Land Value Trends

Report
Land Value Trends
ASFMRA National Meeting
October 27, 2011
Phoenix AZ
Today’s Presenters
• Dave GaNun, ARA
– Farm Credit East ACA, Lebanon NJ
• George Baird IV, AFM
– Land Management Group, Collierville TN
• Merrill Swanson, ARA
– Dugger, Canaday, Grafe, Inc., San Antonio TX
• Dennis Reyman, AFM, ARA
– Stalcup Agricultural Service, Storm Lake IA
• Robert G. Morrison, ARA
– Robert Morrison Appraisal, Idaho Falls, ID
• Steve Runyan, ARA
– Runyan Appraisal Service, Bakersfield CA
Northeastern U.S. Farmland Market
Dave GaNun, ARA
• Market Area & Land Types
 New York, New England States, New Jersey, Pennsylvania, Delaware and
Maryland
 Ranges from significant non-agricultural/suburbanization influences and
specialty agriculture within 50-100 miles of metropolitan area to agricultural
and recreational influences in the more rural areas. Specialty including
nursery, greenhouse, vegetable, fruit, horses for riding and breeding (racing
and riding). This would also include smaller, part-time, direct market-type
operations. In the more rural areas the typical land use is for dairy, cash grain,
hay, forage, produce vegetable crops, and recreation.
 Within the region there is irrigation for some of the specialties products but
the vast majority of the agricultural land is non-irrigated. Irrigation in some
areas has increased to about 25% of the specific area.
 An estimate of the entire northeast agricultural land would be:
 5% irrigated cropland; 70% non-irrigated cropland; 25% pasture
Northeastern U.S. Farmland Market
• Quantity and Method of Land Sales over the
past 3, 6, and 12 months:
 In the metropolitan areas the quantity has been lower
over the past four years, with the exception of
agriculturally deed restricted sales, which have been quite
constant. In the agricultural areas the trend has been
steady to slightly up over the past twelve months.
 The method of sale varies within the states. Some of the
more rural areas report more public auctions. All areas
have real estate listings playing an important role. Some
report sealed bid auctions increasing in popularity. Some
areas still have significant influence from private sales.
Northeastern U.S. Farmland Market
• Trends in land price factors over past 3, 6, & 12 months:
 No significant changes taking place in types of sales
 Weather is not an issue at this time
 Regional markets are influenced by development but this has
been soft for past five years after significant declines in value
from 2006 to 2009.
 Agricultural areas have posted modest gains.
 Agriculturally deed-stricted land has followed trend of fee
simple ag land, but has exhibited greater stability.
 Generally speaking, agricultural land is stable to strongly
increasing while metropolitan land is somewhat increasing to
somewhat decreasing.
Northeastern U.S. Farmland Market
• Who Are the Sellers and Who are the Buyers?
 Sellers include retiring farmers, smaller farmers, estate
settlements, and financially distressed owners
 Buyers include large farmers, investors, and some smaller
farmers
 Buyers are eyeing expansion, lifestyle, and buying at a low
point in the market cycle
 Most purchases are financed with a few being all cash
purchases. Farm Credit is a strong player in farmland
lending, with some bank financing.
 Financing is not a limiting factor to land values.
Northeastern U.S. Farmland Market
• How will 2011 crop yields and prices affect
land values in your area?
 In the agricultural areas the expectation is for
small increases in land values even where yield
predictions are off.
 There is little impact on the metropolitan areas.
Northeastern U.S. Farmland Market
• What return on investment (cap rate) do buyers
expect for each land type in your area?
 Cap rates reported range from 2% to 8%.
• What is the trend in land rental in your area (types
of leasing and rental rates per unit):
 Agricultural areas – Rental rates have increased with the
commodity prices.
 Metropolitan areas where grain is grown – very little
change and typically low rates.
Mid-South & Delta Land Value Report
George Baird IV, AFM
• Market Area & Land Types
 The Mid-South or Delta Region includes SE
Missouri, Eastern Arkansas, West Tennessee,
Mississippi Delta and NE Louisiana.
