Sale price aside, we were able to talk to several lenders and land buyers during the marketing of our auction and found several of their comments quite telling, including:

Lender 1 – “You would be surprised to learn how many farmers have over $500,000 in the bank, just waiting for a farm to come for sale in their area.”

Lender 2 – “Farmers came in this spring to set up their operating lines of credit this spring, just like normal.  The surprise is how many that have not borrowed any money thus far and it’s already the end of June!”

Broker 1 – “There are going to be a lot more tracts coming on the market in the near future.  Landowners are hearing about these high prices and are ready to take advantage of them.”

These comments confirm a couple of things that I have been thinking for some time – A. Farmers are going to continue to be quite aggressive land buyers.  They have cash in the bank and the crop prospects for 2011 look quite good at the present; and B. There will likely be more tracts for sale this fall.  Some of this new supply may be investors taking profits, but a lot may be heirs and beneficiaries deciding that the time to take the money and run is now here.  As an offshoot of this thought – I also anticipate more “no-sales” this fall, not because the price isn’t in line with the market, but more because expectations are too high.  As we saw in Vermilion County, not all farms are worth $12,000 per acre.

As can be expected, organic farming varies significantly across the different types of crops.  For example, nearly 9% of all U.S. berries are produced organically, while only 0.2% of all corn is.  Interestingly, the demand for certain organic products is so great that we’re now importing some of these goods to meet the needs.  This is in addition to the imports of organic crops not typically grown here like tea, cocoa, and coffee.

Unfortunately, the organic industry still faces many challenges.  One of the biggest at the present is the public confusion from other food labels such as “locally grown”.  The two methods should complement, not compete, with each other.  The locally grown label simply tells people where the product is grown, not how as in the case of organic farming.

I believe that the continued demand for organic products and the price premiums they command will ultimately lead to a price premium for land that has met the certification criteria.  The market has been so small in the past that at the present almost no one (including most appraisers) knows what that premium to a non-certified farm might be.  That said, I’m convinced that within 5 – 10 years there will be enough sale data to prove what we inherently know – a specialized asset will ultimately command a premium price in the market place.

Where does this leave borrowers for 2010 and beyond?  The author speculates that many older producers will get out of farming all together, rather than dip into savings and retirement plans to keep their operations going.  While some livestock operators saw their losses partially balanced out by a productive crop year, in many cases they are still came up short.

What are your thoughts on ag loans and where they may be headed?  Share your thoughts with us at eric@loranda.com.

Source:  DTN/The Progressive Farmer