Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 08/13/14

Debate Rages Over APH Forgiveness
Great Plains wheat growers are howling over USDA's decision to postpone relaxing crop insurance's APH rules until 2016. Some Illinois corn growers are losing out, too.[Read Full Blog Post]
Posted at 3:23PM CDT 08/13/14 by Marcia Zarley Taylor | Post a Comment
Comments (10)
Let's side aside the promise part of the issue for now and just look at the logic of the promise... During a ten-year period, crop yields fluctuate mainly due to weather. Farmers buy crop insurance to protect themselves during the bad weather years. Taxpayers subsidize crop insurance for farmers to lower the premiums for farmers. The actual costs/payouts of crop insurance is directly related to weather. Farmers would like to be able to insure and be paid out for yields that would occur if we didn't experience bad weather. If we ignore bad weather in the equation, are we not setting up taxpayers for higher insurance costs subsidies for crops that may no longer be suited to be planted county-line to county-line for certain areas of the country? Farmers understand risk and they understand it very well when some sucker takes it away for them. Sure it is a lot more fun to drive up land rent costs to $400/acre than to pay full insurance costs of $45/acre. But all that whining sure does knock down the integrity bar for the American Farmer. Or did I miss something and we just threw the whole gadget away?
Posted by Timothy Gieseke at 8:13AM CDT 08/14/14
Tim, you have a legitimate argument, but in the past growers were able to plug a bad year in their individual APH with 60% of the county's 10-year average. The Senate bill would have raised that to 70%. During the Farm Bill debate, critics argued the current rule rewarded those who were "farming crop insurance." CBO actually argued the "forgiveness" provision would save money, Barnaby says. I'm not taking sides, I'm just pointing out this was supposed to limit taxpayer exposure, if CBO is accurate.
Posted by Marcia Taylor at 9:17AM CDT 08/14/14
I think Tim got a it pretty much right. You cannot take the variable of weather and throw it out the window. If we do not account for the worst years of weather, be it drought, excess moisture, frost, etc., then we set up our insurance program to be actuarial unsound and pay out more than necessary with our APH's to high. We already have the trend line yield adjustment. I think we have a good crop insurance program. Why do we continually look for more ways to lessen the risk of farmers, by off loading that risk on the taxpayer in the form of higher subsidy, artificially higher APH's, program expansion (i.e. corn in western plains). Farming is a risky business. Make farmers put more skin in the game, otherwise we will be nothing more than Wall Street, reckless and unsound because we know the government will bail our butts out!!!
Posted by Pedro Sanchez at 10:30AM CDT 08/14/14
I think if it was promised it should be delivered.
Posted by Unknown at 1:39PM CDT 08/14/14
Crop insurance providers would like RMA to stall implementation because it would raise coverage (amounts of insurance) without an increase in premium over the current status quo. When the APH yields go down, the premium cost per acre stays the same for the same coverage level. If farmers need to increase their coverage to cover operating loans or cash rent they will have to crease their coverage levels, say from 75% to 80%, at significantly higher premium cost per acre.
Posted by Steven Griffin at 10:47PM CDT 08/14/14
The purpose of the APH is to establish a realistic estimate of the productive value of the crop going into a crop year. It is not to discount the riskiness of that productivity, that is done by the rate itself. Reducing coverage simply because you have had a catastrophic event is like not being able to insure your new car at its value just because you had an accident with a previous car. Of course you don't want to over-insure the car. Otherwise there is the hazard of people having wrecks just to collect the insurance. Risky drivers and riskier parts of the country should pay higher premiums.
Posted by Steven Griffin at 10:55PM CDT 08/14/14
Then I guess the govt needs to let farmers install drainage in the prairie pothole region. We are riskier not by choice but because of govt regs. Let us be on the same playing field as everyone else. Let's next time have all of the rules written before a law
Posted by Unknown at 9:31AM CDT 08/15/14
passes. How is it even legal to pass these laws then write the law after it passes? Crazy!
Posted by Unknown at 9:34AM CDT 08/15/14
