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Honored Advisor

Don`t tell me the farm economy is bad.

This from a reliable source (Successful Farming)  Floyd county land auction.  Land sold $12,500/acre and signed 3 year lease for other ground $285/acre rent.  

https://www.agriculture.com/news/business/farmland-auction-floyd-county-iowa-sale-includes-whopper-c...  

 

Going into the sale, the buyers knew they could have the chance to sign a three-year lease, for $285 per acre, beginning in 2020. The six farms ranged in size from 67 acres to 210.2 acres, with CSR 2 ratings of 69.6 to 90.9.  

“It was a turn-key operation,” says Behr. 

When the sale started, the bidding was fast and furious, he adds. “There were six bidders going after it from the beginning. It was bang, bang, bang,” Behr says. 

When the gavel fell, the 80 acres sold for $1.32 million, or $12,500 per acre. The value of the home, grain bins, and buildings skews the actual selling price of the farmland somewhat, Behr admits. 

That the seller was interested in cash-renting his property made this sale unique and attractive to buyers seeking to bring another generation to the farm, Behr adds. 

“It was a pleasant surprise for everyone involved,” he says. “The buyer – and definitely the seller – was pleased.” 

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12 Replies
Veteran Advisor

Re: Don`t tell me the farm economy is bad.

I wonder if the buyer will still be as pleased 2 or 3 years down the road?  My guess is that the seller will be

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Honored Advisor

Re: Don`t tell me the farm economy is bad.

I`ve been saying that for years now, but it sure is taking them a long time to go broke.   Smiley Happy

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Contributor

Re: Don`t tell me the farm economy is bad.

99 bales short of a load. That’s how my grandpa would describe that farmer 

Honored Advisor

Re: Don`t tell me the farm economy is bad.

I really don`t know where they got their money.  An "Aunt Thelma" must have died and left them her cardboard box factory worth $30 million...or something along the way.

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Senior Contributor

Re: Don`t tell me the farm economy is bad.

Maybe 2 or 3 years down the road the buyer may indeed look like a chump. On the other hand, what about 40-50 years down that same road?

Honored Advisor

Re: Don`t tell me the farm economy is bad.

"at least I paid cash" that was what some well heeled farmers said in the 80`s when their whopping $3,000/acre land fell to $1,000.  And I`m hearing the same now where they`re lamenting about the potential in the future of their recently purchased $10,000 land dropping.  

I have to ask, who the hell are these Scrooge McDucks that can just write out a personal check for a $2 million for a quarter, then "Oh well, at least I paid cash" at the prospects of a softening market?    They`re out there, but shouldn`t they be on a yacht sailing somewhere around Bimini? 

When I see a turtle on a fencepost, I know one thing for sure, it didn`t get up there by itself and I know this 5 digit land  isn`t paid for with $1.60 corn in 1990 that was saved.  It`s a granite kitchen countertop business that really took off or ground floor invested Apple stock or something to that effect.    If they write a book, I`ll be standing in line for an autographed copy for sure.   Smiley Happy 

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Senior Contributor

Re: Don`t tell me the farm economy is bad.

Okay, so I ran the numbers. The rent of $285/acre of high quality tillable land (i.e. >80 CSR2) is above the average for that part of the state, but not way outside the norm.

The $12,500/acre sale, however, was the real surprise. It seemed high, but I would like to know how much each CSR2 point was paying for a tillable acre of land. My back of the envelope and always amateur estimate is that somewhere around $104-$108 seems like a reasonable price.

In contrast, if an acre of $12,500 tillable Iowa farmland had a CSR2 of 90, it would mean paying somewhere around $139 per point. Without knowing anything else about the location, mineral rights, existing building structures, etc, the $139 per CSR2 point seems high...to me.

Also, I would not discount the likelihood of an irrational bidding war psychology taking hold in any given farm auction. Nobel laureate in economics, Dick Thaler wrote about this back in 1991 in his book, The Winner’s Curse. Thaler’s game theory based thesis was that people oftentimes bid way beyond what is economically logical in order to win whatever it is they are bidding on.

Throw in the tantalizing object of desire at auction has not been available to the general public since Abraham Lincoln was an Illinois country lawyer (literally), the presence of 3 or 4 big county farm bulls competing for dominance, and you have the making for a land bidding frenzy that makes no sense to anyone but the bidders themselves....and even then, the eventual winner might well wake up the next morning to ask their spouses, “I bought the what and for how much, did you say?”

At least, that is my take.

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Veteran Advisor

Re: Don`t tell me the farm economy is bad.

"When the gavel fell, the 80 acres sold for $1.32 million, or $12,500 per acre. The value of the home, grain bins, and buildings skews the actual selling price of the farmland somewhat, Behr admits."

 

Not knowing what was on the farm site for home and "outbuildings" makes the price difficult to evaluate.

 

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Honored Advisor

Re: Don`t tell me the farm economy is bad.

The farm economy and most of the US economy is on life supports ........ borrowing and begging congress for survival.

This could be an estate plan with inflated ego motivations.  After all it is only an 80, and it keeps my appraised value up at the bank.------- following packard's illogical idiot bidders theory seems very likely.

The rent is too high or too low either way.....  suspect there is a lot of "the rest of the story" involved.  (development, condo's in the future, etc)   

By the time the buyer pays property taxes that is sub 2% return on investment.  No reason to grab that pain for three years, unless the buyer is a dooms day voter.

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