 This is a diverse area of the country which lends
itself to a variety of crops. With the long growing
season, ample water, and the ability to put
together larger tracts, this area is quickly
becoming recognized as the region for entity land
owners and investors to seek out properties.
Mid-South & Delta Land Value Report
 Traditionally, the two crops focused on in the Mid-South were cotton and rice with some
soybeans and wheat scattered about.
 Over the last several years as cotton prices continued to pull back and other
commodities like soybeans, corn and wheat pushed up, operators began to decrease
those cotton acres and focus on other crops. It has only been in the last 5-10 years that
the Mid-South has been able to fully realize our production capabilities.
 Mid-South producers have embraced new technologies and advancements in farming
which have tremendously helped our yields especially in crops such as corn and
soybeans.
 Today, you will see a mixture of not only cotton and rice, but also corn, soybeans, wheat,
grain sorghum and other crops.
 Some of these other crops that are beginning to emerge in isolated areas are melons,
potatoes, and other vegetables.
 Approximately 60-70% of the Delta region is irrigated and of that percentage,
approximately 40% would be pivot-irrigated with the balance being flood irrigated.
Mid-South & Delta Land Value Report
• Quantity and Method of Land Sales over the past 3,
6, and 12 months:
 While the demand for land sales in this area has seen a dramatic
increase over the last two to three years, it has really only been in the
last six to twelve months that we have seen a noticeable pick-up in
overall market transactions.
 In looking at recent sales that have taken place, buyers are beginning
to recognize the quality of the land.
 By quality we do not necessarily mean soil type, but the quality of the
improvements that have been made to the land. These improvements
would include drainage, irrigation, fertility and other improvements
such as grain facilities, shops and other attributes that owners,
especially investment buyers, are looking to either purchase within a
property or have the ability to add on at some future time.
 The quantity of land sales may not necessarily have increased, but the
overall size of each transaction continues to push higher.
Mid-South & Delta Land Value Report
• Trends in land price factors over past 3, 6, & 12 months:
 Most sales come are landlord-tenant transaction or private treaty.
 Estimate that these sales make up approximately 80-90% of all transactions.
 There are some public auctions in the extreme northern parts of Arkansas and
Southeast Missouri; however, they would account for less than 10% of all sales.
 In the past, one could buy undeveloped land at a discounted price and with time
and additional capital inputs afford to make the additional investment in the
property and bring it up to today’s standards.
 However, that quickly changed over the last several years as development costs
began to push higher at a rapid pace. At that same time, with increased demand
sellers are simply not in the mood to discount prices.
 That has begun to change as buyers continue to assess the quality of land and
quality of improvements and are ultimately taking in the additional capital which
will be needed for pricing in today’s market.
 In those cases where sellers are interested in selling and not just putting their
farms on the market, they will –and have begun to –adjust the prices accordingly to
complete the sale.
Mid-South & Delta Land Value Report
 Over the last several years we have seen some very wild weather swings,
which have no doubt affected the cash rental market, as well as the overall
land market as absentee land owners and investors are looking to maximize
returns.
 While there are exciting opportunities in the Mid-South, they do not come
without additional risk. The mild winters, heavy rainfall and increased
production costs, can and have shown dramatic impacts on the bottom lines.
 This year’s unknowns leave producers and their lenders somewhat cautious in
making bids. We must also keep in mind that many times these land
transactions are much larger than those in the Midwest, which also tends to
keep cash rental bids in check, and ultimately gets capitalized into the bottom
line.
Mid-South & Delta Land Value Report
• Who Are the Sellers and Who are the Buyers?
 We continue to see a very even mix among sellers
from individuals or families who are selling property
because of the disconnect with the land they have
today
 Larger farmers are selling to take advantage of high
land prices at this time and believe the prices they are
getting cannot continue forever.
 While investment groups tend to get more press and
buy larger tracts, it is still the local farmers or
landowners who have completed more land
transactions over the last 6-12 months. These often
do not come with the fanfare that the others do.
Mid-South & Delta Land Value Report
 Investment buyers are looking to continue this play on ag
as a long term investment, not only in real estate, but also
as commodities and to diversify their portfolios.
