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  #1  
Old 10-04-2011, 01:31 PM
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Default High Farmland Prices & 'Typical Buyer'

I heard this article on NPR the other day talking about the rising price of farm land due to:
"[Some people are] sitting in New York [and] saying, 'Well, I don't know, I've never even been to Nebraska, but by golly, I'm going to buy some Nebraska land,' " Goss says. "And you have these groups coming together ... that are buying farmland [and] driving up farmland prices to prices we've not seen before."
I don't work out there, but I wondered how those of you who do handle this. I guess at issue is the 'typical buyer' part of the definition of market value, which we all have to deal with. When do the investors in commodities become the typical buyer and the poor graduates in the article are just out of luck?
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Old 10-04-2011, 03:46 PM
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There was a brief article in last months REALTOR magazine that discussed the run up in prices of farmland. You might want to see if you can find a copy.
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Old 10-04-2011, 10:18 PM
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My understanding there is also a very well versed and well funded number of "investors" who are purchasing farm land at the higher prices realizing the potential of the crops moving forward in the unfolding world economy .... anticipating that the US will again become the premier agricultural country ... with the task of feeding the world.
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Old 10-04-2011, 10:48 PM
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First of all I would take anything said on NPR with a grain of salt.

Farm prices have been driven up significantly. In the midwest corn drives everything, all prices follow corn. Corn was at $3.25/bu in early 2010, by late 2010 corn was in the $6 range and two months ago corn was at almost $8/bu. Corn has now settled to the mid $6 range the last time I checked.

The largest corn producers are Illinois and Iowa with 40% of the corn production in the USA and 20% of world production. They are also #1 and #2 in soybean production where prices of soybeans were approaching $14/bu.

The OP talked about Nebraska which is around #4 or #5 in corn. Wheat is big in Nebraska; but not the most profitable crop. Corn and bean production in Nebraska is a fraction of Iowa and Illinois.

The others in the top ten in corn and beans are Indiana, Minnesota and Ohio. By the time you get to Michigan (#11) it is 1/8 the production of corn and beans of Iowa or Illinois.

Recent headlines show numerous sales of Iowa and Illinois farm land selling for $9,000-$11,000/acre. I have been hearing about $400-$500 land rents in those two states for the good land.

I have been telling the locals that the prices will go up and the price trends will slowly get to the other corn belt states with most not buying it. Buyers are vast from investors to large farm corporations to the local farmer.

Around here farm prices have risen from the low to mid $3's to now where the low $4's are now norm. Then last week there was a sale of 300+/- acres at $5,300. The land was not that great at 175/bu corn/acre and the land had minimal tile (which is important here).

There are a lot of farmers sitting on a lot of paid for land that have a lot of buying power. The $5,300/acre land was bought with cash. Investors, corporations and local farmers are all participating in the market although I doubt the investors are as well informed as the corporations and local farmers.

Personally I would rather be the seller of farm land at those prices rather than the buyer. If corn goes back to the $4 range beans will be back to $9 and rents will follow as will land prices. Land prices will follow.
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Old 10-05-2011, 06:53 AM
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In the early 80's and late 70's, farm subsidies, easy USDA financing, and high crop prices saw the emergence of a class of buyer that is best labeled "Investor". The Weyerhauser Co. (Timber) had long been the #1 landowner in Arkansas, but the Hunt Brothers bought up large chunks of both farmland and ranches in Texas, Arkansas, and Oklahoma..probably other places. Hunt's went broke trying to corner the silver market. Their cattle starved to death near McAlester, OK when they refused to buy hay for them. But the largest landowner at one point, in Arkansas, was Prudential Insurance. I've attended class with land managers from Hancock and other insurance companies. They already own substantial land assets.
Bonds make nothing. Stocks are in the tank. So where are "investors" going to put their money? Land. Expect a huge increase in land prices and once grain prices fall (they always suffer from over-production and will once again) then land prices will plunge... 2 years from now...5 years...10 years... but they will fall. We've seen it all before. Commodities up...land prices up... stocks down...bonds down...Then the whip hand changes.
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Old 10-05-2011, 08:15 AM
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Default Land $

