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May 2011 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

More About That $12,900/acre Sale In Illinois, And Other Stuff

May 31, 2011

Mike Walsten

Rumblings are still being heard across the Midwest regarding that sale of 77.5 acres near Champaign, Ill., for $12,900 an acre. As I mentioned last week, (see story here) the land involved was some of the best of the best with a soil Productivity Index of 143.3 (147 being maximum). A few wondered if there was any potential "path of progress" in the mix since the farm in question was relatively close to Champaign. But the answer is "no," there is still plenty of open farmland between the farm in question and the western edge of Champaign. We're told the investor/buyers are an area couple who have quite a few holdings in eastern-central Illinois and are active players in the local market.

The May 26 auction was selected to avoid conflicts with planting corn and soybeans, says Brent Bidner, Hertz Farm Management, Inc., Monticello, Ill., who handled the auction. But with the wet spring and delayed planting in the area, the conflict with planting was still a potential. "Then we got 2. 7 inches of rain the day before and we had 250 to 300 attend the auction," he tells us. The auction was very competitive, he tells us, with several bidders involved. "We had one fellow who came in and told us 'If you want to start the bidding at $10,000, you can pin in on me. I'm not afraid to own it at $10,000,'" Bidner told us. The bidding started at $8,000 asking for $9,000 and away it went. "When the auction was finished, the contending bidder (neighboring landowner) shook hands with the winning bidder," Bidner says.

Look at the other two farms that sold at that auction-- $11,700 an acre and $11,300 an acre. Both located farm enough away not to have anyone thinking "path of progress." Their PIs were just a little lighter at 140 and 140.4. Buyers were local farmers/investors. The prices confirm the strength of demand for top-quality farmland.

By the way, the Champaign farm had a cash rent of $300 on it, negotiated early last fall before the explosion in corn prices, we are told.

Also, here are a couple of stories we found interesting. They have nothing to do with the above auction.

The first is about the land grab in China -- basically, if you have farmland that developers want, you're out of luck. Check here for that story carried in The Hindu. We know some people have been abused through eminent domain proceedings, but at least we have that right in the U.S.

The second is a horror story about an oral lease (and attorney errors) gone bad in Indiana. Click here for that story carried in the South Bend Tribune.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Farmland Auctions This Week Marked New Highs

May 27, 2011

Mike Walsten

A friend recently asked me if I had seen any backing off in prices for Corn Belt farmland. I said I hadn't but that it was a little difficult to get a reading in April/May because farmers are usually in the field and offerings are limited. Sales this week answered the question -- no backing off at all. In fact, it looks like new highs instead.

Wednesday May 25, 80 acres southeast of Royal, Iowa, in Clay County sold for $10,550 per acre. It featured 79.5 tillable acres and a CSR (Corn Suitability Rating) of 78.2 versus the county average of 67.7. We are told it was purchased by an investor from Sioux County. Auction was held by The ACRE Co., Spencer, Iowa.

Thursday May 26, 257.5 acres offered in three tracts ranging from just west of Champaign, southwest of Pesotum and southeast of Bement, (Champaign and Piatt Counties) Illinois. Prices for each tract -- $12,900 per acre, 77.5 acres with a soil Productivity Index of 143.3 (147 max); $11,700 per acre, 80 acres with a PI of 140; $11,300 per acre, 100 acres with a soil PI of $140.4. Auction has handled by Hertz Farm Management, Inc., Monticello, Illinois.

Here is another of interest:

Saturday May 21, 160 acres 6 miles northeast of Storm Lake (Buena Vista County), Iowa. $7,200 an acre -- probably a new high for the county, 156 acres tillable and CSR of 77.8 versus 72.4 county average. Get this-- it had 20 acres enrolled in CRP until 2020 at $186.16/acre -- not viewed as a positive. This was handled by Stalcup Ag Service, Storm Lake, Iowa.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

OK, Now We're Confused

May 24, 2011

Mike Walsten

Not long ago we were running stories from Yale's Robert Shiller about his "favorite dark horse candidate" call for farmland to be the next bubble. See this and this. But at a recent conference of investment big-wigs, he talked a gloomy outlook for most investments and then singled out farmland as his best bet. “My only bullish call is farmland,” he said. “My only bullish call is farmland,” he said. I don't know about you, but this certainly confuses me.

