corn Belt. A landowner wants to sell land, the auctioneer books it, advertises it, and begins auction proceedings . . . only for the bidding to fail to meet the seller's expectations. And it's not just one isolated area where no-sales are happening - they are occurring all over, and more frequently. Why?
"The problem with an auction is, it needs two bidders. If there is just one, chances are the land isn't going to sell," Louwagie explains.
Hertz offered four tracts at auction last week, but only one sold at the sale. The other three sold privately, but it's likely the land didn't meet the seller's expected price. Expect more of that in the future.
"We're looking at $3.50 corn, and the math just doesn't work," he adds. "We've had good crops and good government payments, but I'm concerned that we're burning up old cash, and land prices are going to tail off."
Farmers will sit down with lenders this fall and the balance sheets are going to look different because assets are worth less this year. Grain, machinery, and land values all are down. That creates a bearish environment for land, Louwagie says.
"I don't think we'll see the 1980s all over again, but I expect land prices might fall 25% in the next few years," he says.