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Adding Up Farmland Value Factors

http://www.agricultu….jpg&type=admin Jeff Caldwell 09/17/2013 Death and taxes. The old saying is those are the only two certainties in this world. And right now, that’s especially true for the farmland market. There’s not as much land going onto the market for sale right now — for a few reasons — and that calls for anybody looking to add acres to their farm to always be ready to pull the trigger, says one farmland market expert. The proposition of buying or selling land, especially the latter, is typically an emotional one, and as such doesn’t always follow market fundamentals and dynamics in lockstep. So, in lieu of a textbook for how to approach buying land when considering these factors, it’s important to always be ready when the time arises that circumstances dictate a seller to pull the trigger, says Randy Hertz, accredited farm manager and land consultant with Hertz Farm Management, Inc. “Certainly, you need to be in buying position. As people get panicky, they may be willing to take a lower price or offer lower than the general public really would anticipate. It’s an emotional decision,” he says. That emotion is typically manifested directly in how buyers approach potential land buys from sellers who, whether it’s the settlement of an estate by multiple stakeholders or a retirement, may be facing just as emotional a set of circumstances themselves. Combine that with the fact that buying land is a long-term decision, and it can make it tough to forecast how any given land sale will shake out. Then, add on to that variables specific to years like 2013, namely whether the land was planted or laid idle because of adverse weather, and sale prices are tough to peg. All this adds to the importance of staying in that buying position, Hertz says. “As the markets go against you, it’s an angst. As prices go up, you feel good about things. There’s a lot of prevented-planting acres this year. In those areas, it certainly was negatively impacted by the emotions of struggling crops,” he says, adding that a recent Iowa land sale netted a lower-than-expected price because it hadn’t been planted in the spring because of the weather. “People get bullish at the top. People overstay the market. Farmers are notorious for this. They ride it up, ride it down, and right at the bottom, freak out and sell in the bottom third of the market. “It’s such an imperfect market,” he adds. Right now, a major factor playing into both the amount of land going up for sale and the price volatility those sales yield is the state of the economy, both on the macro level and in the ag sector. In the former, taxes and return on investment are huge factors. Farmland remains a solid investment compared to equities, and with the tax implications of selling land as they are right now, it makes it easy to hold on, even if the climb in land values is seen tapering off. “There are just fewer farms on the market now. The reason for that is when you’ve got a land market that increases in value, people don’t want to pay taxes on that increase. And, you’ve got low interest rates. They say ‘I’m earning 3% to 3 1/2% on rented land. What would I do if I sold? I’d have to pay tax on $9,000/acre in capital gains,” Hertz says. “You’re going to pay one-third of that in taxes, plus the privilege of 1% on a CD. So, you’ve seen a lot fewer farms for sale. Ones selling are ones stepping up in basis, estates or families fighting.” More specific to the ag sector, crop inputs and cash land rents will continue to drive where sale prices wind up moving forward. The former group influences the direction of the latter, and how close rents have kept up with the general fluctuation of land values will help determine the willingness of landowners on the fence to sell land. “The dynamics of the farm market, specifically inputs have rocketed. Cash rents have not kept pace with the profits farmers have gotten. People are wondering what will happen with cash rents,” Hertz says. “If you had not increased along with where it should’ve been, you probably should’ve gotten an increase. If you were pretty good but not at top of the market, rent will probably be pretty good next year. If you were at the high for cash rent last year, probably adjust downward.” Specific to the last few years in the heart of the Corn Belt, the shape of the current crop on top of how sharply the land market’s fluctuated in the last five years will likely contribute to how it flexes and moves in the future, Hertz says. That’s clear when comparing past moves in key states in the region. “Illinois and Indiana are really strong right now. They’ve got a good crop coming, and they have been somewhat toned-down in their increases. Certainly not as fast as the increases Iowa has seen,” he says. “You’re going to see some adjustments like that.” And while he fully expects the general rise in farmland values to taper off in the coming year, Hertz says current strong grain prices will likely keep the market out of the red, even if this year’s crops don’t amount to earlier expectations. “How could you ever look a gift horse in the mouth? We can sell new-crop soybeans for over $13/bushel cash. Those are phenomenal prices. Yes, we’re going to get kicked in the shorts with our soybean yield, but you still have to sell the stuff,” he adds. “You’ve still got to make a decision.” Continue reading →

Posted on September 24, 2013 by tsiadmin | Posted in Investment, investments, News, Property, Taylor Scott International, TSI, Uk | Tagged , , , , , , , , , , | Comments Off on Adding Up Farmland Value Factors