For the full story, click here.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

KC Fed Bank Warns Of Farmland Price Risks

May 23, 2011

Mike Walsten

One of the consistent voices of warning on the risks in current strong farmland prices has been the Kansas City Federal Reserve Bank. We have carried the bank's warnings both here and in our LandOwner newsletter. The bank has increased its call for caution with the release of a 7-page paper titled: "What are the Risks in Today's Farmland Market?" The work by the Fed's Jason Henderson, Vice President, Omaha Branch Executive, and Brian Briggeman, economist,may seem apocryphal. It's worth reviewing to make sure you have your own operation's finances in order to ride out the set-back in land values that will eventually occur. The key question, of course, is when.

The paper points out that "current farmland values reflect high farm revenues and low capitalization rates." In other words, you toss $5 and $6 corn out there on top of low interest rates, and you get high farmland prices. No surprise there. But what happens if farm incomes fall and/or interest rates rise? That is the Fed's warning.

Here's what the paper states: "If returns on alternative investments rebound, capitalization rates could increase and cut farmland values. For example, with prices remaining constant and capitalization rates rising to their historical average of 7.5%, eastern Nebraska’s irrigated cropland values could drop by almost a third.
           " Farmland values could also fall if farm revenues decline," it continues. "In response to today’s current high commodity prices, U.S. farmers are expected to expand their crop production. With larger production, crop inventories are projected to rise, placing downward pressure on crop prices. In fact, by 2013, USDA projects U.S. corn prices to fall to $4.10 per bushel with larger inventories. If these expectations are realized and corn prices fall to $4 per bushel, irrigated cropland values in eastern Nebraska could fall more than 20%, even if capitalization rates remain at today’s historically low levels.
            "The worst-case scenario is a combination of higher capitalization rates and falling farm revenues," it continues. "In 1981, the spike in real interest rates pushed capitalization rates to historic highs. At the same time, high interest rates contributed to higher exchange rates, lower agricultural exports, falling commodity prices, and cuts in farm revenues. From 1981 to 1987, the combination of higher capitalization rates and falling revenues contributed to a 40% decline in real U.S. farmland values, with even larger declines in nominal farmland values. If similar events occur in today’s environment, farmland values could plummet. For example, in eastern Nebraska, if capitalization rates return to their historic average of 7.5% and corn prices fall to $4 per bushel, then irrigated cropland values could fall nearly 50% to about $2,600 per acre. Other regions face similar risks."

That's sobering. In the face of that, here's what we've been cautioning in our newsletter -- while we remain positive long term on land values, farm operators need to keep leverage low (pay down debt), build working capital (as much as 40% to 50%) and lock-in long-term interest rates in order to ride out the period negative profitability and financial stress that will eventually occur. Fortunately, it appears there is still time to get these financial goals executed.

Read the full Fed report here.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Wall Street Advisor Talks Up Farmland As An Investment

May 20, 2011

Mike Walsten

Here's another Wall Street investment/advisor type talking up ownership in farmland. His main focus is that farmland is the current buzz word for hedge funds. There's some interesting observations in the piece. But most curious to me is his reference to a presentation by Yale professor and hedge fund investor Robert Shiller. Based on the comments, it sounds like Shiller was positive about farmland as an investment. You'll recall that it was not too long ago that Shiller (author of the phrase "irrational exuberance" in a book by the same name) was talking up farmland as his dark-horse candidate for the next bubble. Click here and here for those items.

