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Little Debt, Tight Borrowing, Lower Rates Help Farmers Buy Prime Ag Land For Premium Prices Little Debt, Tight Borrowing, Lower Rates Help Farmers Buy Prime Ag Land For Premium Prices Originally Appeared On:"kearneyhub.com" By Lori Potter April 1, 2012 There’s one word that best explains why the current boom in ag land prices isn’t a prelude to another 1980s-style farm crisis: Debt. Related People Or rather the shrinking debt on farms and ranches as a result of high commodity prices, more restrained borrowing and lending, and much lower interest rates. Miles Marshall of Marshall Land Brokers & Auctioneers and Gary Anderson of United Farm and Ranch Management, both of Kearney, said a huge difference in today’s real estate market is the amount of cash farmers bring to auctions. “Lenders tell us their biggest competition is cash,” Marshall said. Anderson said that whenever a market moves up fast, there’s room for an adjustment. However, he doesn’t see a major adjustment coming as long as the ag sector remains profitable. He said investments in farmland provide an immediate return from the crops grown and sold and a longer-term return from the land itself. “Land values are justified by today’s commodity prices. It’s not a bubble,” Marshall said. “The question becomes what will commodity prices be in the future.” He’s had more cropland sales than usual in the last 12 to 14 months, mostly over the winter, after years of seeing the opposite trend. He said Marshall Land Brokers had its busiest winter since his dad and uncle, Robin and Eugene, started the business in the 1960s. Marshall said 3 percent to 4 percent of the land changes hands annually nationwide. High prices for all categories of ag land, but especially irrigated cropland, and concerns that capital gains taxes may increase are some reasons interest in selling land is on the rise. “People considering selling are going ahead and getting it done,” Marshall said. “In many cases, it’s a family or the heirs of their parents who were farming. They may have owned it for some time, but at some point that no longer is practical,” he said, adding that there are many other, individual reasons why people sell farmland. Marshall and Anderson said there haven’t been enough sales in the immediate area to get an accurate picture of prices. However, 280 acres northeast of Kearney that was sold as two tracts Wednesday by Marshall averaged $8,150 per acre. A week before the auction, Marshall had said that while farmland prices vary from community to community, an irrigated acre in Buffalo, Phelps and Kearney counties probably would sell for $6,000 to $8,000. “We always go into an auction with a certain expectation,” he said, and if there is a surprise, it tends to be on the high end for irrigated, dryland or pasture. Recent sales of irrigated land at $10,000 and $12,000, respectively, in Clay and Hamilton counties made headlines. Anderson said they may not reflect true farmland values, despite the attention they attracted. “The present investment environment favors real estate,” Marshall said. “It’s much more of a part of the market than 20 years ago.” So there has been more interest shown in central Nebraska farmland by buyers from eastern parts of the state and from other states. Marshall said there was an eastern Nebraska investor bidding at Wednesday’s auction who said he was interested in a land exchange for tax purposes. Some farmers not tied to locations in eastern Nebraska, where land is higher priced and often closer to cities, are looking for new farms to the west. “We’ve run into a case several times where land was sold for a development … and the seller did a tax-deferred exchange for farmland out here,” Marshall said. South-central Nebraska has good soils and good water, so transplanted farmers are not sacrificing productivity, he said, as they would if they moved even farther west. Anderson said another unusual factor with today’s high farmland prices is “there is a compelling reason for people to sell and a compelling reason for people to buy.” Both real estate brokers said most ag land buyers are farmers. Marshall estimated that 80 percent of his recent sales were to active farmers. “For farmers, location is critical,” he said. “… That makes it (a particular parcel) more valuable to them than for an investor for whom location isn’t an issue.” Anderson predicted that farmers’ interest in purchasing more acres to farm will remain strong as long as commodity prices remain high. “There are very few times in agriculture when we can sit down in December and predict profitability for a (growing) season based on expected commodity prices. The last two years we could do that,” he said. So when farmers outbid other investors at land auctions, Anderson said it’s a sign that there’s good income in agriculture and some of the profits are being put into real estate.
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