currently the investors see the 3 to 5% land rent and the current inflation trend as a much better deal than the 1% CD or stocks (pieces of paper) that can go to 0$. Agricultural land always has value. In previous peak to busts land value only fell about 50%, much lest costly than many stocks and bonds. In this cycle we do not have very high interest like in the 80's, so investment is easier (less costly). See Purdue Farm Land Value and Cash Report 2011; or the ISPFMRA (Illinois FArm Managers & Rural Appraisers) 2011 report; or the Illinois Land Sales Bulletin (www.ilsb.us); or the Federal Reserve Bank of Chicago Ag Letters and compare to Commercial outlooks like the one from REALTOR.org ; or Korpacz REal Estate Investor Survey's and such and you might see the reason for the interest.
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Old 10-05-2011, 08:40 AM
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Quote:
currently the investors see the 3 to 5% land rent
Exactly right. What are the advantages of ag land?

The land is non-wasting asset and does not require insurance and upkeep like a building

The rents are usually long term, with the same farmers farming the same ground year after year and they spend the expense of planting and fertilizer - input costs are only taxes and perhaps some modest liability insurance.

The taxes are low. Most agricultural uses are exempt from market based tax rates and relate to rents instead. The typical measure of ag land value (in use) for ad valorem taxation is 10 times the annual rents (so if your land would typically cash rent for grain at $80 an acre, the tax basis is 10 x 80 or $800.

Sharecropping is riskier but often rewarding in high price times. For me, I rented out part of my place on a 25% basis and while I can't count my chix before they hatch, I may actually beat $100 per acre for my part this year far better than a cash rent deal or pasture lease (about $40/acre max.)

Also, many landowners do reserve the right to hunt or otherwise use their property for recreation. I counted 7 deer on my place last night...
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Last edited by Terrel L. Shields : 02-11-2012 at 10:31 AM.
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Old 10-05-2011, 09:09 AM
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Quote:
Originally Posted by Michigan CG View Post
First of all I would take anything said on NPR with a grain of salt.

.
I didn't see anything in that article that didn't go along with what I'm seeing in the field.
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Last edited by Stone : 10-05-2011 at 09:51 AM. Reason: curious grammar
  #9  
Old 10-05-2011, 09:12 AM
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Quote:
Originally Posted by Terrel L. Shields View Post
Exactly right. What are the advantages of ag land?

The land is non-wasting asset and does not require insurance and upkeep like a building

The rents are usually long term, with the same farmers farming the same ground year after year and they spend the expense of planting and fertilizer - input costs are only taxes and perhaps some modest liability insurance.

The taxes are low. Most agricultural uses are exempt from market based tax rates and relate to rents instead. The typical measure of ag land value (in use) for ad valorem taxation is 10 times the annual rents (so if your land would typically cash rent for grain at $80 an acre, the tax basis is 10 x 80 or $800.

Sharecropping is riskier but often rewarding in high price times. For me, I rented out part of my place on a 25% basis and while I can't count my chix before they hatch, I may actually beat $100 per acre for my part this year far better than a cash rent deal or pasture lease (about $40/acre max.)

Also, many landowners do reserve the right to hunt or otherwise use their property for recreation. I counted 7 deer on my place last night...
With the increase in outside ownership, like discussed in the OP's article, I'm seeing more and more long term rental as well - at least in some areas. Many of the areas I work have always been year to year. Granted, the same parties are typically involved every year but contracts were either oral or written but on a year to year (maybe a few years) basis. Now, I'm running across longer contracts with some regularity.
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Old 10-05-2011, 11:38 AM
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Thanks for the feedback everyone. It's very helpful, educational.

Michigan CG, what's tile?
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