For Sale: Farmers and Banks Jump on Available Land
In August, 80 acres of farmland sold for a record $22,600 per acre in Grundy County, Iowa. Earlier the same month, another parcel of farmland in northwest Iowa sold for $19,000 an acre.
To shed light on the record-breaking farmland prices, Doug Hensley, president of Hertz Farm Management, joined Davis Michaelsen on AgriTalk.
“It seems like more people are stepping up to raise their hand and say they’re interested in a farm. That’s a little different than what we experience on a year-to-year basis.”
Federal Reserve reports from Chicago, Kansas City and other districts show current lending availability greatly exceeds previous years totals, according to Hensley. Therefore, both banks and farmers are jumping on any available opportunity.
“[Farmers] were able to make really good money on their 2020 crop, and obviously forward contracts in 2021 look good. Banks have a ton of money available to lend right now,” Hensley says. “When you look at forward cash flow, more borrowers are being reflected right now as very qualified borrowers. Then you add on top of that, there’s a lot of cash still out in the countryside.”
Farmers have a track-record of reinvesting funds inwardly. Today’s markets make those reinvestments particularly evident.
“There’s one thing I know about farmers, and just people in agriculture, when profit is made, people have a tendency to reinvest in their business,” Hensley explains. “That comes in the form of buying either additional land or upgrading equipment. I think we’re seeing a lot of that right now, but we’re seeing it a lot with cash.”
Low interest rates play a big role in today’s bidding game, according to Hensley.
“For people who want to borrow a little money, interest rates are phenomenally low,” says Hensley. “You can borrow on a 20- or 25-year amortization with a 10-year lock and get between 3.5% and 4% easy right now.”
According to Hensley, the increase in farmland prices this year compared with previous years has many questioning their next move.
“I think some people may have inherited property over the last five or six years and the market hasn’t been on fire. People who were maybe sitting on the sidelines thinking they’d wait for a better market are saying now is the time,” he explains.
With low interest rates and high sale prices, speculation that an increase in farmland for sale will drive down prices is a cause for concern. Nevertheless, Hensley says to put those worries on the backburner for now.
“We believe that can be a concern in the longer term if the pace of sales again increases. If it happens month after month after month, will we get there? Potentially? But right now, we’re not there yet.”
Listen to the full interview with Doug Hensley here.
