Mitchell County. Great farm ground- terrible hunting. Glad I hunt Allamakee until I get my home farm situated to my liking
Land Market Hasnt Slowed down
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jflournoy
Active Member
Your first statement is in many cases true unfortunately, but not all realtors are like that. I would however disagree with the 2nd part of your statement. The market is absolutely proving a lot of guys wrong about the valuation of their land right now. Lots of stuff sitting right now that is just priced way high. A successful sale where all parties walk away happy is one where all parties had realistic expectations going into the deal.
Thx!!! That helps!
So the Clarke farm at $475 an acre rent. The county average on corn is like: 140 I think. 49 csr…. I really think they will be insuring at county average. Those farms down here do NOT have 200 bushel yield averages or true history. I’ve combined too many of them. Beans- Clarke county average is about mid 40’s I think. Let’s say about 45. I’m pretty close I bet. So- it should be 80% of county average. Right? I have insured my crops at I think 80 or 85% of county average down here and it’s not been very lucrative if relying on insurance down here. But again- I am far from expert & I easily could be missing something.
Dudes up N that pad their farms or legit have crazy good yield history - dang that would be nice!!!!
Some guys from up north rented a pile of ground down here about 10 years ago… paid crazy cash rents. Like $300’s on mediocre ground. They said “deer ate it all” & got insurance checks. They took the grain up north & then added that Grain to those farm yields up there. So it was “crap yield down south, get insurance” & then their home farms had like 300+ bushel corn & 100 bushel beans cause they played games. This didn’t end well- they got busted and went “by by”. Leaving tons of folks with no renter. They never fertilized with p&k or lime either so new renters were like “$125/acre”. Was brutal for lot of folks.
Yep. So you know of the games that are being played. Same scenario can play out even within a county from farm to farm.
And yes some farms where high dollar land is moving have 250+ yield history.
I'm convinced grain gets moved constantly across county lines and people remove ears off test rows.
RinggoCy
Well-Known Member
I posted below this fall but worth posting again. Screen shot & link at bottom. It’s a myth that “most land is paid for”. Or “unlike the 80’s - land is far more debt free”. Debt is close to 1980’s levels. See chart.
I could play the part of “land expert” on BOTH SIDES of the debate to value of land…. I’m very skeptical of “experts” as they usually have a motive for or against something. I’m gonna say MOST “experts” will always try to tout a minimized risk when there could be great risk. For example- stock advisors rarely will say “sell sell sell!! Market is gonna go down”. They say “hold”. They always find things to buy. Which of course, that’s their business. But few experts want to say “hold off. Sell. Don’t buy”. When sometimes that’s the right answer & many know it.
For the record - I’d advocate buying land for those who are able and I do think deals are coming.
I could play both sides though!!!!
FOR: inflation is rising. Commodities rise with inflation. Land is more stable than other assets, especially in inflationary times. Rates will probably come back down when we do have a recession. Land may have dips but the long term trend is always up with enough time or even reasonable timing of any natural market cycles. We know rates are still going UP so why not lock in now vs months ahead when they are higher?
AGAINST: short term, values are heading lower. So why not wait 6-12 months? Folks leveraging hard at 8%++ are at great risk, especially in a “short term” declining market. Wait until recession is full bore (which I think is going to happen) & buy at that point right when rates are lowered due to recession…. If you time it right - when/if rates lower- land market will start to rise in value. So- at least wait a bit. Rates, inflation, inputs, AG profit margins & recession all point to a lower land market.
REALITY: who knows ?!?! Buy if you are able and find the right farm. If u can weather a storm - be just fine. Which is always the case. Long term - anyone will likely be fine if not forced to sell. Don’t sit on side lines & be the guy “10 years later”…. “Still waiting for it to fall more”. Those guys always lose. Personal choice but be very informed, have safety nets and be ready for the storm. Buy the the right farm when u find it IMO. That farm is likely going to be a bit cheaper coming up though.
