If you haven't checked land prices lately, you might be somewhat surprised by what you find. Despite the negative economic news, there are more buyers seeking top-quality land than there are sellers. The result is some strong prices for better-quality farmland and, in some cases, even higher prices than those seen in 2008.
"There is not much land for sale,” says Mac Boyd of Farmers National Company, Arcola, Ill. "But what is offered brings as good or better price than it did during the highs of 2008.”
For example, Farmers National Company just had an auction in Edgar County, Ill., that brought a new high for the county.
Since that sale, a farm located near Humboldt, Ill., in nearby Coles County brought $7,600 an acre for 60 acres (59.5 acres tillable) and $7,800 an acre for 39 acres (38 acres tillable) at an auction handled by Stanfield Auction Co., Charleston, Ill.
It's not just the hotbed land market of east-central Illinois that is seeing top prices. An early December auction of 83.5 acres in Warren County, Ill., conducted by Van Adkisson Auction Service LLC, Roseville, Ill., saw the farm pass to a neighbor farmer for $8,400 an acre.
"Guys that I can't get to consider a property at a given listing price will bid more than that price at an auction,” Boyd says.
Competition Still a Factor. It's difficult for buyers to judge the value of farmland when the media tells them prices are going down. But when they see a competitor aggressively bid for a property, their conservative market perception collides with reality and their willingness to bid can rise.
Much the same is true in northwest Iowa (see table below on the Iowa Land Value Survey). "Because there is not much land on the market, what is available attracts lots of interest regardless of quality,” states one area farm manager.
"There are very few listings,” adds Dennis Reyman of Stalcup Ag Service, Storm Lake, Iowa. "No one wants to sell. People have learned land is good compared with the stock market.”
Sections of 80 acres are selling better than quarters because the farmer–buyers can write the check for 80 acres, but they may have to borrow more money than they want to for the quarter, Reyman says.
Quality Counts. There's pent-up money looking for land, but it's very selective, says Ray Brownfield, broker associate with John Greene Land Company in Oswego, Ill. "I'm seeing good-quality ground bring the mid-$7,000 range. Buyers are primarily expansion-minded farmers,” Brownfield notes.
Land with poorly drained soil that's a little high on the percentage of nontillable-to-tillable ground is probably going to sit on the market for a while, Brownfield says. For example, some Class B–type ground sold recently in the mid- to upper $5,000 range in the Bloomington, Ill., area, he notes.
Farm managers and farm real estate brokers in Indiana agree there is strong demand for quality farmland, but they also note the volume of offerings listed for sale increased near the end of 2009.
"We're saw a pickup in volume at the end of the year in our area,” comments Matt Rekeweg of Halderman Farm Management, Wabash, Ind. "Some people wanted to get a sale done because they are worried Congress will change the rules on capital gains taxes in 2010. They wanted to make the sale to be safe in case that happens.
"Prices have been strong,” he continues, "but if the percentage of nontillable ground to tillable ground is too high, then you see problems.”
Lower Borrowing. Land professionals in eastern Nebraska tell a similar story. "Prices in my area are strong, but there is just nothing available,” reports one southeastern Nebraska farm manager.
"Prices are back to where they were early last fall, but there are very few tracts on the market,” reports Ron Schultz of Pathfinder Company, Fremont, Neb.
But the number of offerings available seems to be higher in western Nebraska. "From Grand Island west, I'd say the land market is very active and values are steady to strong,” states John Childears of Agri Affiliates Inc., North Platte, Neb.
"I know this is not what you're hearing elsewhere, but there are lots of offerings and every offering attracts a lot of interest,” Childears says. "Most of the buyers in our area are producers from within a 50-mile radius and most of them do not have to borrow more than 50% on the purchase.”
Farm Expansion Stalled
A survey conducted by the private lender Rabobank found that nine out of 10 farmers (88%) plan to keep the size of their farm the same in 2010.
That figure is virtually unchanged from the previous winter (90%). The survey did find a slight increase in the number of farmers who plan to sell land—5% in the current survey versus 2% in the previous survey. The number who said they plan to buy additional land remained unchanged at 6%.
These findings support what brokers are seeing in the land market, where it is difficult to find buyers if the quality of the land offered for sale is not up to par or there is some other problem with the property. However, if the quality is top-notch or it is the farm right next door, the willingness to buy seems to reappear.
Income Deteriorates. The survey also found that about 40% of those participating believe their income will be worse in 2010 when compared with previous surveys. Less than 5% of farms surveyed saw an improvement in income in 2009, a drastic downturn compared with the previous year, according to Rabobank.
However, 27% of respondents have some hope that their income will improve. Size of farm does seem to matter, as twice as many larger farms with revenue between $1 million and $3 million are expecting income to be better in 2010.
Additionally, 66% of farmers surveyed said they had no plans to purchase farm equipment. However, farms in operation 40 years or longer are more likely to buy equipment than newer farms, the survey found.
Top Producer, January 2010