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Buyers vie for quality farmland; averages seem up 20 percent
Illinois Correspondent

OMAHA, Neb. — An accelerated farmland sell-off at the end of 2012 has led to continued low supplies of premium quality property, according to Farmers National Co. Andy Weidner, associate appraiser with 1st Farm Credit Services in DeKalb, Ill., agrees.
The rush, prompted by economic uncertainty and tax law changes, continues to have an impact into 2013. High-quality land is still in demand, and buyers are competing for top acres that are in short supply, according to Farmers National.

“Sales were more aggressive at the end of the year, primarily because of capital gains issues. Aggressive buyers paid premium prices; we don’t look at that as an accelerated sell-off,” clarified Roger Hayworth, area sales manager for the company in Illinois, Indiana, Ohio, Michigan, eastern Kentucky and eastern Missouri.
He said a variety of people are selling farmland for a variety of reasons. “I don’t see a trend line,” Hayworth said.

Weidner serves the northeastern region of Illinois, covering DeKalb, Boone, McHenry, Lake, Cook and DuPage counties. He based his comments on his region. “There was an extreme rush in mid- to late December to close fan sales due to the potential estate tax implications,” Weidner said.

“If you recall, the government was kicking around the idea of lowering the estate tax from the previous level down to a significantly lower number, which would have drastically affected many farmland owners due to high land values. In combination with strong income returns, mostly attributed to record-high commodity prices, many farmers were flush with cash and need to put their profits into some investment vehicle.

“With a volatile stock market and insufficient returns from CDs or bonds, farmers/landowners trend to one investment that has performed for them consistently over the past 20-plus years – land,” Weidner explained.

Competition for land has kept values strong, averaging 20 percent higher values over comparable land in 2012. Much of the continued rise is because of auction activity driving sales prices as purchasers vie for parcels of land. Mid- to high-quality properties are still seeing such rises in value, while lower quality land values are staying steady.

“Values are still going up, but the pace has slowed overall,” said Derrick Volchoff, ALC, vice president of real estate operations at Farmers National. “Many transactions for high-quality land are being sold via auction, which drives prices through competitive situations.”
Auctions today have turned competitive, with bidding wars becoming the norm for high-quality land sales. Areas of the country that normally do not run auctions, such as the Delta, are now seeing them on a regular basis, according to Volchoff.

“Despite an overall moderation in the number of sales transactions since the end of last year, there has been noticeable growth in the size of parcels being sold per purchase,” he said.

Moving into the third quarter of 2013, Farmers National expects the number of transactions being closed to increase, based on recent activity. “During the first two quarters of 2013, there has been a hiccup in activity based on the surge at 2012 year-end,” said Volchoff. “However, the trend seems to be shifting upward again and transaction numbers for the balance of the year should remain relatively steady.”

“Things are picking up a bit,” Hayworth added. “We’re preparing for fall sales. That’s pretty common every year.”

Investors are sticking with land as a safe, long-term investment while farmers are putting cash from past yearly profits back into operations. Built-up cash reserves for farmers are prompting farm operators to buy premium land when it becomes available to add to their inventory and to accommodate the return of younger family members to farms.

For both groups, economic uncertainty is still driving purchase decisions. Farmers are looking for premium land on which to expand, while investors may purchase properties based on price and projected return on investments. “Even with recent drops in crop size for farmers, profits are still at a level higher than in 2010,” said Volchoff. “Farm debt is still low in relative historical terms.”
According to him, several issues in the United States, such as health care and interest rates, are likely to impact economic trends and thus land inventory levels and sales activity once they are resolved. The direction of market and political issues will likely shape the rest of 2013.

As the housing market improves, developers will likely begin to buy land for development. This could trigger more 1031 tax deferred exchanges pushing new money into the market.

Quality farmland in the East-Central Midwest continues to see moderate to steady land values, with increases of nearly 4 percent over the past six months, according to Hayworth.

Both investors and farmer-owners are buying land, but perhaps a bit more cautiously, he said. Several positive-income years have put farmers in a stronger position than in years past to be able to increase the size of their operations.

“Many continue to evaluate their personal and business situations before buying, but are making the move when an opportunity arises,” Hayworth said.

Despite fewer sales, Hayworth is seeing larger parcels of land being sold in individual transactions, further into 2013. Top prices in the region can be seen in Illinois at $12,500 per acre on average for high-quality land. These levels are followed by Indiana showing values up to $10,500 per acre, and Ohio, which has reached $8,200 per acre.

Weidner said a specific sale cannot fully explain the land-value environment. Depending on the market, it could be influenced by a number of factors. He said he has seen several sales at $14,000-$15,000 per acre in spite of reduced 2012 yields and softening commodity prices.