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Are You Buying or Selling Farmland?

Farmland is just too long-term of an investment to be dragged down by the latest downturn in grain prices.

Do you believe this statement? That's become a more common refrain in the farm real estate market where, though values have softened some, price tags have yet to slide in lock-step with those for the crops raised on that land. So, what's that mean for the market moving forward? What if you're buying? What if you're selling?

Despite recent rumblings from corners of the financial world that farmland ranks low among potential investment options right now, the market's fundamentals tell another story, one of continued demand, tight supplies and resulting relative stability in prices that have fallen some but remain higher than other sectors of the crop production mix. Things like location and individual farms' financial needs are returning as priorities over the "land boom" of the last decade when crop revenues were rocketing and creating a breakneck marketplace where monster price tags were common at some land auctions.

"Buyers are being more realistic when considering land purchases which has reduced the fervor of rapidly escalating prices seen at land auctions in recent years," says Randy Dickhut, AFM, Vice President of Real Estate Operations of Farmers National Company. "Owner operators continue to be the main purchasers of agricultural land comprising nearly 90% of buyers in many areas. Land is viewed as a long term asset and owners consider agricultural land a stable investment in a changing world."

Though land's still attractive from an investment standpoint, this return to farmers making up the bulk of buyer interest in land will likely remain in place for a while, adds Murray Wise, president and CEO of Murray Wise Associates, an Illinois- and Iowa-based farm real estate company. The market's lost some of its luster to the investment community, but that doesn't mean this group's altogether out of the market that remains a decent destination for money compared to alternatives. That means the farmer looking to buy land should remain cautious while the farm economy skates through its current skid driven by low grain prices.

"I'm very bullish long-term. By the same token, I think 2015 is a good time to have a large amount of caution on what's going on out here, but at the same time, it might be a great time to pursue additional or new acquisitions," Wise says. "It's an interesting time, in my opinion. We've seen a major adjustment in commodity prices and that's created some softness and potentially some opportunities [for buyers]. During the upcoming summer, if these commodity prices don't change, I think we'll continue to see a little bit of pressure and that may well be a great time to renew one's interest in acquiring more farmland."

What if you're looking at selling land right now? More farmers are doing so for both long- and short-term reasons, Wise says. First, there's the overall aging of the average farmer, with more looking to generate equity for retirement. Then, there's that softening of the ag markets in general; it's got more farmers looking at selling land to generate operating capital.

"There are 2 camps: Those in 'estate-planning mode' and those who could use capital to expand grain storage, tile drainage or other aspects of their farmland. It maybe a good time to liquidate some of their land and use that capital on other aspects of their operation," Wise says. "Keep in mind that many farmers out there today have gigantic paper profits. For some specific individuals, it may be time to harvest some of that profit."

If you're weighing selling a few acres to generate cash on your farm, there are a couple of major factors to consider, Wise says. First, make sure you're comfortable with the amount of land you're selling and whether it will meet your needs, especially if you're doing so to generate operating capital. And, think about the tax man, both right now and down the road.

"They need to think about what they're going to do with the capital. They also need to think about the tax effects of what might transpire relevant to the impact that current and future tax laws will have on their liquidation," Wise says. "They also need to look at what they're going to do with that capital, what they're going to do to make enhancements to make their operation more profitable."

Finally, take a good look at your local market. If you're in an area where both farmer and investor interest is high, you're likely to see strong demand. But, what's sought-after by one group may not necessarily be attractive to the other when it comes to bidding on farm ground.

"Most operators like to have a price close to the mimimum. At the same time, the investor's looking for good quality, quality soils, quality drainage, an area with an hitsorical rainfall pattern, etc., and so the investor's more flexible than the operator relative to where that land might be located," Wise says.


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