There appears to be some lack of understanding of how the APH adjustment will work and why it is necessary to have it in some parts of the country. The southwest region of the US suffered with a drought of record from late 2010 till mid year 2014. Actually, there are still areas that are considered in drought despite recent rainfall. You have to go back to the early-mid 1950s and the Dust Bowl of the 1930s to find anything corresponding to this recent situation. It is not like this is an every other year weather situation. The current APH rules and yield plugs were not constructed to deal with a weather cycle that only occurs every few decades. Compounding the problem along the Texas coast, a hurricane destroyed production once prior to the drought years. Producers, even with the yield plug, have seen their APH and thus the amount of coverage available decline dramatically. Depending on the county and individual producer's yields, by as much as 25-40%. This has become problematic to ag lenders trying to finance producers. I believe there are producers in the Midwest and northern Plains who may also benefit from the APH adjustment due to the combination of too much rain in some years and the drought of 2012. In Texas growers cannot simply buy up coverage to a higher level for two reasons. First, coverage is not offered above 75% and second, it is very expensive to buy above 65%. For corn, the counties of the Texas Panhandle have loss ratios very comparable to the best corn producing counties of Illinois and Iowa yet our cost per acre is 2-3 times higher for the same coverage. Producers who use the APH adjustment will not pay less premium for coverage. Actually they will pay the same as they would have without the adjustment or perhaps will even see higher premiums since the adjustment only applies to the APH yield. The APH yield determines the amount of coverage a producer can purchase. There is also a rating yield which determines the cost of insurance. The rating yield will not be adjusted so the producer will still pay an insurance premium reflecting his actual history. This is potentially a very expensive situation for the producer because cost of insurance is affected by both the rating yield and dollars of coverage. Low yields from the past few years will make the rating yield expensive while the APH adjustment will increase coverage, also adding to the cost of insurance. The APH adjustment needs to be implemented for the 2015 crop, including wheat that will be planted this Fall. RMA is delaying implementation till 2016, the third year of the farm bill. RMA is busy patting itself on the back for having SCO and STAX available for the majority of counties for 2015. It would never be tolerated for FSA to announce it will have ARC, PLC, and the ability to update bases and yields available in the majority of counties. My question then is why does RMA get a pass to delay some counties for SCO and STAX and the APH adjustment for another crop year. It was clearly Congressional intent that all of the new crop insurance provisions be available for the 2015 crop year. This intent is obvious not only from the language of the farm bill but also the fact Congress added millions of dollars in new funding for USDA to implement the farm bill. RMA can use those funds to hire outside contractors to help with the data collection and research necessary to implement the new provisions. Sadly, while RMA dithers on this issue, some producers will not be able to get financing for 2015. Dee Vaughan
Posted by MICHAEL D VAUGHAN at 3:41PM CDT 08/17/14
I scratch my head when I see all the destruction going on in farming now. Farmers farming land that should NEVER be touched(but yet getting tax payer money to do it) Drain Tiling land that is used to filter out the chemicals out of the water. And then that water is put in sloughs or rivers and that leds to more or worse flooding and then the tax payer has to pick up that bill to. Example red river valley and devils lake and northeast South Dakota. I have NO issue helping farmers on declared bad years( declared floods or drought, has to be a total wipe out). But why should we put the bill for their "risky" practices? Side note we farm, but we do a balance of conservation and farming since 1886. We have seen many farmers(still some balanced farmers out there) plow up pastures and hill sides and plant beans and corn and the beans last yr didn't even make 10 bushel, but yet they are paying over 180 per acre to rent it. now tell me, how is that even possible to maintain, easy, they falsified the yields they carried over, thus get the government check. this yr, the corn isn't even putting on ears on most of the plants, and it was a good yr for weather in that part. erosion is horrible in that field but yet they just put culverts in to cross...this is becoming the norm now,, Truly sad
Posted by ryn bohr at 4:33PM CDT 08/20/14

