The cure for high prices is high prices

I just came across another very interesting article written by Dan Piller in the Des Moines Register, titled "Iowa farmland prices hit new record, but boom won't last". The article shows that although farmland prices have soared in the last couple years, farm input costs have risen even faster, commodity prices will eventually come down, and interest rates will also eventually go up. Some combination of these events should lead to a slowdown in the market, or even a slow decline in farmland prices.

The article includes quotes from Mike Duffy of Iowa State University Extension, who recently published an "annual land price survey that showed a 24 percent rise to an average of $8,296 per acre in Iowa" in 2012. Check out the map below for more details - and note that the biggest increases in land prices were all in Northern Iowa, which means similar trends are likely spreading into Southern Minnesota.

Perhaps the most telling quotes in the article are from Bill Davis, chief credit officer with Farm Credit Services of America. Davis "said the increases in farmland values have been driven by three factors: strong domestic and export demand for commodities, historically low interest rates, and strong farm income."

"We believe at least two of these three factors will reverse over the next three to five years,” Davis explains. “The most likely event is a significant reduction in net farm profit levels as we see supplies respond to higher demand levels for commodities. Interest rates also are likely to increase eventually, making alternative investments more attractive than they have been recently.”

Many people remember the farm crisis of the early 80's, but not many believe that it will happen again. As the article states: "Iowa farm values soared in the 1970s in a commodity and land boom similar to today, only to crash spectacularly in the first half of the 1980s. Not until 2010 did Iowa land values return to an inflation-adjusted level of $5,770 per acre."

"Duffy said that because farmers are in better cash positions today than three decades ago, he didn’t think Iowa farmland values were vulnerable to a steep dive. “High land prices kept going higher in the 1970s, even when farm profits narrowed,” Duffy said. “That won’t happen this time.”

If you are interested in selling your farm land at high prices, please contact me. I can perform an appraisal on your land or help you list and sell your property quickly for a fair price. 

Have a great week!

Sincerely,

Noah Hultgren

noah@farmlandman.com

320-894-7528

Sell your farmland before taxes go up?

I hope you all had a safe and happy Thanksgiving! There are so many things to be thankful for!

As we now approach the Christmas season and the end of the year, the pressure is on to sell farmland before tax rates go up. I read an interesting article in the Des Moines Register about the opportunities for selling farmland in the current environment. It was written by Dan Piller, and is included here:

Pressure's on to sell farmland before end of the year
Written by Dan Piller
Des Moines Register


DENVER, IA. — The clean, placid appearance of post-harvest Iowa farmland appears to be far removed from the messy fog of Congressional politics and the fiscal cliff.

But pressure is intense to sell land before Jan. 1 when, if Congress doesn’t intervene, capital gains taxes will rise from 15 percent to 23.8 percent and deductions on estate taxes will drop from $5 million to $1 million.

“If there is a chance that you may want to sell your farm, then you should think hard about getting it done before the end of 2012,” said Des Moines lawyer Bill Hannigan of the Davis Brown firm. On the front lines of Iowa’s farmland boom, farmers and landowners are filing into small-town meeting halls for auctions with one eye on the tax debate in Washington.

“The tax changes are on everybody’s minds. We have a sale every day, except Sundays, between now and Thankgiving,” regional sales manager Sam Kain of Farmers National Co. said before selling 169 acres of Bremer County farmland from the estate of Alvin and Maxine Walther on the day before the election.

“I’ve been in this business for 30 years and I’ve never seen it this busy,” Kain said.

The extra inventory of land sales hasn’t cooled off Iowa’s hyperheated farmland boom. In October the state set a record price of $21,900 per acre in Sioux County.

When the auction began at Denver, auctioneer Jeff “The Dirt Doctor” Obrecht reminded the gathering: “Land like this comes along just once every 50 years.”

Obrecht didn’t really need to entice bidders further. The Walther land bore a Corn Suitability Rating of 87, which attracts farmers to an auction like the opening of a Tom Hanks movie at the multiplex. So it wasn’t much of a surprise that the winning bid of $15,700 per acre from neighboring farmer Ken Eggena came after just 30 minutes of auction, with a break included.

Duane Walther, one of six children who watched the sale of the family land, reflected wistfully after the sales concluded. “Dad bought the first parcel of land for $100 per acre in 1946,” Walther said. “Mom died earlier this year and we are settling the estate. I just think of dad up there and he must be amazed at the price of the land.”

A week earlier a similar farmland sale played out at Gilbertville, south of Waterloo, where a 102-acre farm sold for $15,600 per acre. The sale was triggered by the death of Maxine Even, who had survived her husband, Cletus. The land was in the Evens’ estate and none of the 13 surviving children could afford today’s land prices.

“Some of the siblings are happy and some, who wanted to keep the land in the family, aren’t,” said a son, Gene Even, who lives on an acreage near the farm. Cletus and Maxine Even had paid $31,740 for the 102 acres on March 1, 1965. Almost a half-century later neighboring farmer Ben Riensche made a successful $1.6 million bid at auction for the same ground.

