Interview Conducted by Midlands Business Journal | Answers Submitted by Eric Geiger – Sales Associate
Q. What is the value of farmland today compared with the past several years? How does the value differ depending on its location and use?
A. The value of farm ground was on a steady rise until about 2013 when we started to see a slowdown of appreciation, resulting in nearly level valuations in many areas. In 2014 good farm ground was still holding strong, and farms with non-farmable areas were starting to see a slight decline. In 2015 there was a decline in some places, however, prices have remained strong for others. Overall it is being reported there is a 10 to 15 percent reduction in the value of farm ground.
One factor which played into the strength, were areas where not many farms had sold. When a farm would come up for sale, the neighborhood had the revenue to bring a strong price. Since 2007, when commodity prices started the upward movement, the agricultural communities came into a 7+ year run of really high grain prices. Usually in agriculture a one to two year run of good prices comes along, then it goes back to normal levels thereafter, never has agriculture seen a prosperous run like what we just had. Producers upgraded long overdue equipment and bought farm land because opportunity met ability, also this run was long enough to put many producers in a good financial position. This shows with some strong sales numbers we are seeing in certain markets. We have started to witness some no sale auctions, many with reserve prices that we would say are well within the range of a good price. This indicates that more buyers are starting to show a hesitation with bidding up farms.
Obviously the more usable acres a farm has the more valuable it is. Those are the farms that are holding their value. As stated earlier, any farm with non-producing acres are showing a decline in overall selling price. Pasture land has also seen an increase over the last several years, not like tillable farm ground has, but a noticeable increase.
Q. Who is buying farmland (large or small farmers)? Are they buying additional land to add to existing farms or are they buying complete farms?
A. Farmers of all sizes are purchasing ground. This increase in commodity prices has been helpful to the smaller farmers as well, as they now have the strength to be a competitive bidder in the purchase of land. Most are buying as additional land. Some entire farms have sold to one buyer, but large tracts are usually sold in multi-parcel offerings and therefore are sold to more than one buyer.
Q. How do people finance farmland? What kind of information do they need to provide to the banks?
A. Much of the farmland being purchased in the last several years has been to cash buyers. Some have used financing as more of a tool and to take advantage of the low interest rates thus keeping their working capital liquid. Most banks we have spoken with are requiring 40% to 50% down on purchasing land, this depends on the borrower’s financial strength, the quality of the land and its production capacity. The banks are still using their traditional products, such as 15 to 20 year notes, fixed and variable interest with 1, 2 or 5 year rate changes on the life of the loan.
Q. Is there anything else you’d like to add?
A. No one knows what this farm ground market is going to do, but all current indications are that it will be a softer reduction in land prices than was previously thought. If anyone is in a position to sell now is still a good time. Prices are still higher than they were 5 years ago.