Monday 08/04/14

Expert Advice to Pick a Farm Bill Contingency Plan
Do you or your landowners need more coaching on your one-time 2014-2018 farm bill decisions? If farmers I interviewed last week in Indiana are typical, many growers spent the last decade wishing farm programs would go away.[Read Full Blog Post]
Posted at 12:44PM CDT 08/04/14 by Marcia Zarley Taylor | Post a Comment
Comments (1)
This post was corrected to reflect that landowners have 60 days to report incorrect, incomplete or missing records, USDA points out. If your history is correct, no response is necessary at this time. More information from USDA about the base and yield decision will follow.
Posted by Marcia Taylor at 3:34PM CDT 08/05/14

Thursday 07/31/14

Update Your Ancient FSA History?
Don't let your future farm program payments suffer from obsolescence.[Read Full Blog Post]
Posted at 10:56AM CDT 07/31/14 by Marcia Zarley Taylor | Post a Comment
Comments (1)
Great article
Posted by G. Sean O'neill at 6:46AM CDT 08/02/14

Thursday 07/24/14

Fat-Cat Rents Most Vulnerable
It's those cut-throat, top-of-market leases bid up at cash corn's $6.89 season-average peak in 2012 that stand to see the biggest adjustments. Average rents drop much more slowly.[Read Full Blog Post]
Posted at 11:46AM CDT 07/24/14 by Marcia Zarley Taylor | Post a Comment
Comments (5)
Can someone out there tell me what I am missing!I just read land sales in Progressive Farmer How are these guys going to pay for 13000 dollar an acre ground?I look at after taxes,all expences and depreciation you may clear 100.00 per acre on payed for land.So how do you make payments of that size, it would take 130 years to pay for it with no interest.Do they not figure in cost of living.
Posted by Raymond Simpkins at 8:53AM CDT 07/29/14
corn is at a 100-150 loss on my cash rent ground, can't take that kind of loss again
Posted by Unknown at 6:59AM CDT 07/30/14
Question Marcia. When referencing cash rent- Do the whiz kids actually use average cash rent or median cash rent? Example: 1,000 acres @ $100.00 /acre and 100 acres @ $1,000.00/acre is $550.00 median rent. The average, on the other hand is about $182.00 per acre using the same #'s.
Posted by Bonnie Dukowitz at 9:11PM CDT 07/30/14
Money solves all problems! If someone has the money they can rent or buy land at whatever value - just because they can, they have the cash. If someone does not the money they can't rent or buy land at high or reduced values - just because they can't, they don't have the cash. This is a fact of history and most current economists miss this important fact. During the Great Depression, in the 1980's and still today (money) makes the difference in what individuals can do. When some people suffer because of lack of money others with money can purchase assets even if buying them does not make sense. Most people do not like hearing this time honored fact of money! Put your pencils, calculators and computers away and understand what most economists miss - money solves all problems.
Posted by John Finley at 8:02AM CDT 07/31/14
John, most guys around here buying don't have cash. In fact some are in bad shape, but seem to find someone to finance them.Cash or not you wouldn't buy gold at it's highest knowing it is going to come down.
Posted by Raymond Simpkins at 11:53AM CDT 07/31/14

Wednesday 07/23/14

Why Rents May Be Slow to Tumble
Farmers stand to lose money on cash rented land in 2014 and 2015, if average lease rates don't adjust to new economics. On the other hand, landowners may be slow to budge.[Read Full Blog Post]
Posted at 10:59AM CDT 07/23/14 by Marcia Zarley Taylor | Post a Comment
Comments (7)
If I remember correctly, the last major correction ended with about 80% ,give or take, of the farm land in Iowa being in receivership.
Posted by Bonnie Dukowitz at 6:45PM CDT 07/22/14
Your right Bonnie and I don't think lenders are going to be to eager to carry someone losing money every year.Why would you feed a dead horse? I feel this is just the first of many low or no profit years to come.I am glad we have no debt at this time and can farm at these prices.
Posted by Raymond Simpkins at 8:01PM CDT 07/22/14
I had an interesting visit with a neighbor yesterday who farms about 5,000 acres. He has "pushed the pencil" and found that reducing his average rent of $360/acre to $320/acre would have similar consequences as adding 18 cents a bushel to his average corn price. The question then arrises - do you risk upsetting your landlord for 18 cents a bushel which might be obtained with good marketing. He's hoping that fertilizer prices will come back down from stratosphere levels as a result of reduced demand. Like my neighbor, I don't see how revenue insurance will keep us out of the red for 2015's crop. When will the ag press do a story on that, considering how gleefully they reported insurance "profits" in 2012!!
Posted by Curt Zingula at 7:51AM CDT 07/24/14
Curt, crop insurance might not keep you out of the red next year, but do you think farmers are factoring in potential ARC payments yet? Given current price scenarios, Univ of Illinois economist Gary Schnitkey pencilled in $45-$75/acre 2015 corn payments on Ill. farms last week, which might alleve some stress. If that's the case, time might be best spent persuading landlords to sign up for the right farm program rather than arguing over a few dimes per bu., as your neighbor says.
Posted by Marcia Taylor at 10:35AM CDT 07/25/14
C'mon Marcia, How does one factor potential?
Posted by Bonnie Dukowitz at 4:21PM CDT 07/25/14
Curt is on point with what farmers can do! Less fertilizer demand!
Posted by Roger Cooper at 10:00AM CDT 07/27/14
We have been fortunate to get decent crops where we are when everyone else couldn't get a rain to save their lives, no basis is killing us with cash corn around two bucks, still county average yields are under sixty bushels per acre, it will take a miracle to save us this year!
Posted by JAMIE KOUBA at 11:27PM CDT 08/11/14
What Farm Widows Wished They Knew
Farm accidents can strike at any age. Good farm advisers and documentation of what couples own, farm lease terms and business roles after a partner's death can ease the grief.[Read Full Blog Post]
Posted at 10:58AM CDT 07/23/14 by Elizabeth Williams | 0 Comments | Post a Comment