Tips To Handle Today’s Farmland Market

http://www.agricultu….jpg&type=admin Jeff Caldwell 09/23/2013 Looking for proof the farmland market is starting to plateau? Look no further than the fields of Iowa, where the often-foreshadowed plateau in land values seems to be reaching fruition, at least in parts of that state, new information shows. Iowa has seen a meteoric rise in land values in the last few years, some say more so than other Corn Belt states. Now as the costs and returns for a crop start to converge and factors like taxes start to compel landowners to keep their hands on their land, prices are starting to hit the plateau experts say has been on its way for months. “The dynamics of the farm market, specifically inputs, have rocketed. Cash rents have not kept pace with the profits farmers have gotten. People are wondering what will happen with cash rents,” says Randy Hertz, accredited farm manager and land consultant with Hertz Farm Management, Inc. “There are just fewer farms on the market now. The reason for that is when you’ve got a land market that increases in value, people don’t want to pay taxes on that increase. And you’ve got low interest rates. They say ‘I’m earning 3% to 3 1/2% on rented land. What would I do if I sold? I’d have to pay tax on $9,000 an acre in capital gains. You’re going to pay one-third of that in taxes, plus the privilege of 1% on a CD. So, you’ve seen a lot fewer farms for sale.” Recent data show that three crop-reporting districts of Iowa — the Corn Belt state that’s seen the greatest volatility in land price shifts in the last few years, Hertz says — saw a tapering-off in their climb in value: Northeastern, southwest, and west-central Iowa. Much of that slump has come as a result of commodity prices slipping, interest rates, taxes, and a continued lack of “stable alternative investments.” This is compelling landowners to hold tighter onto their land in many cases, says Kyle Hansen of the Iowa Land Realtors Institute, leader of a statewide survey of farm managers, rural appraisers, and ag lenders. The leveling off in land values isn’t quite yet reaching every corner of the Corn Belt, though. Even if prices stay in the black for the coming few months, that doesn’t mean the reversal in Iowa won’t spread to other major corn- and soybean-growing parts of the nation’s center. “These prices are not at the level of increases we’ve seen in recent years, but they are still upward,” says Dale Aupperle, a farm manager with Heartland Ag Group in Forsyth, Illinois, and chairman of the Illinois Land Values and Lease Trends project, which recently conducted a similar survey of land values in that state that showed values are still climbing, but leveling off in their rise. If the boat does tip, and values do dip into the red, how far might things go? “While most bankers expected farmland values to remain at current levels, an increasing number of respondents felt farmland values may have peaked. Compared with previous surveys, fewer bankers expected farmland values to keep rising. More bankers also expected farmland values to drop after harvest likely due, at least partially, to expectations of lower farm income,” says Nathan Kauffman, economist with the Federal Reserve Bank of Kansas City. “Among bankers anticipating a decline, though, a majority of estimated farmland values would fall less than 10% during the next year. Very few bankers expected that farmland prices would drop more than 10%.” So, what should you do? Hertz recommends three things to help navigate a shaky farmland market: Maintain a buying position. “As people get panicky, they may be willing to take a lower price or offer lower than the general public really would anticipate. It’s an emotional decision,” he says. Continue making cash grain sales. Doing so will help you keep a consistent income streaming in, regardless of where the land market is going and how those sales may affect your ability to secure more land. “How could you ever look a gift horse in the mouth? We can sell new-crop soybeans for over $13/bushel cash. Those are phenomenal prices. Yes, we’re going to get kicked in the shorts with our soybean yield, but you still have to sell the stuff,” Hertz adds. “You’ve still got to make a decision.” Look again at land rents. “If you had not increased along with where it should’ve been, you probably should’ve gotten an increase. If you were pretty good but not at top of the market, rent will probably be pretty good next year. If you were at the high for cash rent last year, probably adjust downward,” Hertz says. Continue reading →

Posted on September 24, 2013 by tsiadmin | Posted in Investment, investments, News, Property, Shows, Taylor Scott International, TSI, Uk | Tagged , , , , , , , , | Comments Off on Tips To Handle Today’s Farmland Market

How Far Can Land Price Hikes Go?

