Archive for February, 2011

Where Are The Farms?

Friday, February 25th, 2011

We have seen a tremendous amount of interest over the last 100 days from farmland buyers.  They are coming from many diverse buying groups – farmers, investors (both local and outsiders) and institutional buyers (i.e. pension funds).  We have received numerous calls from many buyers in all of these groups that are very actively looking to add farmland to their holdings.  Many factors have contributed to the current strength of the farmland real estate market, including a low supply.  As we learned in Econ 101, when demand is high and supply is low, the price will increase.

Back in 2007 and early 2008 we saw a similar increase in farmland values which was similarly fueled by high prices in the commodities markets.  We we saw many sellers trying to “time” the market and sell at what they perceived as the peak.  In some areas they were right, because as corn and bean prices fell, so did the demand for farmland and sale prices followed suit.  A lot of landowners who were considering selling during that time period, but didn’t, put their selling intentions on hold to wait for the market to gain more strength.  Well, with some of the recent sales we have seen around the Midwest (sales above $9,000 and $10,000 per acre for “A” farms and above $7,000 for “B/C” farms), it seems that the strength is back.  Will these buyers who have been sitting on the sidelines decide that now is the time to jump back into the market?  The demand is certainly there, but it is anyone ’s guess how long the current market we are in will last.

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The Sexton Farmland Auction…The Perfect Storm

Monday, February 21st, 2011

Last Friday, we had the opportunity to auction 512 acres near Donnellson in Bond & Montgomery Counties, Illinois (about 60 miles NE of St. Louis).  If you aren’t familiar with the area, the topography would be considered nearly level to gently sloping and the soils generally consist of Cowden-Piasa or Oconee-Darmstadt silt loams that have a weighted average corn yield (based on soil types and not actual yields) of 130 bushels per acre. Note – for comparison, the best soils in Illinois would have a weighted average corn yield of 180 bushels per acre according to University of Illinois Bulletin 811.  The 512 acres was 93% tillable and included a house with grain bins and a machine shed. We divided the property into 8 tracts to allow smaller farmers and investors to compete with the bigger players.

After completing our initial research in December, we thought that the property would sell for somewhere in the mid-$5,000 per acre range based upon comparable sales – the property had good eye appeal but the soils just weren’t that productive at least relative to Central Illinois.  Our advertising and promotional efforts began in mid-January and slowly my optimism increased.  We had nearly 150 people call or visit our web site in order to receive a brochure, and this was in addition to the nearly 3,000 neighbors and absentee investors we direct mailed a brochure to.  As I told my client the day before the sale, if we’re really lucky we may reach the mid -$6,000 per acre range. 

At the auction, we had over 75 registered bidders.  Some were interested in only individual tracts and others were interested in all 512 acres.  After two hours of aggressive bidding, the property ultimately sold to 2 buyers.  One party bought the house and improvements on 5 acres, along with another 8 acres of pasture, for a total of $171,000.00.  The second party bought the remaining 499 acres for $3,572,744… $7,160 per total acre or $7,490 per tillable acre.  As you might appreciate – this was one instance when I didn’t mind being wrong on price!  I had several people comment afterwards that the sale would now be considered the “high-water” mark for Bond County.

I think that the final price was a result of several factors – A. high commodity prices; B. low interest rates; C. little available land to buy; and D. enough acres to draw farmers and investors from a larger radius.  It also proved that in this market, the public auction is the most effective way of getting the dollars out of the pockets and on to the table.  Right now, land is selling for record prices because of the “perfect storm” of factors mentioned above. Not sure how much longer the storm will last but the land owners selling today are sure reaping the benefits.

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Outlook For Corn & Soybeans

Thursday, February 10th, 2011

One of the main factors that have been driving the farmland market is the commodities market.  When corn and soybean prices are higher farmers can project higher incomes, which allow them to pay more in purchasing farmland for themselves or to pay more for cash rents for properties they are renting from investors.  The questions is – where will corn and soybean prices be in the future?  The short answer is that nobody can predict that with 100% accuracy.  However, there are certain underlying factors that can be observed to predict where prices may be headed.  As University of Illinois Ag Economist Darrel Good points out in a recent study (Corn and Soybean Supplies to Remain Tight for Another Year?), corn and soybeans stocks continue to be stressed and consumption continues to increase, mainly fueled by demand from foreign countries such as China.  This continued strong demand should continue to fuel the activity in the commodities markets.  With a strong outlook for farm profits in 2011, it is a good bet that many of these dollars will find their way to farmland purchases.

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Farmland and the Rich

Friday, February 4th, 2011

Over the past few years, we’ve had the opportunity to work, i.e., buy or sell land, for some very wealthy families.  While they certainly have deeper pockets than most, these people are drawn to farmland for the same reasons the average farmer or investor might be – they believe that land is an excellent long-term investment.  They have no interest in farming the land themselves and are willing to make the capital improvements necessary to ensure that the property will be productive for future generations.  In sum, they simply want to be good long term stewards of the farms they buy.

Along these lines, a recent article in The Land Report (100 Largest USA LandOwners) provided an overview of some of the largest private property owners in this country that I found interesting.  While some of the names are quite well known (e.g. Ted Turner), there were many that I had never heard of… reinforcing the fact that they don’t own land for the publicity, instead they own it for its investment value.  It is also important to note that most of these properties consist primarily of either timberland or ranchland, and not Midwestern corn and soybean farms. Back in the mid to late 1800’s, however (before the mold board plow and tile drainage were in widespread use), the prairie areas in Illinois and Iowa were very inexpensive and some speculators did buy large blocks of land.  Over time though, these holdings were divided and sold and very few remnants remain.

So could an individual become a land baron in the Corn Belt today?  Personally, I don’t think so – some states limit the number of acres that an outsider can own, and  land ownership is so fragmented that it would be too difficult to assemble the acreage needed to be a major market player.   And from my experiences, the rich aren’t looking to corner the Midwestern land market, they just want to own a little piece of it.

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