Posts Tagged ‘land market’

« Older Entries

Underlying Facts Supporting Farmland Prices

Thursday, February 2nd, 2012

I recently attended the annual Land Investment Expo in Des Moines, Iowa and listened to an interesting presentation by Jim Knuth, Senior Vice President of Farm Credit Services.   Because it has so many local lending offices, Farm Credit has the ability to collect and analyze an incredible amount of land sale data.  The discussion included some general information, e.g., land values in IA have increased 34% the past 12 months, along with some more obscure (though important) statistics, some of which may explain how we’ve arrived at these current price levels. To wit…

1. In 2006, there were 6207 real estate sales in the territory serviced by the Farm Credit Services of America district (IA, SD, WY, NE).  In 2011, the number dropped to 4434 sales, confirming that there is a lot less land available to buy.

2.  In 2009, the debt to asset ratio for district borrowers was 35%.  In 2011, the ratio actually dropped to 34% despite higher land prices.  In addition, the loan to collateral value over the same period dropped from 54% to 48%. This confirms that the balance sheets for farmers continue to improve.

3.  In 2008, farmers purchased 82% of the IA farms that closed.  This number dropped to 73% in 2011, thus indicating that investors are continuing to purchase land despite the higher prices.

4.  In 2009, 29% of the land sold at public auction while in 2011 this percentage increased to 50%.  Not coincidentally, most of the record sale prices have occurred at auction, as there are a number of aggressive buyers in the market looking to add to their land holdings.

I look at the underlying land issues listed above, and am more convinced that this rapid increase in farmland values has been driven by profits and not speculation.  At some point, prices will stabilize and there may be a period where the market experiences a short-term correction.  I just can’t buy into the “bubble is ready to burst at anytime” scenario that a few economists are still predicting.

Tags: , , , ,
Posted in Uncategorized | No Comments »

A Review of the 2011 Farmland Market

Friday, December 30th, 2011

I’ve been trying to come up with a single word to describe the land market the past 12 months and the only thing that I’ve come up with is… WOW!  Most of the experts had predicted that values would be stronger this past year (primarily due to projected higher commodity prices), but I don’t think anyone anticipated the magnitude of what we experienced.  And it wasn’t just isolated areas that jumped – most states across the Midwest saw farms appreciate 25 – 33%, and that didn’t include the annual operating income for the year!

Iowa State University recently released the results of their 2011 farmland survey (Farmland Value Reaches Historic Statewide Average) and it does a good job of summarizing of what really took place all across the Corn Belt.  As has been discussed numerous times, the increase in net farm income has been the biggest factor driving land prices higher (for perspective, the average corn price in IA in 2005 was $1.94 per bushel, while the average price in November 2011 was approximately $6.05 per bushel).   When you combine a relatively limited supply of land on the market with a substantial amount of cash available to fuel demand, the results should really not be that surprising.

So what can we expect in 2012?  I am quite confident that we will not see the same percentage increases that we’ve had the past 12 months.  That said, I do think that prices will remain strong for the first half of the year as a carryover from 2011, but it’s the second half of next year that concerns me somewhat.  Grain prices will continue to be the catalyst, but a recent quote I read by economist Jason Henderson – “I have never met a farmer who is unwilling to produce himself [or herself] out of prosperity” – was somewhat of a reality check for me.  Or better stated, one really good crop year could be the brake that stops the seemingly runaway land locomotive. However, if land buyers will remember that farmland is a long-term investment, and plan for both increases and decreases in value over time, then land should remain a good asset to own.

Tags: , , ,
Posted in Uncategorized | Comments Off

Projected 2012 Farm Returns Adjusted Down

Friday, December 2nd, 2011

In September, The University of Illinois released their annual estimates for crop expenses and returns for the following crop year.  Since that time, we have seen the corn and bean markets pump the brakes and slow down.  So, in response to the ever-changing commodities markets, the U of I has recently readjusted their projections (Reductions in Projected 2012 Crop Returns…) to account for less potential revenue in 2012.  In September, the U of I based their 2012 farm income projections off of selling corn at $6/bushel and soybeans at $13/bushel.  The updated numbers have decreased the projected corn and bean prices to $5/bu. and $11/bu., respectively.  The result is an approximately ~29% decrease in potential income per acre Central IL.

