A year ago, land prices were rising to shocking levels. But this year, the stories of high-priced land sales have quieted some. A conversation with Sterling Liddell, vice president with Rabo AgriFinance, explains why. He says the high price increases made farmland buyers cautious because prices went too high, too fast. And now the drought has added to the caution. But in his opinion, farmland should continue to increase in value, just not at last year’s heady pace. “Farmers are starting to reconsider if they will pay that much for land,” he adds.
Farmers continue to be the biggest buyers of ag land. Liddell says it’s been estimated that 70% of land buyers are farmers who want to farm it. “Ag has been one of the star performers in the economy and farmers have been investing in their own land,” he says. “This is a very notable trend. They are using more cash and more of their equity to invest in their own operations.”
While farmer interest in financing for land remains strong, Liddell notes that a loan requires about a 50% down payment. As a result, high land prices are not supported by highly leveraged money. In addition, rent has increased to support high land values.
What advice does Liddell offer to farmers? Focus on working capital. “Make sure you have working capital because we expect to see farming margins come back close to zero, especially as input prices increase and stocks are built.” In addition, the extra capital will be there should you want to expand your farm in the future with more land.
Note: This is Karen McMahon's editor's column from October, featured as the "Scoop" in each issue of Farm Industry News magazine.