Tag Archives: chat
Fed Says Some U.S. Farmland Values Surge More Than 25 Percent
Carey Gillam, Reuters | August 16, 2013 KANSAS CITY, Mo. – Farmland prices in key U.S. crop regions surged more than 25 percent over the past 12 months as demand for land remains strong despite a decline in farm income, two Federal Reserve bank reports said on Thursday. Prices paid for irrigated cropland in a central U.S. region that includes Kansas, Nebraska, Missouri, and Oklahoma jumped 25.2 percent from a year ago, according to a report by the Federal Reserve Bank of Kansas City. The jump marks the ninth consecutive quarter in which irrigated cropland values have risen more than 20 percent year-on-year. Non-irrigated cropland rose 18 percent on a year ago, while ranchland rose 14 percent, the report said. Gains were weaker for ranchland, particularly in Oklahoma and some mountain states, because persistent drought has left pastures in poor condition. In the Midwest and in some Mid-South states including Arkansas and parts of Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois, prices paid for quality farmland rose 20.6 percent over the last year to $5,672 per acre on average, according to a report by the Federal Reserve Bank of St. Louis. However, average ranch or pastureland values for the Midwest and Mid-South district increased only about 1 percent to $2,372 per acre over the past year, the report said. The gains come even as farm income in many states is declining, in part due to reduced wheat production revenues and losses in the cattle sector, according to the Kansas City report. The reports are based on surveys of bankers, who pointed to the overall wealth of the farm sector, the current low interest rate environment and a lack of alternative investment options for the price rises. Still, there is a growing sense that values are nearing, or have reached, a peak. While most bankers expected farmland values to remain at current levels, an increasing number of bankers responding to a survey by the Federal Reserve Bank of Kansas City felt farmland values may have peaked. Compared with previous surveys, fewer bankers expected farmland values to keep rising. Among those expecting values to fall, most thought the decline would be less than 10 percent, the Kansas City report said. The Kansas City federal reserve district encompasses key wheat-producing states and largecattle and livestock production areas, while the Chicago district is dominated by corn and soybean farms, as well as large hog and dairy operations. Continue reading
Farmland Ownership Trends Shifting
Jeff Caldwell 08/06/2013 @ 9:15amMultimedia Editor for Agriculture.com and Successful Farming magazine. As farmland values have climbed over the last few years, it’s caused a slowing in a couple of key trends in who owns that land, shifts that could ultimately affect land accessibility for young and beginning farmers, according to one Iowa land values expert. Every five years, Iowa State University Extension farm management specialist Mike Duffy conducts a survey of farmland owners in his state. The survey has been conducted since the early 1980s, a time period that’s seen some major ups and downs in the land market. “The latest Iowa farmland ownership survey is compared to previous surveys dating back to 1982, during the time when farmland values first started collapsing after the boom of the 1970s,” Duffy says, adding that the full results of the survey will be released later this fall. “Looking at the various surveys over the past 30 years shows some of the changes in farming technology, demographics, and other patterns. The 2012 survey also shows the impact of the current land boom on these trends.” The sharp climb in land values since the last land ownership survey conducted in 2007 — a time when values in Iowa had more than doubled — has caused a couple of shifts in ownership that could carry implications for young and beginning farmers in the coming years, provided values are sustained. First, who’s owning the land? Last year, almost one third of Iowa farmland was in the hands of someone over the age of 75. That number has been ticking up since 1982, but just in the last five years since the sharp value climb, Duffy says there’s been a noticeable change. “The percent of land owned by people in this age category had been steadily increasing since 1982, when 12% of the land was owned by someone over 75 years old. The trend toward increasing age does appear to have been slowed by the boom,” Duffy says. “There are younger owners, although they represent a small percentage of the acres. Over half, 56%, of the farmland in Iowa is owned by someone over the age of 65.” Absentee land ownership has also declined in the last few years since the runup in land values. In 2012, 21% of the farmland in Iowa was owned by an absentee owner. That’s the same as in 2007, but up 15% from 1982. Duffy says the flattening of this number could also foreshadow a major trend shift. “Another trend that seems to have slowed is the percent of land owned by people who don’t live in Iowa full-time,” he says. “It appears that the higher land values had an impact on the ownership by non-Iowans.” These trends are important for all parties involved in farmland ownership and management, but mostly for those on the opposite ends of the age spectrum, Duffy says. This makes it important for those parties to watch them closely and take them into account in land purchase and lease agreements down the road. “Ownership of Iowa’s farmland and access to the use of the land is critical for the future of the State. The impact of the ownership on both beginning farmers and the retiring farmers will be crucial,” Duffy says. “The current situation with respect to farmland ownership in Iowa is a good topic for discussion among landlords, family or heirs, and agribusiness professionals.” Continue reading
Despite Drop in Commodity Prices, Farmland Values Rise
