Trophy farms command prize prices

Jul 22, 2011
by DTN

Farmer-investor Howard Myers of Princeton, NJ, has been itching to buy another Midwest farm. Last month, he thought he had a lead: Heirs contacted him about an estate sale with the land adjoining the Taylorville, IL, farm he’s owned since 1985.

But within days of the owner’s funeral, one of the state’s juggernaut farm families scooped up all 123 acres at $11,000 each. Myers had been willing only to buy a portion of the farm, given the steep asking price.

“One aspect is how fast deals like this go off. I had a shot at it, because I’ve known the owner’s family since 1985. Otherwise, it would be all over before I had even heard about it,” Myers said. “I’m still in the market for land, but I doubt it will be in Illinois.”

Trophy farms

Sales in the five-figureper-acre magnitude used to reflect land with development potential or neighbors locked in a personal bidding war. This summer, dozens of trophy Corn Belt properties are surpassing the magic $10,000 per acre: Three parcels near Champaign, IL, stunned realtors bringing $11,300 to $12,900 per acre in a June auction. That held the high watermark for the area for only one week when another Champaign County tenant purchased land he’d been farming for $13,500 an acre.

“It’s the Class A farms with 200-plus bushel corn yields that are getting the most interest,” said Monticello, IL, realtor Brent Bidner, Hertz Farm Management, as he noted 300 people showed up for one of his summer auctions.

Records aren’t limited to Illinois. Three Grundy County, IA, farms with some of the state’s premier soils commanded $11,200 to $11,500 an acre in a July 14 auction. “It’s like selling a Mercedes vs. a Ford. Both will get you from point A to point B, but the Mercedes brings a premium,” said Bob Regenwether, the Farmers National sales agent in Hudson, IA, who handled the auction. “I don’t know if that’s the right analogy, but people are bidding aggressively for quality land.”

While good news for current owners, the lofty benchmarks are helping to elevate values in neighboring states and will likely mean higher cash rents for big swaths of the country aren’t far behind.

Near Storm Lake, IA, appraiser and farm manager Dennis Reyman of Stalcup AgriServices counted at least half a dozen properties that have topped $10,000 per acre in the last two months. That’s up from the same top-quality land that sold at auction for $2,800 only 10 years ago, a 250 percent return. He remembered precisely how depressed land sales seemed a decade earlier because he sold some on the morning of Sept. 11, 2001.

Unlike Arizona or Florida vacation properties, prime farmland listings don’t linger for hours, let alone months. Kirk Weih, Hertz Farm Management in Mount Vernon, IA, noticed a 160-acre farm listed on an internet site on a recent Friday. His client sealed the deal at $9,200 an acre by Monday morning—$200 over offering prices—in part because Weih thought the parcel was still undervalued by at least $400 an acre.

“It had an 89 Corn Suitability Rating (CSR) that should have been worth about $110 per CSR point given its location,” he said of Iowa’s land rating system. “Over 160 acres, that difference adds up.”

Rent resistance

Investors like Myers might have trouble buying what they consider “affordable” ground anywhere in the Corn Belt at the moment. In parts of western Minnesota, farmland values have surged 30 percent this calendar year, according to Cory Prins, a farm manager and appraiser with Northwestern Farm Management, Marshall, MN. Federal Reserve surveys show Minnesota with the fastest appreciating real estate in the Corn Belt in the last 12 months, although Nebraska, Kansas, North Dakota and Iowa aren’t far behind.

Prices in Renville County, MN, now flirt with $8,000 an acre, Prins said. The region boasts fertile soils and high farm incomes from canning and a local sugar beet cooperative. But that rally has spooked some investors who would typically like to earn 4 percent to 5 percent returns from cash rents.

“Prime land in this area could get $300 to $350 rents next year, but that will give some renters heart palpitations,” Prins said. If corn prices stabilize at $5 to $6, he thinks it’s likely that the region’s average rents are likely to jump 10 percent to 20 percent for 2012.

Myers is aware that $400 cash rents are common in central Illinois as investors demand market rates for their properties, but as a farm operator himself, he knows weather and markets can wreck havoc with profits. He can’t bring himself to shift so much risk to his renter.

“I have continued with a 50/50 share rent because I like the tenant and don’t feel I have to beat every last nickel out of the land,” said Myers. So the $10,000-andup price tags just mean he can afford fewer acres, not that he’s priced out of the real estate market altogether.

What still appeals to Myers is prime farmland unencumbered by easements and utilities, something that hasn’t existed near his home farm near Princeton, NJ, for decades. But beyond the pleasure of owning farmland that’s better than anything he farms himself, Myers and his wife are seeking a safe return on a portion of their savings. The land they bought in 1985 for $2,225 an acre fell about 22 percent back in the 1980s but has shown a tidy profit since then. Longterm investors who pay cash have time to be rewarded, he said.

“Farmland is a much better rental than apartments or shopping malls. You have 100 percent occupancy, you don’t have to worry about painting and appliances breaking down,” Myers said. “For someone who knows farming, it’s a lowworry rental.” — DTN