Monday 07/21/14

Cash Rent Needs a Relief Valve
Dan, an Iowa farmer, summarized the problem in a 16-word Twitter post last month: "$4 cash corn. Same as when I started in 2010, but cash rents are $100 higher." He could have added: Something's gotta give. DTN's national average cash price index--a collection of cash bid data from almost 3,000 locations across the U.S.--slid to $3.52 last Friday.[Read Full Blog Post]
Posted at 4:40PM CDT 07/21/14 by Marcia Zarley Taylor | Post a Comment
Comments (4)
Don't drive in the yard driving a loaded up $50,000 pickup. Practice saying the word no - many times over. You may lose some ground, but if you're losing money, I guess I don't see why losing ground isn't the lesser of two evils. Get real good at telling your favorite seed guy no. There are many, many good choices out there. Figure out who wants to be Monte Hall. Also, show your land partner (a term I picked up on DTN) the money trail. Explain what a good sustainable fertilizer program costs. Explain what a good resistant weed avoiding chemical program costs. No land partner in their right mind wants their farm mined for nutrients or get resistant weeds started because their land partner (tenant) needed to skimp somewhere to make ends meet. Explain what your crop insurance costs, what it covers, and what it doesn't cover. Explain what the 2014 Farm Bill covers. Say the farm had $40/acre in Direct Payments under the old Farm Bill, and you're looking at less than that now; that should come off the rental value of the farm. Show what your take home pay is. Be prepared to be embarrassed or called out if it's too high. If you get to the end of a discussion like this and still can't see eye to eye, you're probably better off without that farm. - Jason Bode
Posted by Unknown at 9:10PM CDT 07/21/14
An acquaintance once quipped: When everyone else is running-You Walk! When everyone else is walking-You Run! Now if you were running when you should have been walking, Pay the price of the shifting load when the brakes lock up.
Posted by Bonnie Dukowitz at 5:23AM CDT 07/22/14
Don't worry. The large mega-farmers will be floated by the ag lenders, equipment manufacturers, seed, chemical and fertilizer dealers. If one or two of these guys go bad in a community it will have a ripple effect throughout. Not what the input providers want happening. They may be upside down on paper but they will be out there farming your land. SO GET YOUR RENT, CASH UPFRONT!
Posted by Mike Estadt at 9:05AM CDT 07/22/14
Mike I don't think that will happen.We have some large farms close to us that are struggling and I have seen they have changed who they do business with this spring.New seed company, fertilizer and some equipment.So that kinda tells me they have run the gament with the others.But yes, you are right when they go out they're going to take others with them.Like elderly landlords that won't get paid.
Posted by Raymond Simpkins at 11:07AM CDT 07/22/14

Friday 07/18/14

Spring Fling Lifts Land Markets
Midwest farmland values bounced back to life at mid-year, a new FCS analysis finds. But whether the rally survives lower prices remains a question.[Read Full Blog Post]
Posted at 5:06PM CDT 07/18/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Thursday 07/17/14

Why Succession Plans Stall
Young farmers often voice frustration at the pace they transition into an existing family business. Why do seniors keep a tight hand on the reins?[Read Full Blog Post]
Posted at 10:00AM CDT 07/17/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Friday 06/27/14

