Friday, May 14, 2021

Farmland: "Bullish Land Price Outlook"

As goes the farmgate commodity basis, so goes the entire rural economy edifice, banking and finance, retail provisioners, land prices, the whole thing built upon the price of wheat. And corn. And soybeans. and cotton. And marijuana.

From DTN Progressive Farmer:

Ag Land Prices Remain Strong on High Demand, Rising Farm Income

There are many good reasons Chad Ratermann says he'll buy farmland, but the one that's always in the back of his mind has nothing to do with soil quality or field location. He's thinking about how to best give the family's next generation a leg up.

"I started thinking about that before I even had kids," says the dad of two. "I always wanted to make sure they had an opportunity to farm if they wanted it. Every morning I wake up planning on passing it down."

Ratermann, in his mid-40s, has a son and a daughter. His dad died when he was just 24, leaving him and his brothers, Darin and Craig, to grow up fast, taking what their dad left them as a start. From there, the brothers put a lot of hard work and determination into building Ratermann Brothers' Grain and Livestock, based at Bartelso, Illinois.

The diversified operation includes corn, soybean and wheat production, as well as hog finishing and cattle feeding businesses.

The three brothers are always looking for a chance to add good acreage to the mix, and in March 2021, they bought two tracts, totaling about 156 acres. The parcels were offered as part of a near-900-acre auction of farmland across Montgomery and St. Clair counties, through Indiana-based Schrader Real Estate and Auction Company. The average price for those tracts was $8,256 per acre, reflective of current prices in the area.

Ratermann liked the tracts because of their location and that they included good road frontage on two sides. The area is about an hour's drive from the base operation, but Ratermann says they are willing to look outside their immediate area when adding ground because heavy livestock use at their home base of operation drives land prices to the higher side.

"Overall, I'm looking for the right location, good soil types and I'm considering the way the land lays. Every area is different in terms of productivity, and I base price off of that," he says. Ratermann notes he looks for cropland that will give him corn yields of 185 to 200 bushels per acre (bpa), soybean yields of 60 to 75 bpa and wheat yields of 75 to 90 bpa.

Does Ratermann think land prices are too high? He says it's hard to put a number on where the land market should be or what makes sense. Even with higher commodity prices today, he doesn't believe most cropland actually cash-flows. But Ratermann says this isn't the only consideration when it comes to owning land.

"It's true that when we started buying land for the operation it was considerably cheaper, but so were commodity prices and yields," he points out. "I believe land is always a good investment, even with the ups and downs, especially if you're looking to hold it long term. That's the kind of buyer I am, long term. I'm looking not just to my future, but the future of the family for generations to come."


Ratermann's story is not a new one to R.D. Schrader, head of Schrader Real Estate and Auction. He says even as land prices went north of the $10,000-per-acre mark, a majority of the buyers he saw, and continues to see, planned to farm the land and pass it on to future generations. Farmland is not as much of an investment sometimes as a means of building on a chosen way of life.....


Also at DTN Progressive Farmer:


And more next week. In the meantime remember our oft-stated premise:

Farmland is worth it's discounted cashflow. Period.
It may sell for more but at some point it returns to trend. It can correct either in price or in time.