I attended a land auction in Macomb, Ill., on Feb. 24. Macomb is the county seat of McDonough County, a relatively small county in western Illinois that features extremely productive row-crop land and just happens to be the area where I grew up and where my dad and brother still farm.
The auction featured an 82.1-acre farm with 80.4 tillable acres, 2 miles east of Macomb. The property is what I consider to be as close to perfect as you will find. The farm is 100% Sable and Ipava soils, with a corn yield rating of 172 on a scale that tops out at 180. The property was pattern tiled some years ago and has a very gentle slope; both features work to make sure that there are no wet holes or ponding issues when a 4" rain comes along.
It has road frontage on two sides, making access excellent but also comprising nontillable acres—the only drawback of the farm, in my opinion. There is a 2.1-acre CRP grass waterway on the property that generates a little bit of income, so it's not as if those acres are dead acres.
Importantly, the farm is located 4 miles west of a shiny new rail-based grain terminal operated by Western Grain Marketing, an affiliate of Growmark. The auctioneer also announced before the sale began that the farm has a multiyear corn yield history of between 230 bu. and 240 bu. per acre. Without a doubt, this farm is a high-horsepower piece of land that anyone would love to own and operate.
The auction opened at $7,000 per acre and rolled along to $7,900 per acre, which is where things stopped cold. Two sale breaks later, the high bid was still at $7,900 and everyone was looking around, waiting for the proverbial late bidder to emerge. But it never happened. The farm sold for $7,900 per acre to a farm operation that bordered it on one side.
As I was leaving, I talked with more than a few people who thought the sale was a little "light.” After all, there had been an $8,700 per acre sale in November just 9 miles to the northeast; an $8,275 per acre sale in December, 6 miles to the east; and other recent sales of comparably nice farms of $8,000 per acre or more within 15 to 20 miles. The general area has been one of the hottest land markets in Illinois. So was the $7,900 per acre sale a steal?
I put a pencil to it and calculated the sale on a per-tillable-acre basis, which is what really matters to buyers, right? Doing the math shows $8,070 per tillable acre. That was not what I had anticipated, based on the recent sales in the area. Which got me to thinking maybe the January USDA report, which gave the grain markets a thorough haircut, impacted the sale more than I expected it to.
The market is different than it was four to six months ago, and buyers may have simply reset their limits. Maybe people in that area are becoming fatigued and somewhat nervous with all of the $8,000-plus sales. Or maybe they observed the little-reported Federal Reserve move in raising the discount rate and have factored in an expectation that higher interest rates are on the way.
I do know the market in that area is very good at sorting through the data and efficiently responding. So that's what I've concluded: The sale certainly wasn't a steal, but rather an efficient response to the current market conditions.
You can e-mail Doug Hensley at email@example.com.
- Early Spring 2010