The attention by the investment community, and especially the hot money hedge fund crowd, is a little disquieting for long-term land bulls. That industry represents a massive potential influx of demand and cash into the land market, which could become a problem since the farmland market is illiquid and available supplies are limited. A massive rush by this crowd to own U.S. farmland could create a bubble rather quickly. Currently, farmers remain the dominant buyers, frequently elbowing investors (most of which are not hedge funds) aside. And, these farmer buyers are predominantly using cash rather than debt to fund their purchases. As long as that is the case, that should help reduce (but not eliminate) the risks of over-inflating the farmland market.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

16% Increase Seen In Value Of Central Corn Belt Farmland

May 19, 2011

Mike Walsten

The value of good agricultural cropland in the central Corn Belt rose 16% for the year ending March 31, according to a survey by the Federal Reserve Bank of Chicago. That percentage increase is the largest since 2007. Values have not increased more than that since 1979. The Chicago Fed bank serves bankers in northern Illinois, northern Indiana, Iowa, the lower peninsula of Michigan and southeast Wisconsin -- some of the best cropland in the U.S.

The survey also found district land values rose 5% for the quarter versus the fourth quarter of 2010.

Leading the increase was Iowa, which reported a 20% annual return. Indiana followed with a 19% increase. Illinois reported a 17% gain while Michigan listed an 11% rise and Wisconsin reported a 9% increase.

The survey also found cash rents rose 16% for the year ending March 31, as well.

Click here for the full report.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Study Finds No Link Between Biofuels And Land Use In Other Countries

May 18, 2011

Mike Walsten

Here's some interesting research about the lack of linkage between biofuels in the U.S. and it's impact on land use in other countries. Researchers at Michigan State University conducted the study. Bottom line: there's no connection. Why is this important? Ethanol opponents have specious arguments that increased corn prices and acreage in the U.S. has negative impacts on the environment through shifting land use (indirect land use) in other countries (read that Brazil and the rain forest/the global warming argument).

Click here for the full report.

Here is what the National Corn Growers Association has to say about it.

Here is what the Renewable Fuels Association says about it.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Cropland Up 20% Central Plains, Fed Bank Survey

May 13, 2011

Mike Walsten

The value of Central Plains cropland rose 20% on an annual basis, reports the Federal Reserve Bank of Kansas City. It's quarterly report shows strongest gains occurred in Kansas and Nebraska. In Kansas, the value of non-irrigated cropland rose 23.8% while the value of irrigated cropland increased 18.3%. In Nebraska, the value of non-irrigated cropland rose 23.7% and irrigated cropland rose a nearly identical 23.5%. Non-irrigated cropland in northwest Missouri rose 16.9% and 14.5% in Oklahoma. The survey found non-irrigated cropland increased 10.3% in the mountain states of Colorado, northern New Mexico and Wyoming. Irrigated cropland rose 12.4% in the mountain states.

The value of ranchland rose, as well, according to the survey. The value of district ranchland rose 11% on an annual basis, according to the survey of bankers. Ranchland rose 11.2% in Kansas; 12.1% in northwest Missouri, 11% in Nebraska, 10.4% in Oklahoma and 11.2% in the mountain states.

In addition, two-thirds of survey respondents said they expected cropland values to level off as the growing season got underway.

On a quarterly basis, the value district non-irrigated cropland rose 7.2% while irrigated cropland gained 6% and ranchland rose 3.4%. In Kansas, non-irrigated cropland rose 7.6%, irrigated 5.8% and ranchland 1.8% versus the prior quarter. In northern Missouri, non-irrigated cropland rose 10% and ranchland rose 8.1% on a quarterly basis. For Nebraska, non-irrigated cropland rose 7.2%, irrigated cropland gained 7% and ranchland was unchanged compared to the fourth quarter of 2010. For Oklahoma, the value of non-irrigated cropland slipped 0.2% while ranchland rose 1.65% when compared to the previous quarter. For the mountain states, non-irrigated cropland rose 6.7%, irrigated cropland gained 2.2% and ranchland rose 7.25% when compared to the prior quarter.