Pick Estate Advisers Who Make the Grade
How do you know if you've picked the right technical team to lead you through a business transition and estate plan?[Read Full Blog Post]
Posted at 1:22PM CDT 06/27/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Wednesday 06/18/14

Farmland: Trophy or Investment?
Timing when you buy or if you overpay can erode farmland's natural advantage over stocks.[Read Full Blog Post]
Posted at 2:03PM CDT 06/18/14 by Marcia Zarley Taylor | Post a Comment
Comments (2)
Question Marcia, Do the numbers being compared take into account all expenses of owning the land, taxes insurance, interest. etc.? Someone with $1,000.00 cash in 1950 was rather well off.
Posted by Bonnie Dukowitz at 8:08AM CDT 06/19/14
Have you ever ate paper? cant believe it tastes as good as a tomato
Posted by Mark Knobloch at 3:36PM CDT 06/23/14

Tuesday 06/17/14

Landowner Appeals Landmark CRP Case
Conservation Reserve Payment checks have been called "rent" for nearly 30 years, treated much like similar payments during the 1950s Soil Bank and free from self-employment taxes. But unless a 2013 Tax Court case is overturned by the 8th Circuit Court of Appeals later this year, non-farmers could owe whopping new 15.3% self-employment income tax on their contract proceeds.[Read Full Blog Post]
Posted at 2:32PM CDT 06/17/14 by Marcia Zarley Taylor | Post a Comment
Comments (1)
Better yet, twice that tax should be placed or deleted for recreational use land, if they can afford to put productive land into crp for bird hunting for example they can afford to do without the payment.
Posted by JAMIE KOUBA at 12:29PM CDT 08/12/14

Monday 06/16/14

Watch Sticker Prices on Farm Loans
Farm borrowers aren't like No. 2 Yellow Corn, so their interest rates can vary by risk, kind of collateral, size of loan or even the size of lender.[Read Full Blog Post]
Posted at 9:43AM CDT 06/16/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Thursday 06/12/14

Sec. 179 Depreciation in Limbo Again
Farm equipment sales have hit the skids this year, thanks largely to more modest farm income projections that could cut net revenues far below 2013 levels for crop producers. But uncertainty over the status of Sec. 179 depreciation rules for small business is compounding the problem.[Read Full Blog Post]
Posted at 9:58AM CDT 06/12/14 by Marcia Zarley Taylor | 0 Comments | Post a Comment

