Land sales demand has softened, according to Jim Farrell, president and CEO of Farmers National Company in Omaha, Neb., which manages 3,825 farms that total 1.3 million acres in 20 states in the Midwest and Mid-South.
"Two-and-a-half years ago, we saw some easing as 1031 exchange transactions dropped off," he says. "This was probably the leading edge of the housing slow down. Then in the fall of 2007, surging grain prices led to farmland price increases. In the last 90 days, demand has softened."
Farrell reports in November, of 22 auctions held, 15 priced below comparables; there were seven no sales (four he attributes to below-market cash rental rates locked in for 2009)—two sold later.
In just the first week of December there were five no-sale auctions, he says. It usually is not the top-tier farms that aren't selling, but the ones that need some work or are less than prime. "Iowa led the market up and now is showing the most [overhead] resistance," he says.
Farmers are re-evaluating what they can pay for cash rents, Farrell adds, and there is more interest on both sides in variable-rate cash leases because of uncertainties for 2009 costs and returns.
- Later leasing
- Later planning
- More soybeans
- Less fertilizer (will impact yields)
- More credit problems
- More demand for crop insurance
Mark Lakers of Agribusiness and Food Associates in Omaha, Neb., which funds mergers and acquisitions, expects the ethanol industry to consolidate from 150 producers to 25 to 50 in the next three to five years—or sooner. He estimates that in the fourth quarter of 2008, five to 10 will file Chapter 11 bankruptcy proceedings and liquidate in early 2009. Further, he says 40 will be in Chapter 11 by Jan. 31, 2009.
Lakers predicts more involvement from foreign banks, nontraditional lenders (supplier credit) and the Farm Credit System in agriculture as commercial banks consolidate.
"Beef production will drop 10% to 20% in five years," he says. "U.S. is the only developed country that eats more beef than pork, because of its relatively inefficiency in conversion to protein. We will see this begin to shift. The world recession could cut U.S. per capita consumption by nearly 20%." He reports five times the normal historical number of feedyards of 10,000 head or larger are for sale today.