It will be important to keep a watchful eye on how this affects the 2012 farmland market.  With less profit, farmers will have less money to invest into farmland.  However, this does not necessarily correlate to a decrease in the demand in the farmland market, at least in the short-term (9 – 12 months).  Farmers on average will still have a profitable 2012.  Also, many farmers experienced a very profitable 2011 and are sitting on cash to invest into farmland.  From what we have seen recently (both at our own auctions and observing others), farmer-buyers are not bowing out of the farmland market anytime soon.  $10,000/A  is still the new threshold for Class A Central IL farmland, with some sales pushing north of $11,000/A.  As long as corn and beans remain at level to keep farmers profitable, interest rates stay low, and the availability of farmland remains relatively tight, the aggressiveness of buyers should remain.

Tags: , , , , ,
Posted in Uncategorized | Comments Off

Increase in Farms for Sale

Friday, November 4th, 2011

If you look in your local classifieds section, or better yet, the Auction Section for an Ag publication like Illinois AgriNews, you will notice more farms for sale this fall than we have seen the last few years.  In 2007/2008, the farmland market saw glut of properties come on the market as landowners looked to cash in on then-record high prices.  When the economic problems hit in the summer of 2008, the activity in the farmland market screeched to a halt like every other market in the world.  While the residential real estate market’s problems were caused by bad loans being given out, lax lending practices, and overbuilding, the slow down in the farm real estate sector was primarily driven by a sharp drop in the corn and bean markets.

In 2009 and 2010, the supply of available farms was extremely thin, which actually helped keep the market strong.  However, in the last 12 months, there has been a noticeable increase in the number of farms on the market.  The main reason?  It again comes back to corn and soybean prices.  We saw the markets start to nudge up in late 2010 and then explode in early 2011, allowing more income to flow towards farmers.  We’ve seen farmers reinvest these higher profits back into their operations by buying land.  Farmers are not the only buying group, however.  Investors banking on a continued worldwide population growth (we’ve just passed 7 billion and are projected to pass 9 billion by 2050), are viewing farmland as strong long-term investment.  As population increases, food is going to be more in demand, which means the ground that the food is produced on is going to be more in demand.

All of these factors have caused farm prices to jump considerably the last 12 months.  Sellers who may have felt like they may have missed their chance to sell before prices dropped in 2008 may look to cash out now that their land value has come back (and surpassed the high prices we saw in 2007).  Unlike in some years, where some owners were looking to sell by the end of the year for tax purposes, sellers are not showing that urgency this year.  I think there is a good chance we will see a continued strong supply of farms on the market into 2012.  From that point, it will depend on how the commodities markets perform.

Tags: , , , ,
Posted in Uncategorized | Comments Off

Mid-Year Farmland Report

Thursday, September 8th, 2011

The IL Society of Professional Farm Managers and Rural Appraisers recently released their Mid-Year Survey regarding farmland values and rent prices. Some of the key points for farmland values from the results include:

-Land values have increased 14% over the first half of 2011

-Excellent farm prices now are averaging $10,000/A

-Most of those surveyed expect values to continue to increase over the next 12 months

-Most expect corn prices to remain north of $6/bushel for the 2011 crop

Some key points for rents:

-Most expect cash rent on excellent farmland to be above $365 dollars per acre, which is an increase of nearly $40/A over 2011 rents

-Good farmland is expected to increase by around $36 per acre and average farmland by $28 per acre

-While fixed cash rent and share leases still make up the bulk of lease arrangements, most expect variable cash rents to gain popularity in 2012 as landowners look to reap more benefits from higher grain prices.

To read the full report, follow the link.

Overall, the survey confirms what many of us in the farmland real estate industry have been hearing out in the field for awhile now- as long as grain prices stay high and interest rates stay low, we are going to continue to see tremendous strength in the industry, whether it is in the form of a record land sale or an updated rent agreement.

Tags: , , , , ,
Posted in Uncategorized | Comments Off

« Older Entries