Last reality- don’t think there isn’t massive amounts of people who haven’t lost it all or taken huge hits on land (usually due to debt which is very real). Forced to sell in down market - always has been & always will be folks that get killed in land. Happened 80’s. Happened early 2000’s. Happened after 2008. Happened after 2015. This cycle of folks overpaying & getting killed never stops. Always a % that get in trouble. Always has been and always will be like that!!
View attachment 123876USDA ERS - Assets, Debt, and Wealth
The farm business balance sheet reports estimates of the current market value of farm business sector assets, debt, and equity as of December 31 of a given year. It is called a "balance sheet" because of the accounting relationship: assets – debt = farm equity. Farmers and ranchers...www.ers.usda.gov
I wasn't even a twinkle in my father's eye yet in the 80s so my level of understanding of what went down is lacking, I'm sure. But to look at that chart, and see that today we are at the same levels of debt (higher in real estate) after adjusting for inflation, with rising rates.... spooky. Not 1980s rates by any means but still. I know there are lots of different factors now but it's hard to ignore parallels.
Oh to have had a mountain of cash 24 months ago.....
Ha! I think same thing. Guys who bought like crazy when Covid hit - wow.
So- check this out. I could not find data up to now. So- the chart does keep going up at end….
1) it’s not near as high in 1980’s but it’s of similar trajectory.
2) what killed farmers in 1980’s was….. not only interest rates!!!!! ……. Commodities were HIGH & spiked way up there (sound familiar?!??) So people were making bank on crops. Then…. Commodities fell!!!! So folks were sitting there: paying high dollar per acre for ground. Then paying high interest rates. BUT….. getting good $ for crops- until they weren’t!!!! Commodities fell & farmers everywhere across country lost farms left & right. …
Is History going to repeat? Maybe yes to lessor degree. Maybe not. Who knows. But if MOST farmers could be facing a disaster in 1980’s due to: high rates, high ground prices & high grain prices that tanked later….. why can’t same happen today??? All the exact same factors are at play!!! High interest that’s rising, high inflation, high land prices and…. High grain prices!!! Some different dynamics but it sure has some similarities!!!!! History may repeat or rhyme. I agree we are not in exact Same thing as 1980’s…. of course, for NOW we are no where close to 17% interest
…. But even in the 80’s - even at 10% interest- their drop in grain prices would have been bad. 17% turned it into a massacre. To ignore some of the parallels would be foolish IMO. IMO the data (if we don’t go to 15% interest) would point to a painful downturn vs the “farm depression” of ‘80’s.
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Daver
PMA Member
However, the article says, in effect, that they aren't financing. The article indicated that 4 of 5 acres are now owned debt free. (I am trusting that article BTW, I don't have a way of confirming, or disconfirming, that statement personally and I did find it somewhat surprising, FWIW. Although I do know of several transactions in the past couple of years that are/were all cash, not financed. That is anecdotal, yes, but it fits with the statement made in the article.)
I also know other farmers that are poised to buy more ground that suits them and do so with cash, NO financing, really at any time that the right piece comes available. In short, it is an awfully good time to be a farmer. If not for all, for many. Enough that as far as I can see, we aren't done seeing historically high price per acre sales and without the encumbrance of a loan to make it work.
Yes, land values could drop and that would negatively impact the balance sheets of farmers everywhere. But...if those lands are not financed (loans against them) then that doesn't necessarily represent a cash flow problem. While there may be some parallels to the days gone by, this is NOT the early '80's, not at all.
Daver
PMA Member
Respectfully...it is not all of the same factors in play now v. then. Yes, there are several factors that are the same now and/or could turn that way. Except...
The very big difference between now and the early '80's is the amount of land that still had a loan on it then v. now when so much of the land is an asset with no loan against it. People lost farms back then because they couldn't make the payments. People that straight up own the land now can withstand a great deal more "turbulence" without failing because they don't owe the bank for the ground in nearly the same way that was common 40 years ago.
