Posts Tagged ‘midwest’

« Older Entries

Farmland Attracting Attention

Thursday, June 16th, 2011

Summer is typically a slow time for land sales, with the bulk of auctions and brokered sales occurring in the post-harvest and pre-planting timeframe.  However, as the temperature has risen this summer, so have the number of sales.  Not only are the frequency of sales higher this summer, the prices are hot as well.  There have been reports of multiple sales of over $10,000 per acre, with a recent sale in Champaign Co. bringing $13,500 per acre.

As we have discussed here before, it is a combination of factors currently driving the market.  Corn and bean prices, while having cooled off in the last week or so, are still hovering around historically high levels.  For the farmers that have dodged the severe weather so far this year, they are shaping up to have a very profitable 2011 crop year – meaning they will have money to reinvest in their operation.  Investors, whether it be a hedge fund, a pension, or in individual, are looking to farmland as a safe, reliable place to park money and still get a respectable return.  Even with the number of sales picking up, there remains a lack of overall supply of available farms.  Low supply, combined with the high demand from the previously mentioned buyer groups, is  advancing the farmland market at a rapid pace.

One can only speculate how long this bull market will last.  It seems that with the ever-increasing worldwide demand for food (and U.S. crops) the underlying fundamentals appear strong to keep corn and bean prices around their current levels for the foreseeable future.  As long as this is the case, there is going to be opportunities to make money in agriculture, which will continue to fuel the farmland market.

Want to read more on this topic?  Take a moment to read a recent article in Time –  America’s Hottest New Investment: Farmland

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

Weathering the Storms

Thursday, May 26th, 2011

Crop farming in the Midwest can be a challenge.  I heard one person describe it as follows: “it’s a business where you borrow lots of money to plant a crop that you hope you can sell for a profit realizing that most years the weather will likely impact your bottom line more than your management abilities.”   This sounds a little simplistic but it’s  often true… most corn and soybean farmers begin each season with the hope/belief/faith that crop growing conditions will be ideal; or at least average; or ”please no worse than last year”. 

Weather stories have been leading the agricultural newscasts for the past several weeks.   Two recent articles posted on AgWeb (Rain Has Ohio Farmers Weighing Options) and (As Texas Drought Tightens Grip, Losses Mount) show the extremes across the U.S.  Fortunately, crop insurance coverage can now help manage some of this weather risk.  The policies won’t guarantee a profit but at the same time they can help the farmer protect the investment he’s made.  Better stated, it will cover the direct input costs but it won’t provide enough for a big capital purchase like farmland.

Many climatologists believe that weather patterns are becoming more erratic, thus we should prepare for more extreme conditions.  This isn’t exactly comforting news to those in farming who worry about timely planting (as they are in Ohio this year) or timely rain showers (as they are in Texas).  But, it’s something that you must accept if you want to be in the business.

Tags: , , ,
Posted in Uncategorized | Comments Off

The Impact of Higher Farmland Values on Real Estate Taxes

Friday, May 13th, 2011

Amongst all the euphoria surrounding the recent jump in farmland prices, there’s one issue that is just starting to be debated… if and how corresponding real estate taxes should be increased to recognize the higher values.  You may think that this isn’t even an issue in your state – there’s already a formula that addresses how much assessed values can change from year to year.  But let’s take a quick look at the big picture across most of the Midwest.  First, the majority of school, local, and county municipalities (the final destination for real estate taxes) are having trouble balancing their budgets.  Second, true valuations for residential, commercial, and industrial properties have fallen the past few years and in some cases the decrease has been dramatic (and I don’t think it would be financially or politically expedient to raise taxes on home owners who are struggling to make their mortgage payments).   And finally, farmland valuations have increased dramatically (primarily as a result of record profitability).  Hmmm, call me a cynic but it wouldn’t surprise me if some politicians begin calling for farmland owners to start shouldering more of the tax burden.

Iowa is beginning to address this very issue and a recent article in the Des Moines Register (Property Tax Bill’s Later Impact Fuels Debate) provides an overview.  This is one fight that will not be pleasant as government officials know that have to generate more revenue (O.K., they could also cut spending but that’s a different discussion).  And as we’ve seen across all levels of government, there is no law/rule/formula that can’t be revised, especially if they can frame the argument as being “in the best interest” of the public.  Regardless, I think farmland owners should start preparing themselves for what’s to come.

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

Land Values Continue To Rise

Friday, March 25th, 2011

We recently had the opportunity to attend the Illinois Land Values Conference in Bloomington where participants discussed the last 12 months of trends in farmland values and leases.  Needless to say, with some of the sales that have been occurring lately, there was plenty to talk about!  According to the research, good-quality Central Illinois farmland increased 22% since last year’s report.  Keep in mind that that doesn’t include some of the more recent sales data that we have seen over the last 4-6 weeks.  In some areas, there have been reports of sales being 25 – 35% higher than a year ago.  In Southern Illinois, prices of good-quality farmland have risen by as much as 33% and in Northern Illinois as much as 18%.

What is driving the market right now?  The conclusions reached at the Land Values Conference are similar to what we have seen: 1) Farmers will be able to sell their grain at a high price this fall and are penciling in strong profits.  In our experience, farmers typically reinvest their profits back into their operation (i.e., buy more farm ground), as opposed to stocks, bonds, etc.  2) Interest rates remain relatively low and financing is readily available to farmland buyers who need it.  3) Investors, both individual and larger institutional buyers, view farmland as a stable investment that they can use to diversify their portfolios and receive a steady annual income off of.

So what is farmland worth in today’s market?  It is a bit of a moving target, but the simple answer is, “More than it was a year ago”.  In a recent DTN-Progressive Farmer article (Land Prices Soar in Seller’s Market), 1st Farm Credit Services appraiser Charles Knudson is quoted as saying he is appraising farmland at 4% monthly gains at the moment in his area.  It is important to remember that the overall farmland market is still very much a group of localized smaller markets.  A farm that sells for $10,000 per acre may only be a few miles from a farm that sells for $8,000 per acre…and both farms may have been sold for their maximum value.  While location is one of the biggest factors in determining the value of a piece of property, it is not the only one.  Do your homework on recent sales and see how they stack up to yours in terms of soil quality, drainage, fertility, access, eye-appeal, etc.

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

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.

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

« Older Entries