Thursday 06/05/14

A 20% to 25% Land Crash? Really?
A skeptical reader asks for explanation of a regulator's farm real estate forecast.[Read Full Blog Post]
Posted at 2:06PM CDT 06/05/14 by Marcia Zarley Taylor | Post a Comment
Comments (16)
I see a correction coming.Be it 20-25% I don't know,but land value will have to follow what grain prices will support.Although I did just read in Progressive Farmer of land selling for 12,500 an acre to a investor and being leased back to the seller.I figured that guy can take the 5.5 million and pay his rent for 32 years and have a good retirement off the interest.So I don't think that invester hopes to see a 25% drop. Thats a 1.5 million lose.What did Cal mean crop prices have nothing to do with land ?
Posted by Raymond Simpkins at 8:51PM CDT 06/05/14
Folks: The land value equation has changed from the eighties. First, ethanol has turned corn into both an energy and food source. With 40% of the nation's corn crop going to ethanol production, that has permanently increased the demand for corn in the marketplace. Secondly, we had a president, Jimmie Carter, who put a ban on exportation to Russia. That hit the market very hard. Thirdly, the developing world is consuming more animal-source protein, requiring not only more grain for exportation, but more general demand across the globe, with much going to China. Finally, as long as we are in this zero-interest rate environment to lenders, people have very few options to their short term investments, outside of the stock market, which many people don't like nor trust. In the early eighties I purchased a 2.5 year CD that carried a 17.5% interest rate. Today, that same federally insured CD would carry a 1.0% rate. Also, if inflation picks up and interest rates start to rise, I want to own tangible assets, not financial paper. For me, I sleep much better knowing that my family owns farmland and paper promises. Now, I do worry about our government taking farmland away from people, but at that point, I would hope farmers would rebel.
Posted by tom vogel at 7:09AM CDT 06/06/14
One of my favorite Tweets this week was from an Iowa farmer who noted corn was $4--the same as when he started farming in 2010. Only problem is his rents are $100/acre higher. So it sounds like something has to give.
Posted by Marcia Taylor at 12:28PM CDT 06/06/14
This story doesn't focus enough on the seller's perspective. Recent increases in taxes on land sales mean that a seller could easily be robbed of 1/3 of their land for state and fed taxes. Sellers astute enough to resist being robbed will hold onto land (a desirable, tangible investment in the first place) and doing so will keep land off the market and support the price. But note that I'm not predicting land prices will go up.
Posted by Curt Zingula at 7:06AM CDT 06/08/14
When you think about profit margins in farming right now, based on the high priced land (and rent) there isn't a lot of wiggle room. If I am buying $12,500/A land, just accounting for principle, and a 20 year payback, my land cost is $625/A. Is that long term feasible? If I included a simple 5% interest cost on that that payment balloons to $1003 on an annual basis. If I factor in real estate taxes, you can probably add another $30 to $40/A easily. Looking at these numbers, you can clearly see that land cannot pay for itself in 1 lifetime. It takes additional land to do that. So in order for me to get this into a long term acceptable repayment range of say $250 to $300/A, I need to look to have either 75% of the purchase price in cash, or I need to mortgage 3 acres of land for 1 acre purchased or some combination of both. I personally believe a lot of the cash generated in the last 5 to 10 years has been spent already on either land, capital improvements, or machinery. I think until crop input costs start to moderate/drop, we will be 1 or 2 large crops away from potentially starting to see the start of the downhill slide. If you look back in the 80's, it only took the tailenders having to liquidate real estate that brought the whole system nearly to ruin. There are not enough available purchasers to soak up all the land if bottom 5% have to liquidate land. There will be too much surplus, which will start the downward spiral. How fast, long and deep will be known after it passes.
Posted by Pedro Sanchez at 10:00AM CDT 06/09/14
Curt I don't see that around here.There has been more land sold in the past 12 months than the last 10 years.If your going to sell, sell now.Land prices and taxes are not going to get better.Some investments have run their course.$700.00 land 30 years ago now selling for $10,000 don't see those kinds of returns sticking around much longer.
Posted by Raymond Simpkins at 10:03AM CDT 06/09/14
Cal, the price of crops DO have a bearing on the price of land. Historically, it has been the single most important factor affecting land prices over a period of time. You may not have noticed an effect of $4.00 corn (harvest price) corn on current land prices yet in your area because we are still in the very early stages of this change of the agricultural economic cycle. In the last break down of land prices, the effect of Pres. Carter's grain embargo in 1979 did not definitively show up in the land prices (in my area) until the fall harvest of 1981. It will take a year or two for farmers' cash reserves/flow to get dwindled down from the relatively lucrative/recent grain prices (of only this past year).
Posted by Unknown at 10:11PM CDT 06/09/14
Ray - Wow, that's way more land selling than what I've seen in Eastern Iowa! Where is "here"? Do those sellers understand that they've just accepted a 30% loss in value after taxes? And their new C.D.s (assuming they're not paying off mortgages as others suggest) won't offer the return of land rent. Other investments are risky too. Still, there are messy estates to settle, and that will always offer land to the market at any value!
