Down but Not Out

Farmland Market Stabilizing

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
Higher-quality corn ground in parts of the Midwest is bringing $60 a bushel of historic corn yield per acre, much higher than what brokers expected with sub-$4 corn prices. (DTN photo by Scott R Kemper)

WEST DES MOINES, Iowa (DTN) -- In a quick, windshield tour of recent farmland sales, prices are slightly higher than brokers were predicting, having stabilized from lower values this fall. Areas that had good crops in 2014 are showing the strongest moves.

For example, a 300-acre farm in Sangamon County, south of Springfield, Ill., sold in the last few weeks for $14,400 an acre to the current tenant. "That's an incredible number," reported Randy Hertz with Hertz Farm Management, Nevada, Iowa. "But this area had rock-star yields last year where whole farms averaged above 250 bpa corn."

In Tipton County, Ind., which has some of the best farmland in the state, "we sold two tracts in January at $12,000 or higher per acre," reported Howard Halderman with Halderman Farm Management and Real Estate Services in Wabash, Ind. "The crowds at each of the five auctions we've had since January 1 have been very good and we've had good, competitive bidding. The buyers have been generally neighboring farmers."

Interestingly, Indiana farm prices have slightly rebounded based on the weighted-average productivity index (WAPI) ratings. That's a measure of dollars per average bushel of corn yield. "This fall, we were seeing land sales with a WAPI price in the $50s. In fact, we saw many sales in the $40s per WAPI," said Halderman. "However in a recent sale, a northwest Indiana farm with an average 170-bpa corn yield sold for $10,500 per acre." That's a WAPI equal to $62."

Halderman said the higher quality farms so far in 2015 are getting above $60-a-bushel corn yield. Still, prices on these top-quality farms are generally down about 10% from the peak in the first quarter of 2014.

The greatest drop in farmland values occurred between last summer and October, said Hertz. "Right now there is a pause in land values," he added.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

Even in areas with poor crops last year, the land market isn't collapsing, although it is down from last year. "We just sold 660 acres that brought about $500 more per acre than we had expected," reported Jay Bargman, farmer and real estate agent in West Bend, in north central Iowa. "We had two quarter [sections] that brought $8,800 and $8,200 per acre on 72-73 Corn Suitability Rating (CSR) ground (average corn yield around 190 bpa). The best ground in that area is 78-79 CSR (around 210-220 bpa corn). But last year, we had the worst yields since 1980 from too much rain and a nasty hail storm," Bargman noted. "Most of the buyers were local farmers. One parcel sold to a Minnesota investor."

"I've had fewer calls from both buyers and sellers compared to last year," said Bargman. But land buying interest overall is still high.

Peoples Company, a farmland real estate and farm management firm based in West Des Moines, attracted 660 people from 20 states and four countries to its Land Expo in Des Moines in January. People are looking for the right fit for their investment needs, said Hertz.

"Investors are interested in farmland," said Hertz. He recently sold a farm to a Chicago investor for $7,150 an acre in Marshall County, Iowa. "Some people expected it to bring $5,000 per acre." So, the market is stronger than some have predicted, noted Hertz.

"If it fits your needs and is in the right location, people are interested in buying. There is still plenty of cash out there," Hertz added.

Buyers can also find some bargains. Bargman reported an 80-acre parcel in his hard-hit area sold recently for $6,400 an acre to two local farmers. "Ahead of the auction, I thought it might have brought closer to $8,000 an acre," Bargman said.

A healthy correction in the land market isn't necessarily a bad thing, say farmland brokers. "Nothing goes straight up forever," said Halderman. "Farmland values are based on three factors: farm income (the biggest factor), interest rates and the supply of farmland for sale. Farm incomes are bearish but interest rates and farmland supply are bullish."

Farmland for sale is still in tight supply. "It's hard to find 2,000 acres in a single county for sale," said Halderman, whose company operates in Indiana, Ohio, Michigan and Illinois.

"That's why we expect a moderate retraction in farmland values, which is different than in the 1980s when interest rates spiked," Halderman explained. Bargman concurred. "In the 1980s, when you couldn't afford to make interest payments, much less reduce principal, land flooded the market, pushing down land values, increasing debt-to-asset ratios and adding more farms for sale."

Most farm real estate brokers predict a more rational 10% to 20% drop in values this time around. Many non-livestock areas have hit that level. And right now land values "are treading water," Halderman noted.

Elizabeth Williams can be reached at elizabeth.williams@dtn.com

(MT\SK)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[article-box] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]

Elizabeth Williams