Anecdote alert...one of my best friends is a farmer that barely survived the early '80's. He dangled by a thread for several years back then, but fought like no one I know to keep his operation afloat. Now...I have lost track of the number of acres he owns, and by that, I mean he owns them, there are no notes against them. AND...he is sitting on a massive pile of cash preparing to buy even more ground, which I am sure he will.
Interest rates just don't matter to him any more...as he doesn't need to borrow any money to run his operation. In fact...the higher the interest rates, the less competition he has in buying additional land, so he just smiles when the subject of rising interest rates is mentioned.
And it isn't just fellow farmers buying farms with largely cash. Investors who are not at all "connected to the land" are in this game now and own more and more acres all the time...free and clear. I am not trying to be argumentative, but this isn't the '80's, although there are in fact several similar factors at play, there is a GIANT one that trumps most everything else and that is the equity position today of the "average" farmer is far more positive than back then.
Agree. Incredibly good points!!!
On other hand…. From 2016 to 2019…. Guys who were “younger farmers” - which is no small pool. Say 2-15 years in. Running farms with LOC’s….. grain got cut in half. I personally know 20+ “good farmers” who were younger that did not survive that. Happened all over the Midwest. FCS & other banks were cutting Line of Credit lines all over & farmers hung it up. Most forget what happened just then & how many folks went broke or were barely hanging on.
Farmers with huge operations paid for have ZERO RISK!!!! Those folks will prop up the market from it collapsing as well.
2 last things- the lack of debt & “4 of 5 acres paid for” - I don’t think that’s right. Maybe wrong but look at USDA debt chart over time.
2nd or LAST….. folks are being “GREEDY” right now. Or foolish. Huge cash rents, obscene record ground prices. By DEFINITION- when others are GREEDY, a wise man will be cautious. Doesn’t mean “don’t buy land” - just means “buy them Carefully. Be cautious on how much debt u take on Don’t buy that obscene priced farm if u can’t pay cash & ur competing with a gazillionaire who doesn’t care what price it is”.
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Daver
PMA Member
I am curious to get a better understanding of really how much, as a percentage, of the farm ground in Iowa is truly owned free and clear v. under a note. While I think I am reading that 4 in 5 acres statement correctly, as presented, I was surprised to read that it was that high. I just don't know for sure if that is right or wrong, or if there is missing context to it or not.
Whatever the number is exactly, I am confident that there are more, able cash buyers today than there were 40 years ago.
Certainly, a corollary to the very good times that established farmers are experiencing now is that it is VERY TOUGH for new farmers to break in and also for "intermediates" to survive should there be a downturn. (Intermediates - meaning someone who is experienced at farming, but has a lot of debt towards either land or equipment.)
Debt...is the huge key work here. Cash rich, debt free buyers can, and are to a large degree, able to spend just about whatever to get what they want. And are well positioned to "ride out" any waves that may come up.
Cash poor, indebted folks are potentially wading into treacherous waters should any of several variables change too much not in their favor. (Interest rates up...crap. Input costs up...dang it. Commodity prices lower...oh no.) My banker is on line one...I wonder what he wants to talk about? Yikes, what do you mean you are calling my loan...I can't pay that...
FWIW, my main line of work is not as a farmer, although I do own a farm and have some first hand experience in all of this as a result. But, I went through this same cycle as a small business owner. Early days - high debt to get started and very vulnerable to market conditions, etc. LOTS OF sleepness nights and got pretty close to losing it all a couple of times. Aaarrghh.
But, kept fighting, paid off debts like a MOFO and eventually got to a place where I really don't have but a fraction of the financial concerns that I once did. Whew.
Those that are financing land purchases though are in a whole different world than what I am trying to describe. Cash buyers v. financed buyers...two entirely different scenarios IMO.
I've shared here before that my family runs grain elevators. They've done so for roughly 50 years. 2021 was their highest year ever for bushels brought in / yields.
