U.S. farmland market cooling entering key auction season
Bankers and economists watch farm land prices closely. Land represents 85 percent of farmer assets - and loan collateral.
Federal Reserve banker surveys for the quarter ended in June cited lower rates of gain in land prices. At the same time, bankers cautioned farmers against chasing price dips with borrowed money, dreading another 1980s farm debt crash.
"The difference with the 1980s is that 75 percent of land then had mortgages. Today, 25 percent does," said Jeff Obrecht, an Iowa-based real estate broker with Farmers National. "That makes a big difference. We just don't have the debt out there that we had. Part of that is lenders are requiring more. If you buy at $10,000 acre, you're going to have to put $5,000 down."
Auctioneers said that, in recent weeks, more 'no sales' have been reported at Midwest auctions as buyers think through revenue, cash and borrowing fundamentals.
"When I sold a piece a property two years ago for $14,600 we got there in less than 5 minutes," said Bruce Huber of Hickory Point Bank in Decatur, Illinois. "Some of these auctions are taking longer, fewer bidders. You can just tell the enthusiasm for the higher prices seems to be wanting yet the prices are still there."
So as land auctions pick up starting in October, auctioneers are expecting some price resilience.
"Farmers buy about 70 percent of the farms in the Midwest," said Hertz. "They've got cash, there are record amounts of cash. That cash at a bank or short-term deposits doesn't pay much - essentially, less than 1 percent. Compare that to a farm that can earn 3-4-5 percent."