 Local buyers are also very pro-ag and very bullish longterm, but they are also looking to re-invest some of the
profits they have made over the last several years and also
control their holdings and not become dependent upon
having to rent some or all of the property they farm
forever.
 As rental rates continue to shoot higher, many operators
are seeing this as an opportunity to take advantage of the
low interest rates and lock in long-term operating plans.
Mid-South & Delta Land Value Report
 Most of the farmer/landowner buyers have been
either utilizing 1031 Exchange monies, Farm Credit
financing, or other local resources.
 On the investor relations side, usually cash
purchases; however, it should be noted that these
are then leveraged with financing after the fact.
 With dramatic weather fluctuations and risk
producers have seen over the past several years, it
may be starting to limit availability of financing on
less desirable properties.
Mid-South & Delta Land Value Report
• How will 2011 crop yields and prices affect land values in
your area?
 With strong commodity prices and solid yield reports coming
out of the Mid-South, we expect to see land prices to continue
to hold or push higher over the next six months.
 We also expect to see the quality of land begin to segregate
itself from that of lesser quality. This will continue to drive
prices and strongest demand for the higher-quality parcels.
 Barring some major outside market forces, we expect to see
values for all land move up again over the next 6 months.
 Undeveloped or partially developed +3% to +5%
 High quality, developed tracts pushing 6% to 8% over six months and
+ 10% over the next 12month cycle.
Mid-South & Delta Land Value Report
• What return on investment (cap rate) do buyers expect for
each land type in your area?
 Across the board, we are generally seeing cap rates quoted at
5% to 7% gross
• What is the trend in land rental in your area (types of
leasing and rental rates per unit):
 Cash rental rates are still well below returns generated with
crop-share arrangements; however, this is beginning to change.
 We are also seeing a trend in flex leases or minimum cash lease
arrangements with producers as buyers are trying to protect
their downside, but also are interested in working with the
producers in a shared type of arrangement to help capitalize on
current grain markets.
Southern Plains Land Value Report
Merrill Swanson, ARA
• Market Area & Land Types:
• Texas, New Mexico, western Oklahoma
• Texas ranges from coastal plain to high plateau.
• Great variety, from corn, wheat, cotton, sorghum, rice, and cotton
to 35-90% of the area in range lands. Considerable pivot irrigation.
• New Mexico is high plateau on the east and mountainous central
and west. 65% open range, 10% dryland crop, 10% pivot irrigated
& 10% flood irrigated.
• Quantity and Method of Land Sales over the past 3, 6,
and 12 months:
• Texas – fewer sales in the past year, mostly private treaty through
brokers. Auctions perhaps 10% of total volume.
• New Mexico – less activity in 2011 than 2010. Most sales are
private treaty, very few public auctions.
Southern Plains Land Value Report
• Trends in land price factors over past 3, 6, & 12 months:
• Texas – steady to uneven for medium or lower quality. Some
uptrend for better land quality with good water, but continued
softening in certain areas.
• Drought has stopped sales of cropland with weak irrigation water.
• New Mexico – Herd liquidations in eastern NM. No “outside”
influences on current market.
• Who Are the Sellers and Who are the Buyers?
• Many areas have limited land sales activity.
• Sellers are typically 3rd generation owners or folks who bought
land 5-8 years ago.
• Buyers include investors diversifying assets, farmers with good
recent profits, and oil profits looking for an inflation hedge. Some
investment funds in Panhandle area.
Southern Plains Land Value Report
• How will 2011 crop yields and prices affect land values
in your area?
– Despite drought, high commodity prices will likely offset
production losses and keep land values steady to slightly
higher, particularly if drought appears to ease.
– Overall, the market appears to be somewhat increasing.
• What return on investment (cap rate) do buyers expect
for each land type in your area?
– Cap rates on grazing land is quite low.
– Cropland may range from 2% to 6.5%
Southern Plains Land Value Report
• What is the trend in land rental in your area (types
of leasing and rental rates per unit):
– Strong demand for available grass or hay. None for sale.
Expect stable to somewhat increasing rental demand.
– Trending toward more cash leases but crop-share is still
popular method.