2022, they were were in level 2+3 drought region and yields were down 20-25%. Yet, 2022 was their second highest ever year. Pair those yields with the sustained skyhigh commodity prices this year and I anticipate 2023 will continue to see high priced land sales.
Our farm paid out on crop insurance as we had tar spot hit our corn yield too. And, despite the significantly higher input costs and smaller yield, we made more per acre this year than 2021.
jflournoy
Active Member
We had some farmer friends over for dinner last evening. They're in their early 60's and farm pretty close to 1,000 acres in eastern Iowa. Most of their land has been in the family a long time. I didn't ask if he owns it free and clear but my guess is yes. 70 csr2 type ground on average he said. He hasn't really been keeping up with the crazy land auction prices all over Iowa, but we had a discussion about it last evening. He was dumbfounded at the prices being paid and just couldn't make sense of it from a financial farm profit standpoint.
There have been 3 giant financial opportunities in my lifetime.
Housing crash 08-09. Bought a few houses under $20k. It a guy coulda spent millions he'd have billions.
Covid stock market crash. Bought everything I could. Biggest regret was selling OXY too soon. Oh well still did good.
Covid farm purchases. Alot of dirt doubled in price 2020 to 2022.
What is the next big opportunity????? We shall see.
I hope land crashes hard! (Sorry to anyone negatively impacted)
Housing crash 08-09. Bought a few houses under $20k. It a guy coulda spent millions he'd have billions.
Covid stock market crash. Bought everything I could. Biggest regret was selling OXY too soon. Oh well still did good.
Covid farm purchases. Alot of dirt doubled in price 2020 to 2022.
What is the next big opportunity????? We shall see.
I hope land crashes hard! (Sorry to anyone negatively impacted)
Hardwood11
It is going to be a good fall!
Some of the farmers in my area of Minnesota would rather have more land than buy stocks or have a CD @ the bank.
Not that they don’t have bank accounts. But they don’t trust it or understand it. They certainly are not buying crypto !!
It’s not diversification, but it works for them .
Not that they don’t have bank accounts. But they don’t trust it or understand it. They certainly are not buying crypto !!
It’s not diversification, but it works for them .
I rarely say anything about “crazy priced listings” - usually just roll eyes & move on. This is example that “if this sells- I guess the market is way stronger than I realized”. They even list this as “affordable”. If this sells even remotely close to asking - wow…
www.land.com
Affordable recreational tract | Excellent Deer, Turkey, Pheasant Hunti
Properties in Webster County IA dont come for sale very often, and these affordable recreational tracts are the least likely to hit the market. This property is located just west of Lehigh and is 22
Jerry Gille
Member
Yep, if the rec market is anywhere near that then go ahead and stick a fork in me now. I'm done!
northcedar
Well-Known Member
I believe the stat about 4 out 5 acres are owned debt free. I'm just saying, what percent of Iowa sells in a year, like 1%? And I'm making an uneducated guess that 9 out of 10 farmland sales to farmers in the past few years (don't count the 1031 and investors) involved a banker. I think it's easy to assume things when everyone "knows that guy". Stats I also read were that the average farm size in iowa is 360 acres and that half the state's land is rented. I just think it's wrong to assume all the farmers are flush with cash only because commodities are high and because a handful of kings take down a fair share of the rare public sale.
Couple things to note. Big difference from 1980 to now is fixed interest rates. If you have variable rates on land or houses then you missed a golden opportunity!! Some pain will be felt over the next 3 years as interest rates double 3.5 to 7 on variable rates. Lenders and producers are better managers now than back then and know what a cash flow projection is and how to use it as a management tool. Farming is a business now, back then for many it was a livelihood. No such thing as crop insurance back then limiting down side risk. Don’t get me wrong a correction is coming but it only gonna make the strong stronger!! There is a reason a lot of local banks still aren’t paying squat on their CDs and savings accounts and it is because they have plenty of deposits on hand. Right now there is a lot of land held by well established 50-80 year olds and those guys don’t have much real estate debt because they made more in the last year than some of that land originally cost them to buy it…..