Record 17% Jump in Farmland Values

Farmland values in the Federal Reserve’s Seventh District climbed a record 17 percent during the second quarter of 2011, according to the Chicago Fed’s Farmland Values and Agricultural Credit Conditions Report. This economic shot in the arm marks the largest year-over-year gain since the 1970s for the District’s five-state area—one of the most productive regions in the Midwest. The value of “good” farmland increased 4 percent during the second quarter, compared with the first quarter of this year.

The report was compiled from the Chicago Fed’s survey of 226 bankers in the District, which includes Iowa, Illinois, Indiana, Wisconsin, and Michigan. Findings revealed that higher revenues for crops and livestock, coupled with growing investor demand, fueled the rural real estate roll. Agricultural mortgage rates averaged 5.62 percent—a record low that also contributed to the surge in District farmland values. Some respondents cited a higher-than-usual number of summer auctions as a factor.

“The combination of higher revenues for crop and livestock production has been an impetus for the significant increases in agricultural land values seen this year in the District,” the Fed reported in its newsletter. “Demand for farmland remained strong from both farmers and investors.”
Among the District states, only Wisconsin had a smaller year-over-year increase in farmland values in the second quarter of 2011 than in the first. Year-over-year land values in Indiana and Iowa climbed 21 and 20 percent respectively, while values in Wisconsin rose a modest 8 percent. Fewer than 2 percent of the survey respondents expect farmland values to decline in the third quarter of 2011.

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David Oppedahl, a business economist for the Chicago Fed, shares the bankers’ notion that the spike is no fluke. “Overall, the higher level of corn and soybean prices looks to be something that will continue through the end of the year,” he said early this week. “I think that over the next year we aren’t going to see any declines, and we are going to see continued increases, though probably not as strong as over the past year.”

On November 15, 2011, the Federal Reserve Bank of Chicago will hold a conference to explore the factors contributing to large increases in agricultural land values and cash rental rates in the Midwest. The details and agenda are available HERE.

Indiana Farmland Reaches New Highs

Recent record-setting prices for prime Indiana farmland prompted The Land Report to reach out to Rex Schrader, chief financial officer of Schrader Real Estate & Auction Company. In late June, the company’s auction division sold properties in Spencer and in Randolph counties. Both auctions saw record prices per acre.

The Spencer County land sold at prices as high as $6,875 per acre, with most of the tillable land selling for $6,428 and $6,554 per acre. “We sold about 223 acres of this land in 2003 for $1,930 per acre, which was good at the time. It’s more than tripled,” said Schrader. Mason Seay, a longtime agriculture specialist for German American Bank, said the price was “the highest ever for land in Spencer County for row crop production.” Approximately 82 percent of the Spencer County land was tillable.

In the Randolph County auction, 551 acres sold to a single buyer for $2,677,500, or $4,859 per acre. “Like the Spencer County land, this property had appreciated considerably,” said Schrader. “The price varies according to quality and location, but across the board the clear direction is up.”

Schrader’s many years in the business led him to share some other observations on the current ag land market. “The larger the acreage offering, the more interest there is,” he says. “Ten years ago at a Schrader auction, a lot more buyers ended up on the winning end. More lots sold in smaller tracts. Today we’re seeing a trend of more and more farms being purchased in whole.”

Read the Chicago Fed’s most recent report on rising farmland values HERE.

Although some skeptics assert that the current market for top ag land has all the makings of a bubble, Schrader disagrees.  ”I don’t believe it is a bubble. This market is based on income, on expected income. Commodity markets lead land prices. Follow corn prices over the past few years and you can see why land prices continue to rise,” Schrader says.

A second driver pushing up prices is basic economics. Schrader cites the limited supply of ag land and points out that those farms tend to remain tightly controlled by farmers or farming interests.

A third and final consideration is alternative investment vehicles. Anyone who has paid attention to the schizophrenic gyrations of the Dow this week knows that a low correlation exists between investing in equities and sleeping easy.

So who continues to push prices higher? Despite the entry of non-traditional investors into the market, Schrader sees farmers as the principal drivers. “The farmer is still the bull in the market place. They are the ones driving the market. Right now, the debt to asset ratio of most farmers is very low. They’ve made a lot of profit in the last three to four years. On top of that, other investors such as investment funds typically have to look at returns as a rigid guideline. That gives a farmer a little more leeway to pay a slight premium above the ratio of net income to purchase price.”

Schrader’s closing comments aren’t about land. They are about capital:

It’s amazing how much money is out there today. And it’s all waiting to pounce on the right piece of property. - Rex Schrader

Based in Columbia City, Indiana, Schrader Real Estate and Auction Company is a leading auctioneer of tillable farmland throughout the U.S. Individuals seeking additional information about the firm and its auctions may visit www.schraderauction.com or call (800) 451-2709.

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On the Block: South Carolina’s Patriots Plantation

The creators of Patriots Plantation envisioned a special place where nature, friends and families could come together to enjoy the beautiful Low Country outdoors in a tranquil setting where rush hours and daily routines simply don’t exist. That vision became a reality is obvious to anyone who visits these extraordinary 1,886± acres in historic Williamsburg County, South Carolina. Now someone will have the opportunity to make this plantation their own on August 25 when it will be offered to the highest bidders at an absolute auction, regardless of price. This one-of-a-kind opportunity will be conducted by The National Auction Group, Inc. of Gadsden, Alabama, a company with years of experience marketing farms and ranches.

Located at the southern tip of South Carolina’s Pee Dee district and only 45 minutes from Myrtle Beach, Patriots Plantation is one of the finest facilities of its kind in the South. Fenced and gated, the property is blessed with roughly 7 miles of water frontage, plus lakes and ponds. More than 15 miles of maintained roads are already in place. The main entry gate can be conveniently controlled with remotes, a key pad, or a cell phone.

Patriots Plantation is well known for its duck, quail, and deer hunting as well as its trophy fishing. The highlight is the beautiful and spacious main house that was built with the finest materials and with meticulous attention to detail. The centerpiece of the home is a massive den that blends perfectly with the gorgeous natural setting. Its special features include a stone wood-burning fireplace, a large bar with refrigerator and ice maker, and a 10-person dining table for large family or corporate gatherings. Equally special are the fully-equipped gourmet kitchen with wine captain and the huge master suite that features a marble steam shower, a pair of walk-in closets, an office and a gym. There are also two additional bedrooms with their own baths and sitting areas, a large laundry room and both a screened porch and deck.

Numerous other structures and amenities can be found on the plantation.

“This is a very unique plantation that is not only beautiful but with a superb location just minutes from Myrtle Beach,” said National Auction Group president William Bone. “With no minimum bid required, this is an unparalleled opportunity to purchase a special lifestyle that might remain in a family for generations.”

National Auction Group
(800) 650-8720