– Panhandle cropland leases:
• $200-$220 per wet acre for pivot irrigated with good water
• $150-$175 per wet acre for pivot with average water
• $85-$125 for pivot with weak water (depending on equipment)
Corn Belt Land Value Report
Dennis Reyman, AFM, ARA
• Market Area & Land Types:
 Indiana, Illinois, Iowa, Minnesota, South Dakota, Nebraska,
 Principal crops are corn and soybeans; vast majority is dryland east
of the Missouri River.
 Wheat in the western areas; some pasture and range land (lots of
pasture has been converted into cropland east of the Missouri
River in past three years)
 Some recreational or timber land, perhaps 5%-10% of sales in
some areas
• Quantity and Method of Land Sales over the past 3, 6,
and 12 months:
• Number of land sales has been higher than normal.
• Most are sold via public auction but that varies by area. Estimate
80% of arms-length transactions are conducted by public auction
in Iowa. Many private sales are landowner-tenant.
Corn Belt Land Value Report
• Trends in land price factors over past 3, 6, & 12 months:
 Top-quality land in traditionally strong areas have sold exceptionally
well. These are the sales that make the news. Most areas have
exhibited gains of 2-3% per month over the past year. Exceptional
areas have gained 4% or even 5% for brief periods.
 Medium-quality land is also selling well but are not the type of sales
that make the news. These sales have generally increased at lesser
rates than the highest-quality land.
 Low-quality cropland can still be a tough sell, depending on area.
Mixed-use farms (i.e., cropland + pasture + significant CRP) will sell at
a discount to all-tillable farms in strong corn regions.
 Recreational properties are generally selling below the 2008 high.
 Discounts for irregular field configuration or small field sizes are
becoming more pronounced. These can range from 5% to 15% or
more, depending on severity as compared to the neighborhood.
 Land values are increasing at record or near-record pace in many
areas.
Corn Belt Land Value Report
• Who Are the Sellers and Who Are the Buyers?
 Sellers are generally estates or multiple-family
ownerships. Some non-farmer single retirees.
 Large operators and landowners with a significant
land base will be the most prominent bidders for
additional land.
 Retired locals with cash to invest; looking for
better returns than bank rates.
 Outside investors are generally individuals rather
than large investment groups.
Corn Belt Land Value Report
• How will 2011 crop yields and prices affect land
values in your area?
 Yields are quite variable due to summer heat, very dry
conditions after 1st of July, and September 14th frost.
 However, revenue per acre will be excellent and will
put a lot of cash into farmer’s and landowners
pockets.
 Western Corn Belt has enjoyed a string of good years;
eastern Corn Belt has had some downward variability
with weather the past few years but land values are
still increasing at a considerable pace.
Corn Belt Land Value Report
• What return on investment (cap rate) do buyers
expect for each land type in your area?
 Cap rates on corn and soybean land has generally ranged
from 3-4% for most of the 2000’s.
 Exceptionally competitive areas may exhibit lower cap
rates; problematic farms may exhibit 4-5% rates.
 Lenders are mostly limiting leverage to 65% with a
maximum of $4,500 to $5,000 per acre.
 Many are all-cash or a considerable amount of cash going
into the purchase
Corn Belt Land Value Report
• What is the trend in land rental in your area (types of leasing and
rental rates per unit):
 Cash leasing is the predominant form of rental, but our August survey
showed decline from 48% in 2010 to 46% in 2011
 Cash rental rates may increase by $50-$150 per acre for 2012,
depending on the 2011 rate.
 Flexible cash rent is gaining popularity. There are many ways to set up
and calculate flex rents but most will set a minimum rent.
 Crop-share leases continue to experience modified terms, including
changes in percentage splits on income and expenses or cash + share
of crop.
 More owners are considering and converting to custom-farmed
operations. ROI on production agriculture has an excellent track
record. Our August survey indicated custom-farmed acres are
expected to grow from 11% to 22% of our respondents managed acres
Mountain Region Land Value Report
Robert G. Morrison, ARA
• Market Area & Land Types:
• Montana, Idaho, Wyoming, Utah, Nevada
• High percentage of pasture or rangeland. Most cropland is
pivot irrigated. Less than 25% dryland crops.
