High Dollar Farmland: Can You Really Afford It?

18:30PM Aug 29, 2018
Chrysanthemum

Lower commodity prices and higher input prices are causing pain in farm country more and more each year. This year, Tim Homan of RaboAgrifinance said that could result in land sales and farmers letting go of cash rented land that’s too expensive. 

“Regarding how things are in the countryside, it's rough, and it's every year is getting a little bit rougher,” he told Chip Flory on AgriTalk After The Bell. “I keep thinking this is the year we're going to see a few more land auctions, where people strengthen their balance sheets, bring some liquidity in, and let go of the farm.”

According to Homan, some farmers may need to let go of land they’ve rented for a while, but the landlord does not want to negotiate.

“[If] you can't make a profit on it at some point in time, you just got to say, ‘Enough is enough. I can't afford to lose any more money,’” he said.

Over the past four or five years many farmers have focused on trying to reduce cash rent costs, but landlords seem to be unwilling to budge. 

“Everybody's [saying] rents need to come down. My clients, the farm management companies, they all say it's got to come down, but there are still too many guys willing to step in and pay the higher dollar rent and take a chance,” he said. “One thing that people don't think about when they're looking at rents, [is] a lot of times they're going three years in a row with 220-240 bushel corn.”

When you start penciling in 220-240 bu. corn, versus 180 bu. corn, cash rents from a dollars per bushel perspective don’t seem so high, according to Homan. 

 

Land Values

According to Homan, land values still hinge on location and quality. 

“Better quality stuff is still bringing good money, and in the right location [it’s] bringing very good money,” he said. “You want to put something on the market that is lower CSR, especially for any particular area you're in, the average it’s going to be more of a question of ‘Is going to bring what you're looking for out of it?’ I don't see that changing anytime soon.” 

Homan said unless these prices come back a bit, yield will keep some guys in the game. 

“But some will have to still look at ways of making their balance sheet stronger and through that will be the liquidation of some land somewhere along the way,” he said. “So be curious to see how long that market can sustain top dollar on a lot of dirt.”