Posted by Curt Zingula at 7:00AM CDT 06/10/14
Curt we live in southern Michigan where there has been a huge turnover of land.These sellers are mostly retired people with no mortgages.You are going to pay taxes on that money someday, Today 30%, 10 years down the road maybe 40%.Rents in this area are not all that high, you would be looking at rents in the $300-$350 range to compare to other investments and rents are not close to that.Dutch dairy farmers here will pay whatever it takes to buy land.Im not selling, but Im not buying at these prices either.
Posted by Raymond Simpkins at 8:52AM CDT 06/10/14
I think land is poised for a large correction. Unfortunately for me, I've thought that for 5 years now :)
Posted by Unknown at 12:23PM CDT 06/10/14
Ray, You're right about taxes going up - far left has made popular a book by an author proposing 80% tax for the top bracket! However, I'm not sure your "mostly retired" have considered stepped-up basis which will allow heirs to avoid capital gains if they don't see the tangible value you and I see for holding land. For most of the non-farming land owners in my area, land rent ($300 or more for good land) is supplemental to their own income or retirement benefits and they're not selling. Anyway, my point is basic Econ 101 - price discovery is a function of demand AND supply. If you're right and the land supply is surplus (like all the corn predictions) the value can only go down.
Posted by Curt Zingula at 7:07AM CDT 06/11/14
Curt, you touched on a topic (as well as Ray) about surplus land for sale/turning over. How much land do you think would have to hit the market in a region to produce a surplus? I wonder if this has ever been researched. With land running in the $10k+ acre range, my guess is it wouldn't take long to start to see saturation (2 to 3 land sales a month??)
Posted by Pedro Sanchez at 8:22AM CDT 06/11/14
I am not convinced that a large correction is coming. Being very close to the ag real estate market here in Nebraska, I have way more Buyers than I have Sellers. That plays into higher prices sticking around. If it is an Investment Buyer, they are a bit more conservative and are beating the bushes for good deals. I am seeing Investment Owners beginning to liquidate to take advantage of increased value...but they are not doing it in a wholesale way. And they are wanting to 1031 right into another land purchase. Conversely, the area farmers are scooping up almost any property when it becomes available for sale or lease and will hold onto it for the long term. Many have adequate financial reserves to not bat an eye at the price as they can leverage the cost across their entire portfolio. Others may sell some land and rent back freeing up cash to purchase a different farm. I do believe the marginal farms...those that have issues such as less desirable soils, power lines, canals, roads, etc. on them will not continue to bring top dollar. Nor should they. Now, if Capital Gains laws ever revert back to what they were a few years ago...you would see older landowners more willing to sell and that could potentially push the prices down some. Do I think that prices will drop 20-25%? I will know more in about 5 months...but if today is the barometer...my answer would have to be a definite NO.
Posted by Mike McCann at 8:25AM CDT 06/11/14
If the FED slows the printing presses, regardless of debt to asset ratios and rent rates there may well be a drop in $. Corn, milk and apples might not be a major factor in the per acre $ value. The Stock Markets, as well as other factors , here and abroad, are all part of the big picture.
Posted by Bonnie Dukowitz at 5:12AM CDT 06/12/14
Perhaps Marcia could answer our questions about seller motivation with a story based on Realtor responses. It appears that there are significant regional differences. BTW, I had to groan at Mike's inclusion of power lines lowering land values because I'm in the path of RICL's proposed wind transmission line. Those jokers want to commandere my field driveway to build their 14 story high line across the the entire section and not offer me a single dime more than my neighbors. Wind energy transmission to far away metro areas will lower a lot of land values!
Posted by Curt Zingula at 7:19AM CDT 06/12/14
Thanks for the assignment, Curt! I'm on the case. But it seems to me we see more motivated sellers among farm heirs and estates than retired farmers who want to cash out. Capital gains on farmland--especially land owned for decades--still provide retirees major tax reasons to keep a grip on land until death, when all lifetime gains are forgiven. What I am noticing is that large farmland investment firms are having success with sale-leasebacks to older farmers with no successors. The owners think now might be the time to pick their price, but retain a leaseback on their land for 5-7 years. Anybody in this camp?
Posted by Marcia Taylor at 10:11AM CDT 06/12/14
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Recent Blog Posts
  • Debate Rages Over APH Forgiveness
  • Expert Advice to Pick a Farm Bill Contingency Plan
  • Update Your Ancient FSA History?
  • Fat-Cat Rents Most Vulnerable
  • Why Rents May Be Slow to Tumble
  • What Farm Widows Wished They Knew
  • Cash Rent Needs a Relief Valve
  • Spring Fling Lifts Land Markets
  • Why Succession Plans Stall
  • Pick Estate Advisers Who Make the Grade
  • Farmland: Trophy or Investment?
  • Landowner Appeals Landmark CRP Case
  • Watch Sticker Prices on Farm Loans
  • Sec. 179 Depreciation in Limbo Again
  • A 20% to 25% Land Crash? Really?
  • Contrarians Counter Ag's Doomsday Decade
  • Avoid the Marketing Blame Game
  • If You Farm, There's No Place Like Home
  • Not 1979 All Over Again
  • The Great ARC or PLC Debate