• Quantity and Method of Land Sales over the past 3,
6, and 12 months:
• Mostly private treaty sales, few sold at public auction
• Quantity of sales has been increasing, particularly in past 3-6
months for most areas
• More sales of higher quality land, stable on medium-quality.
• Fewer sales of recreational land as compared to pre-2008
Mountain Region Land Value Report
• Trends in land price factors over past 3, 6, & 12
months:




Weather conditions have had little impact on recent values
Mineral rights are having impact on upper Great Plains
The more ag influence, the more stable the value
Recreational values generally soft, particularly soft for
“scenic ranches”.
• Who Are the Sellers and Who are the Buyers?
 Sellers are mostly retiring farmers and those with financial
distress
 Buyers are mainly tenants or nearby farmers and ranchers
driven by profits and expansion
 Some long-term investors noted in southern Utah
Mountain Region Land Value Report
• How will 2011 crop yields and prices affect land
values in your area?
 Crop and beef prices will have positive influence on land
values. Milk prices were record-high earlier this year.
 Most areas report stable to somewhat increasing markets
for cropland; softer markets for ranches
• What return on investment (cap rate) do buyers
expect for each land type in your area?
 Ranches about 1-2%
 Irrigated or improved properties 3-4%
Mountain Region Land Value Report
• What is the trend in land rental in your area
(types of leasing and rental rates per unit):
– Upper Great Plains reports mostly cash rent on irrigated,
crop-share on dryland, and cash per AUM on pasture
– Other areas are more crop-share and/or long-term leases;
little arms-length current leasing activity reported in WY
– Generally, rents are expected to increase due to higher
commodity prices
Western Land Value Report
Steve Runyan, ARA
• Market Area & Land Types:
• California, Oregon, Washington, Arizona
– Arizona – flood & pivot irrigated cropland
» (vegetables, cotton, wheat)
– Washington & Oregon – lumber, nursery, grass seed, fruit trees, rowcrops
– California – everything!
• Quantity and Method of Land Sales over the past 3, 6,
and 12 months:
• Arizona – few sales in past two years but may be increasing in
2011
• Washington & Oregon – few properties are exposed to market,
most are landlord-tenant.
• California – increasing over last year, private party (not exposed to
the market) and broker listings. No public auctions.
Western Land Value Report
• Trends in land price factors over past 3, 6, & 12 months:
• Arizona – prices are mostly stable after a decline in ‘08-’09. SW AZ seeing
some pockets of strong increases. Weather has not affected the market.
• Washington & Oregon – stable on most, rising market for orchard-quality
irrigated land in WA. Prices up to $8,000 per acre. Fruit tree land market is
expected to be strong.
– Oregon land values are 10-15% higher than 2010 on very limited sales
– Eastern WA slightly higher, Western WA slightly lower values
• California – some significant price increases in most land types, including
almonds, pistachios, open ground. Citrus is stable. Grazing land is down
significantly. Some areas are 20%+- increase in last twelve months.
• Who Are the Sellers and Who are the Buyers?
• Sellers are estates, recent inheritances, local farmers and some land that was
purchased 3-5 years ago speculating on development.
• Buyers are mostly expanding farm operations, some investment group activity
reported in Central AZ and in WA. CA buyers are mostly large expanding farm
operations and a significant amount of investment fund activity.
Western Land Value Report
• How will 2011 crop yields and prices affect land
values in your area?
– Strong commodity prices will support market,
particularly row-crops and fruit tree.
– Grass seed, nursery, and lumber markets are hurt by
general economy. Exports for lumber are good.
– CA – yields and prices having no affect on land values
• What return on investment (cap rate) do buyers
expect for each land type in your area?
– Arizona – less than 2% to 2.8%
– California – permanent plantings 9-15%
Western Land Value Report
• What is the trend in land rental in your area
(types of leasing and rental rates per unit):
– Arizona – eastern & central are stable, SW is
higher with rents of $750-$850 per acre
– Arizona land market is reported to be stable in
eastern AZ but with historical highs for irrigation
districts, stable but soft in central AZ, & very
stable to uptrend to new highs in SW AZ
– California – open land has steady to very slightly
higher rental rates.

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