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Midwest farmland still selling, though buyers more choosy

 

 

By MICHELE F. MIHALJEVICH

Indiana Correspondent

 

COLUMBIA CITY, Ind. — Lower commodity prices may have made potential buyers of farmland more selective, but there’s still strong interest in purchasing property, according to the president of Schrader Real Estate and Auction Co.

"The value of something is a function of its expected returns," R.D. Schrader explained. "The expected return of land at $4 corn and $10 beans is not the same as when we had $7 corn and $16 beans. We’re still getting large crowds and a lot of interest (at farmland auctions), but interest in lower-quality farms seems to be falling off in recent months as buyers get more selective."

Keeping expected returns in mind, buyers may also be looking to purchase a little closer to home, he said.

"They aren’t willing to travel as far," Schrader noted. "In the past, they’d be willing to drive 30 miles to buy a piece of land, but now they’re waiting for just the right piece. They may be willing to drive only 10 miles."

Two Indiana auctions hosted last week by Halderman Real Estate Services brought in sales figures higher than the land’s appraised value, said Pat Karst, vice president of the Wabash-based company. In Tipton County, 513 acres sold for an average of $11,023 an acre, with the top-quality land going for $12,500. In Blackford County, a buyer purchased 441 acres for $8,390 an acre.

The differences in price per acre are because of land quality, he noted. "There were a lot of potential buyers and good crowds, a lot of different bidders," Karst said. "There’s a below-normal supply (of land) available and still fairly strong demand. There’s still people shopping; we’ve had good number counts on our website and our phones are still ringing."

Farmers might be willing to purchase land despite lower income levels because a particular scenario might provide them a rare opportunity, he said.

"Land may only come up for purchase once," Karst explained. "If you put off buying a planter, you know there will be another available next year. But if there’s a particular piece of land next to your farm or that you’ve always wanted, you might not get another chance if you don’t buy it when it’s up for sale."

Farm profitability in recent years means there’s money to spend on land, Schrader said. "I haven’t seen a lot of evidence that it’s getting highly leveraged," he said. "There’s still a lot of cash out there looking to be invested."

Karst has seen average to below-average land is starting to devalue, while top-quality land hasn’t been impacted. He’s expecting good land to hold its value at least through spring, with the potential for some value drop-off later in the year.

"I’ve had some people ask if they should sell now or should they wait," Karst stated. "I think they’ll be regretting their decision if they don’t sell now."

While land values will keep changing based on commodity prices and interest rates, Schrader expects to see continued interest in farmland. "It’s been fairly tight (due to the amount of land available) the last couple of years and it will continue to be fairly tight," he said.

"Even if values have come down, they’re still at incredibly high levels. It’s an awfully good time to be a seller."

Sixty-five percent of those who bought land last year at Halderman auctions were farmers, with 35 percent investors, Karst said. There is still plenty of cash available, though buyers are borrowing more money than in the past couple of years, he noted.

Many lenders remember the 1980s farm crisis when debt levels and interest rates ran high, Karst said. "Lending practices are better now than they were in the 1970s and 1980s. In those days, they would think, ‘If one four-wheel-drive tractor is good, two are better.’"

Operators and bankers are trying to be sure there’s no duplication of the 1980s, Schrader said. Then, interest rates ranged from 15-20 percent, while they’re now about 3.5-5 percent. Bankers are looking for larger down payments to help operators stay in a healthy financial situation. Operators tend to not get as highly leveraged, he said.

"The circumstances are totally different than the 1980s," he stated. "Today, we’re not driven by debt. But the 1980s are a recent enough reminder to operators and bankers of what can happen. People are working awfully hard to not repeat it."

Survey finds land values up

 

Prices for quality farmland were up 11.8 percent in the third quarter of 2014 over the previous quarter, according to the latest survey from the Federal Reserve Bank of St. Louis. The survey was done in the second half of September and is based on responses from banks within the Eighth Federal Reserve District. Included in the district are Illinois, Indiana and Kentucky.

The third-quarter average price of $6,120 an acre was up over $5,473 in the second quarter, the bank’s report said. The third-quarter figure was up 14.8 percent over the same time a year previous.

The prices were higher than lenders had expected, the report said. Third-quarter prices were the highest since the bank began compiling its survey in 2012.

1/28/2015