Tri-State Neighbor photo by Barry Amundson Tom Jass, a farm manager and broker’s associate for Farmers National Co., stands in a soybean field that was part of a sale this past summer netting $9,050 per acre for 112 acres of rolling cropland about three miles southwest of Valley Springs, S.D. The “highly productive” land was in a location where land is not frequently available on the market. September 20, 2013 10:06 am  •   By Barry Amundson, Reporter              Tom Jass, a farm manager and broker’s associate for Farmers National Co. from Brandon, S.D., said he hasn’t seen the farm real estate market soften. Why? He has a simple answer: “I think people are bullish on agriculture.” Although double-digit increases in farmland sale prices have been the norm for the past two years in South Dakota and across the Upper Midwest, it might slow heading into the coming year, some predict. Jass, though, said it’s still a seller’s market. Although he doesn’t predict the 30.2 percent increases in cropland values in South Dakota last year to occur again, he does think prices are still on the way up. The increase that raised the average value of South Dakota cropland to $3,020 an acre was provided in an annual report issued last month by the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture. It was based on its survey of producers this summer. It’s similar to what was reported earlier this year by Larry Janssen, the now-retired Burton Pflueger and Bronc McMurtry in the 23rd annual SDSU Farm Real Estate Market Survey. That report said ag land values continue to boom for all land uses and regions of South Dakota. From 2012 to early 2013, Janssen, an economics professor at SDSU, said the increase was 33.6 percent, coming on top of a 26.8 per cent increase from 2011 into 2012. “They are the highest annual rates of increases in the past 23 years of the survey,” the report said. This coming year, however, with lower commodity prices along with uncertainty about future federal policies on deficit reduction, the farm bill, taxation and renewable energy, about 85 percent of survey respondents expected an increase of about 7.5 percent for cropland, compared to 5 percent for hay, pasture and rangeland. The continuing optimism, said the report, stems from the effect of high ag commodity prices on farm profits and cash rental rates, which are capitalized into increasing land values. Low interest rates also have been a catalyst, analysts say. South Dakota’s cropland increase was the second highest in the nation, behind only North Dakota at 41.2 percent. The national average was 13 percent. So what are some land sale prices as of late? Janssen said Brown County in Aberdeen has been a “hot spot” with a recent record sale of more than $10,000 an acre. Jass confirmed sales of $8,500 per acre for 154 acres, which included about 22 acres of “waste land” near Canton in Lincoln County in late June; $9,050 per acre for 112 acres of rolling cropland near Valley Springs in Minnehaha County; and $2,075 to $3,450 for four tracts of a more marginal 690 acres near Howard and Canova in Miner County, also in late June. In late winter, Jass said there was a sale of a quarter-section for about $9,200 an acre in Lake County and a sale of $9,500 for 80 acres, also in Lake County. Across the border in northwestern Iowa, there have been regular sales of $20,000 per acre for some land in the hotbed of agriculture in Sioux County, where cash-rich farmers compete for land to provide feed for their livestock and expand their operations. Another question is whether non-farmers are buying up the land. In a recent survey conducted by Ernie Goss, who oversees an economic index report from Creighton University in Omaha, he asked bankers to estimate the share of farmland sales made to nonfarm investors. Their answer: about 20 percent. In some states, Goss said, investor purchases were down dramatically. The index on farmland prices, meanwhile, declined in August, to 55.8 from 58.2 in July. It was the eighth drop in the past nine months. Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill., said local farmers “have completely driven the nonfarmer investors out of the farmland market by elevating the prices over returns investors demand.” Meanwhile, Derrick Volchoff, a vice president of real estate operations at Farmers National Co., added that investors are sticking with land as a safe, long-term investment while farmers are putting cash from past yearly profits back into operations. Built-up cash reserves for farmers are prompting farm operators to buy premium land when it becomes available to add to their inventory and to accommodate the return of younger family members to farms. For both groups, economic uncertainty is still driving purchase decisions. Farmers are looking for premium land on which to expand, while investors might purchase properties based on price and projected return on investments. “Even with recent drops in crop size for farmers, profits are still at a level higher than in 2010,” Volchoff said. “Farm debt is still low in relative historical terms.” According to Volchoff, several issues in the U.S., such as healthcare and interest rates, are likely to affect economic trends and thus land inventory levels and sales activity once they are resolved. The direction of market and political issues probably will shape the rest of 2013. As the housing market improves, developers probably will begin to buy land for development. An accelerated farmland sell-off at the end of 2012 has left the cupboard somewhat bare and has led to low supplies of premium-quality property, according to Farmers National, the largest farmland and ranch land real estate company in the country. Last year’s rush, prompted by economic uncertainty and tax law changes, continues to have an impact into 2013. High-quality land is still in demand, and buyers are competing for top acres that are currently in short supply. Competition for land has kept values strong, averaging 20 percent higher values over comparable land in 2012. Much of the continued rise is from auction activity driving sale prices as purchasers vie for parcels of land. Mid- to high-quality properties are still seeing such rises in value, while lower-quality land values are staying steady. “Values are still going up, but the pace has slowed overall,” Volchoff said. Janssen said he has difficulty in foreseeing double-digit increases again from 2013 into 2014 as sales pick up later this fall and into winter. “But who knows?” he said. “Last year, we didn’t know for sure what would happen because of the drought. It just didn’t slow anything down,” Janssen said. Lower commodity prices are likely to slow it down from numbers of the past two years, he said. “I just don’t see how it can keep up. I think the issue will be to what extent is there a slowdown. Hopefully, it’s a slowdown and not a reversal. That would really throw things off kilter.” Jass also said there could be a slowdown in price increases, although he hasn’t seen such softening. “I don’t look for another 25 percent increase that we’ve been seeing the last few years. I’ve been in ag my whole life, and numbers have steadily gone up with a couple of blimps, but not those double-digit numbers,” Jass said. Continue reading →

Posted on September 24, 2013 by tsiadmin | Posted in Investment, investments, News, Property, Real Estate, Taylor Scott International, TSI, Uk | Tagged , , , , , , , , , , , | Comments Off on How Far Can Land Price Hikes Go?