Click here for the full report.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Land Pros See 33% Jump In Iowa Farmland Values

May 13, 2011

Mike Walsten

Land professionals at this year's Soil Management and Land Valuation Conference sponsored by Iowa State University (ISU) project an average acre of Iowa cropland will be $6,721 per acre by the end of the year. For perspective, the annual ISU farmland survey pegged the average value of an acre of Iowa farmland at $5,064 an acre as of November 1, 2010. Therefore, that $6,721 price, if achieved, would represent a 33% jump in value. The ISU survey has not seen an annual increase that great since the mid-1970s when values rose by 30% or more three consecutive years -- 1973, 1974 and 1975.

Attendees as the conference (usually held in May) are routinely asked their price projections for land values by year end. Last year's attendee projection was within 3% of the final ISU survey figure.

In addition, attendees were asked their price projection for the end of 2012. The group turned in an average of $7,079 per acre. If achieved that would amount to a 5% gain, which signals the pros expect the currently red-hot market will cool in 2012.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Discount Newspaper Report On Farmland Bubble Burst In Minnesota

May 12, 2011

Mike Walsten

Don't get excited about the Star Tribune's story about the Minnesota farmland bubble bursting. The story, which ran yesterday, cites research conducted by the University of Minnesota which shows the median price of Minnesota farmland sold in 2010 declined by 7%. (You can read the full story here.) The annual study, conducted by ag economist Steven Taff, looks at the sales reports for each piece of farmland sold within the state as recorded at the county courthouse. The data is available to the public in the Minnesota Land Economics website. There are more than 52,000 sales listed in the website from October 1, 1989 to September 30, 2010. That September 30 cut-off date probably explains what's happening here.

When did corn and soybean prices take off last year? August. So the data cuts off just a month after the rise in prices began.

If a sale is recorded at the courthouse, when did the sale occur? Who knows, but not on September 30, 2010 -- at least 30 days ahead of that and more likely two, three or more months ahead of that. That means the recorded data did not have a chance to reflect any of the demand strength stimulated by the dramatic run up in commodity prices which occurred the last half of 2010. In fact, the commodity price outlook the first half of 2010 was gloomy becoming gloomier. In May, for instance, the USDA was projecting a season average price of $3.50 per bushel for 2010-crop corn. What little cropland that was offered sold, but the market was not very active.

Taff's research is very thorough as useful. You can check it out here. But just keep in mind that it does not reflect any of the dynamic market activity that has occurred since Oct. 1, 2010. In his executive summary, Taff writes: "There has been no evidence of either a widespread "farmland bust" or--a phenomenon sometimes reported in the press--a "farmland boom" in Minnesota, but there has been a notable reduction in the number of transactions and in the acres sold in the past few years."

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Canadian Farmland Rises 2.1% Last Half 2010

May 10, 2011

Mike Walsten

The value of Canadian farmland rose 2.1% the last six months of 2010, according to the bi-annual analysis of 245 benchmark farms conducted by Farm Credit Canada, the nation's leading agricultural lender. That increase followed gains of 3% the first half os 2010 and 3.6% the last half of 2009. When combined, the increase in the average value of farmland across Canada rose 5.1% in 2010.

The highest percentage increase, 3.2%, was found in Prince Edward Island. Saskatchewan was the second highest at 2.7%. Farmland values were either stable or increased in all provinces. New Brunswick and Ontario saw 2.4% growth followed by Alberta at 1.5% and Manitoba at 1.3%. Quebec reported a 0.9% rise, followed by Nova Scotia at 0.6% and British Columbia at 0.4%. Newfoundland and Labrador, reporting as one entity, reported no change in the value of farmland.

Click here for the full report.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Survey: Iowa Average Cash Rent Jumps $30 An Acre For 2011

May 03, 2011

Mike Walsten

The average cash rent in Iowa rose to $214 an acre for 2011, according to the annual survey of cash rents conducted by Iowa State University. That state-wide average is up $30 from 2010. Bremer County reported the highest county average at $266 an acre followed by Grundy County at $259 an acre, Cherokee County at $255 an acre and Black Hawk County at $253. Wayne County listed the lowest county average at $145 an acre followed by Appanoose County at $154 and Monroe County at $157 an acre. Ten counties reported a high (not average) cash rent of $400 or more with the highest, $425 an acre, reported in Wright County.

Click here for the full report.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

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