By PAUL SULLIVAN Published: August 16, 2013 DAN LINDSTROM remembers looking at a piece of Nebraska farmland six or seven years ago that cost $3,300 an acre. Raised on a farm, he ran the numbers with his brother who is farming the family land and concluded that it was too expensive. He figured that with a 2 to 3 percent return, it made more sense to put the money into a dividend-paying stock and have his brother lease additional land. A few weeks ago, Mr. Lindstrom said similar land sold for nearly $11,000 an acre. This is a common story across the farm belt. In Indiana, William C. Ade, who made a fortune in oil and gas exploration in Asia, said he stopped adding to his 1,000 acres when the price passed $5,000 an acre. “Right now it’s at auction as high as $12,000 an acre,” he said of land to grow corn and soybeans in northwest Indiana. “A poor plot of land went for $8,000.” Mr. Lindstrom, who is a financial adviser at UBS Wealth Management in Omaha, and Mr. Ade, a member of the investment club Tiger 21, are among investors who say they believe farmland could be headed for a serious drop in values, if not a full-on crash. Of course, many of them have been thinking that for years. The traditional view of farmland, from the farmer to the agricultural economist to the investment adviser, is, as Mr. Ade put it, “an inflation-proof bond.” (“No one is going to steal it,” he said. “No one is going to default on it. If inflation goes up, it will still be there.”) After the financial collapse of 2008, most forms of real estate were shunned. But not farmland. Prices shot up, driven by rising commodity prices from global demand, low interest rates in the United States and high auction prices begetting higher prices. Now commodity prices have fallen. Corn has gone to about $4.60 a bushel this week from over $8 a bushel last year. Soybeans have fallen to about $12.60 a bushel from over $17. Yet the value of farmland for row crops has continued to rise. “We’re kind of at an inflection point,” said Brent Gloy, a professor of agricultural economics at Purdue University. “We’ve had five years of spectacular profitability that was somewhat unanticipated. The U.S.D.A. was forecasting much lower than this, so it surprised people.” Yet there are still reasons to think that there will be buyers for land who will hold on to it for decades to come. A report released by U.S. Trust highlighted the graying of America’s farmers and their need to sell or lease their land as they age. “Can land go up and down?” asked John Taylor, national farm and ranch executive for U.S. Trust, which manages 900 farms for investors. “Sure. But I’ve never seen land go to zero. And with world demand, there is no vacancy factor on good U.S. farmland.” All of this raises the issue of whether it is time to sell. Brian C. Duke, vice president for Northern Trust, said that even with the run-up in prices for commodities, the annual return of farmland remains about 3 percent. Since 2000, the value of land in Illinois, for example, has increased 207 percent. For an investment comparison, The Dow Jones industrial average went up 42 percent in that period. Triple-digit appreciation has a way of luring new investors. More experienced investors said that appreciation isn’t the goal: to realize it you have to sell the land. “The capital gain is nice, ” said Albert Kirchner, who is known as Bud and owned a manufacturing company. “We don’t look at the capital gain. We look at it from a productivity standpoint.” Mr. Kirchner owns 6,000 acres of corn and soybean land in Illinois, an 8,000-acre cattle ranch in Montana and 1,200 acres of timberland in Florida. But his benchmark since he started investing in land after World War II has remained a 4 percent annual return. At that number and using Agriculture Department estimates that the average farmland value in Illinois is $7,800, Mr. Kirchner’s land would be worth $46.8 million, with an annual return of $1,872,000. But for the person who has bought land recently at auction, getting even 4 percent becomes more challenging. At $12,000 an acre, a 4 percent return is $480. Kevin Casner, who farms 2,400 acres in Carrollton, Mo., with his son Adam, said the rents in his area ranged from $150 to $450 an acre. (Those rents were negotiated before commodity prices started to fall, and will presumably drop.) But for the person who has bought land recently at auction, getting even 4 percent becomes more challenging. At $12,000 an acre, a 4 percent return is $480. Kevin Casner, who farms 2,400 acres in Carrollton, Mo., with his son Adam, said the rents in his area ranged from $150 to $450 an acre. (Those rents were negotiated before commodity prices started to fall, and will presumably drop.) A landlord can squeeze a farmer only so far on rent. Mr. Lindstrom said that an acre of his family farm was producing 175 bushels of corn, which equals a little more than $740 at $4.25 a bushel. But a farmer has some pretty hefty fixed costs. He said that, per acre, seed is $100, nitrogen is $100, dry fertilizer is $100, taxes are $50, insecticide is $30, chemicals are $50, and cash rent is $300 on average. That is $680 without factoring in the cost of equipment and labor. There is no room to increase the rent in this example by $180 more an acre. This balance between commodity prices and land values and rents can change. It is why all land investors need to have a long enough time frame. “If you’re wanting to park money for five years, farmland is really not what you should be investing in,” Mr. Duke said. “You need to have that longer-term approach.” Many farmers and investors fear the past decade could be too much of a good thing. “In real terms the gain we’ve seen in farmland values over the last 10 years are greater than those we saw in the 1970s,” said Professor Gloy of Purdue. In the early 1980s, farmland prices crashed when interest rates went up and farmers could not continue to borrow to finance their operations. The two things that could set off a decline are a further drop in commodity prices and higher interest rates. Matt Ward, one of the owners of Premier Grain Farms in Walker, Iowa, said that a drop of $2 a bushel in the price of corn translated to a loss of about $400 an acre. If all 15,000 acres he farms were planted evenly, that would translate into $6 million less in revenue than the land produced last year. Investors who have sharecropping agreements that designate a split in the harvest between farmer and owner will see their return reduced immediately. Those who have cash leases are likely to have to negotiate lower rents when the lease is renewed. Another option for an investor has been a variable cash lease. The owner would accept a lower cash rent up front and negotiate an additional payment if the price of the commodity or the yield was higher. There is now less chance of upside potential. As for interest rates, the fear is that they will rise and the value of land will fall. Mr. Lindstrom, the farm owner who works for UBS, said there was no way to finance land at today’s rates of 5 percent and make money. Cash buyers, he said, are at risk of losing their principal. “Could the land go from $10,000 to $15,000 an acre?” he said. “Sure, but not today and not with corn at $4.25. I’d be surprised if we don’t go from $10,000 to $8,000 or $7,000. Land has tripled in the last five to six years.” Still, this was the man who passed on buying land at $3,300 an acre because he thought it was overpriced. “We just tried to buy more ground and were willing to go to $7,500 an acre,” Mr. Lindstrom said. “It went for $10,500. My instincts tell me we’ll buy that ground, and we’ll buy it cheaper.” Continue reading
