U.S. farmland buyers more selective but still pay for prime

Reuters

By Christine Stebbins

CARLINVILLE, Illinois, Nov 12 (Reuters) - Buyers of U.S.farmland appear undaunted by falling grain prices, paying topdollar for prime parcels coming up at autumn auctions althoughshowing a more cautious tone than in recent years, farmlandauction participants said at a sale last week.

"It's more dependent on where a farm is located than thegeneral land market. The person the farm is near matters morethan the type of farm," said Bruce Huber, an Illinois realestate broker who handled a sale in central Illinois last week."Last year, it was just up, up, up."

If the sale of the 535-acre (217-hectare) grain farm inCarlinville, Illinois, for $14.5 million is any indication,farmland values in the most productive areas of the grain beltwill stay steady during harvest, the traditional season for farmland auctions.

The farm in question, which included grain storagefacilities for more than 4 million bushels, was sold in seventracts with the top parcel of 200 acres bringing in $13,600 anacre.

"We decided $13,000 was our top dollar. We exceeded ourexpectations. But I'm glad we did it," said David Fullington, alocal CPA who organized a partnership of farmers to make thesuccessful bid for that parcel, which will be farmed by one ofthe buyers' sons in the coming year.

The sale price was as strong as a year ago when corn was at$8 a bushel versus the $4 being paid today. Corn prices havebeen the catalyst for sky-high U.S. farmland values in recentyears.

Why the strength? The usual reason: the neighbors wanted thefarm.

"We wouldn't have bought this if we didn't own other land,"said Fullington, who said top grade land four years ago had beenselling for $4,000 an acre. "It would have been a poorinvestment for somebody to go out and buy land for the firsttime."

Huber said he had seen a common theme at this autumn's grainland auctions in Illinois, typically the nation's number 2 cornand soybean grower behind Iowa.

If the farm is in the right spot, and the land is goodquality, farmers are paying top prices and quickly - the200-acre parcel, a $2.72 million sale, was done in 15 minutes,Huber said.

But if those factors are not present, sales go slow andoften disappoint sellers.

"There is more variability this year," he said. "If you want$13,000 or $14,000, you're going to sit on it for a while. Ayear ago, that wasn't the case."

HARD LESSONS

There is a wide audience for farm land prices this season.Federal Reserve policy makers, farm bankers who use land as loancollateral, seed and fertilizer dealers and equipment makerslike John Deere are closely watching land sales as anindicator of future farmer spending at a time grains prices - ifnot revenues, given higher yields - have fallen back.

Jason Henderson, a Purdue University agricultural economist,said the Illinois auction was in line with what many haveexpected.

"Farmland values are holding pretty flat from where theyhave been. Usually the big moves in land values come in thefourth quarter, so we're right in the middle of it," he said inan interview. "My scenario as to how I think it's going to playout: we'll get a little softness. Then those farmers will sitthere and decide, 'Is this the top of the market or not?' Thosewho were on the fence thinking about selling, if they think thisis the top, then they'll put it on the market."

Prime grain land in Illinois, Iowa and other Midwest statesrose 20 to 30 percent in 2012 alone. Soaring demand for cornfrom ethanol makers, strong demand from China and otherimporters, and rock-bottom U.S. interest rates have all combinedto feed the farm land boom.

But skyrocketing land values have stirred nightmare memoriesof the ruinous land bubble of the 1980s, when overleveragedfarmers lost their farms as interest rates jumped. Farmers wholived through those times remember them well. Many were amongthe more than one hundred onlookers who sat in the old MacoupinCounty courthouse in Carlinville last week to watch the auction.

For some, the sale was a sober reminder of the bad old daysand bitter lessons repeated.

The property had been owned by Rick Rosentreter, anambitious young farmer who grew his grain operation from a fewthousand acres to 30,000 acres in just a few years. But it wasfueled by debt and the bankers who had lent to him foreclosed.

"The tone of the sale was great," said Huber. "The reasonfor the sale was not. There was stress."

Rosentreter was not present for the sale. Seth Baker, abroker with real estate company Schroeder Huber, said the youngfarmer's meteoric rise and fall drew some interest in the event.But he said that when the bidding opened, it was the productivevalue of the land, not seller distress, that made the day.

"There have been some sales that went well, others not sowell over the past few months. We were on the high end of whatwe expected," Baker said. "Outside of tracts 5-6, which soldrelatively low due to access issues, all of the other tillableground brought exceptional market value for class B, B+ soiltypes."

Other big buyers were also neighbors of Rosentreter,including the Behme family, which bought a 40-acre tract for$11,500 an acre.

But the biggest buyer was a neighbor from 90 miles (145miles) to the north in Decatur - Archer Daniels Midland,the biggest grain processor in the country. ADM bought a 30-acreparcel that included 20 grain storage bins for $9.1 million.

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