The drought last summer apparently added more fuel to Iowa’s farmland boom, especially when Iowa’s fall harvest yields were better than feared. During a break at the Gilbertville sale, auctioneer Troy Louwagie of the Hertz Farm Management Co. said: “When the drought hit last summer, who would have believed that land prices would stay this high?”

“But most farmers ended up with yields better than expected, which just reinforced the idea of how valuable Iowa farmland can be.” So strong is the demand for Iowa farmland that even the less desirable, sandy land is going for top prices.

A 136-acre parcel near Madrid owned by the James and Beulah Duling estate sold for $6,200 per acre. That’s hardly the stuff of headlines in an era of $15,000-and-up prices, but it’s well above the state average of $5,064 per acre as recently as 2010.

Son Carl Duling, a retired teacher in Madrid, was satisfied with the sale. “Dad paid $124 an acre in 1961,” Duling said. “The land is sandy. Not top quality, but it brought a good price. We’ll use the money to pay for mom’s nursing home expenses.”

The high prices paid for Iowa farmland inevitably conjure up memories of the extended Great Depression in agriculture during the 1920s and ’30s and the farm crisis of the 1980s. As rural prophets warn constantly, both of those calamities were preceded by the same kind of commodity and land price boom that Iowa has enjoyed since the middle of the last decade. But others point out that this time is different, in part because corn prices are above $7 per bushel and expected to stay there, if the U.S. Department of Agriculture forecast is to be believed.

“The price of corn is high and interest rates low and there is a shortage of alternative investment,” Kain said. Lenders who were overextended three decades ago have battened down the hatches this time. Farm Credit Services of America has imposed a cap of $5,200 per acre on farmland loans, which would have leveraged loans on the Walther and Even sales at 33 percent.

“Back in the 1980s, you saw lending going 80 percent or more of the value of the loan,” said Brian Thielges of Iowa Farm Finance Corp. of Des Moines, who originates and packages farm loans for Federal Agricultural Mortgage Corp., or Farmer Mac. “Today, you seldom see loans going more than 60 percent or more of the value, and many are less,” Thielges said.

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If you are interested in selling your farmland soon, please contact me at 320-894-7528 or noah@farmlandman.com and I can help you out.

Thanks,
Noah Hultgren
noah@farmlandman.com
320-894-7528

Happy Thanksgiving!

Farmland in Iowa

In the wake of the reported $21,000 per acre sale of farmland in Iowa, several news outlets have taken a closer look at the ripples in the Iowa farm market. One of the most thought-provoking pieces I've come across was recently published on Bloomberg, written by Tim Jones and Elizabeth Campbell.

The title is "Iowa Farms Minting Millionaires as Rich-Poor Gap Widens", and it covers everything from farmland prices to rental rates to the Beverly Hillbillies. It's a thoughtful, interesting article that sheds light on several different aspects of the changing market and the income inequality it is producing.

A couple things that stuck out to me - the amount of people available for the bidding in a farmland auction that ended at $14,300 an acre. The article then includes this provocative statement "Farmland auctions in Iowa now resemble a dressed-down spectator sport with Sotheby’s prices, a reflection of the yawning divide that has opened in some of the most bountiful stretches of rural America. Farm earnings in the state and throughout the U.S. increased at eight times the rate of nonfarm wages from 2008 to 2011, fueling resentment and straining the social fabric of places with deep egalitarian roots."

The article also includes this quote from David Peters, a sociologist from Iowa State University, “Iowa had had historically low levels of inequality, but now it is skyrocketing. Today you have far fewer farmers and a small number earning larger and larger incomes. It doesn’t spread through the economy like it used to.” The authors share a lot of statistics on the strength of the recovery seen in agriculture, especially as it compares to the stall seen for many other rural residents.

Another thing that caught my attention - it seems that "those buying up the land are more likely to be locals than just a few years ago. The percent of Iowa farmland purchased by investors peaked in 2005 at 39 percent before falling to 22 percent in 2011, according to Michael Duffy, an agricultural economist at Iowa State University. Farmer purchases rose in that period to 77 percent from 59 percent," according to the article.

Their research showed that an acre of land in O'Brien County, which is just one county off the border with Minnesota, is now valued at $9,513 in 2011, a 33% increase since 2010! These price increases will likely start spreading into Minnesota in the near future, especially with the success of the last couple farming years.

However, the article also reminds us about the farm prices in the 1980s, and makes the point that this likely can not last forever.

Based on these trends, now would be a great time for a farmland appraisal. I would be happy to work with you on an appraisal, or to help you sell your farmland for a market price. Please call me at 320-894-7528 or e-mail me at noah@farmlandman.com and I will help you out.

Have a great week!
Noah Hultgren
noah@farmlandman.com