Farmland draws weaker bidding at Iowa auctions
From the Des Moines Register
Mason City, Ia. - Myron Young watched 620 acres of Cerro Gordo County farmland pulled from an auction sale because bids fell short of expectations. Then he declared to a table full of Young family relatives and friends: “I guess this is just one more thing I can blame on George W. Bush.”
The comment by Young, an Iowa native who now lives in Plymouth, Mich., had less to do with partisan politics and more to do with the way economic uncertainty is making Iowa farmland harder to sell this year.
The Young family’s experience reflects what farmland observers say is a softening of Iowa farmland prices. Fueled by strong farm profits and increased demand by ethanol producers, land prices have doubled from an inflation-adjusted $2,281 per acre a decade ago to more than $4,500 per acre by last summer.
“What we’re probably seeing now is a plateauing, rather than a fallback in land prices,” said Michael Duffy of Iowa State University, who assembles a widely followed land price survey released each December. “When people say prices are down, it probably is relative to what they expected two or three months ago.”
The Federal Reserve Bank of Chicago reports that land values in Iowa surged by an average of 17.2 percent in the 12 months through October. But since July, the increase cooled to 2 percent. The bank reports that respondents to its surveys “favored agricultural land values to level off in the fourth quarter of 2008.”
The round of farmland auctions and sales that begins with the end of each harvest in November is always an emotional time as families sell land they’ve owned for generations. The effects are felt in Iowa’s towns and cities by absentee landowners. The exercise is watched as an indicator of the effects of the national economic downturn, and a sharp swoon in grain and ethanol prices, may have on land values.
The Youngs put up 821 acres of Cerro Gordo County farmland for sale at auction earlier this month. While about 200 acres sold for $5,500 an acre, the family had hoped to get $6,000 an acre or more for the remaining 620 acres in other parcels.
But despite the best efforts of Hertz Farm Management and auctioneer Marvin Huntrods, bids dribbled in just on either side of $5,000 an acre.
“The land is worth more than that, and the bidders know it,” said Myron Young’s brother Dwight, who lives in Pella and was joined at the family sellers’ table by their sister Marvel of Pella.
The Youngs thought they had reason to reject the sale. Their land bore Corn Suitability Ratings (CSR) ranging from 74 to 79. The CSR ranking, developed by Iowa State University Extension, assesses a property’s ability to grow corn. Myron Young, a former Ford Motor Co. executive, and Dwight Young, a retired aerospace engineer, put their pencils to the bids and were chagrined to learn that the offers would be valued at a CSR of less than 70.
Land to be sold later
“The economy bothers people, and they’re afraid to bid more because they think land prices will go down and they’ll look foolish,” said Myron Young. “We’ll sell the land eventually. But for now we can make money farming this land.”
As the would-be investors headed from the Young auction, Cerro Gordo County farmer Ken Scott reflected on the bidders’ reluctance. “There’s a lot of uncertainty in the economy right now, and it makes people nervous. Corn and soybean prices are down. And everybody remembers the ’80s. We sure don’t want to see that again.”
In the 1980s, the value of farmland as a measure of the economy was driven home. Farmers saw the downside of high land prices, which had ballooned by 1979 to an average of $5,500 per acre in today’s dollars.
Farmers’ debt was backed by land values. That leverage would be undermined by a plunge in farmland values to an inflation-adjusted low of $1,470 an acre by 1986.
In a preview of 2008’s subprime mortgage crisis, farmers and their banks found themselves upside down on their loans. Farm bankruptcies and foreclosures followed on a scale not seen since the Great Depression.
A repeat of the dreary experience of the 1980s hardly seems in the offing. Iowa State University surveys show that 75 percent of Iowa farmland today is unencumbered by debt.
The Mason City auction wasn’t an entire loss for the Youngs. One of their Cerro Gordo County tracts sold for $5,500 an acre. Another 3 1/2-acre tract, which included a house, sold for $36,000. Two days earlier the family had sold a 162-acre tract in Jasper County for $4,350 per acre.
At auctions last week, tongues wagged about $7,000-an-acre sales on Nov. 8 of parcels in Marshall and Story counties.
Slowdown, not pullback
But the Youngs aren’t the only sellers who have no-saled some advertised land in the face of buyer resistance this fall, said Randy Hertz of Hertz Farm Management. “We’re not seeing a pullback in land prices by any means, but the growth in land prices may have slowed.”
The Suchomel family of Cedar County is selling land that has been in the family since 1915 because the family members are advancing in years without a clear succession in the farm management.
“This is such an emotional thing for us,” said Dorothy Suchomel before the family sold 167 acres of cropland for $4,250 an acre and 92 acres of grazing land for $3,200 an acre at an auction in West Branch.
Like the Youngs, the Suchomels had hoped for more. An opening offer on the 167-acre tract by auctioneer Troy Louwagie of $5,000 per acre was greeted by silence. Louwagie dropped bidding gradually to $4,000 per acre before attracting a bid. The price inched up in $25 and $50 increments.
Buyers step up
They eventually decided to take a $4,250 bid by an investor. The grazing land went to adjoining farmers Rob and Amy Glick, who plan to build a new house on the high ground to replace their home that was flooded last June by the Cedar River.
Cedar County farmer Dustin Anderson watched the auction and described the atmosphere surrounding farming.
“Those high land prices and the good corn and soybean prices we had last summer look good, but they scare people,” said Anderson. “Corn was $8 per bushel last summer and now it’s below $4. What will that do to land prices?”
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