Land lessonsExperts offer agricultural land information at the recent Great Plains Land Expo in Fargo, N.D.
By: Mikkel Pates,
FARGO, N.D. — A Red River Valley-based auctioneering company staged a Great Plains Land Expo that drew some 450 people to Fargo, N.D., Nov. 30, including a range of people who either own land and are wondering about the future of their property and how to manage it, or people looking at it as a potential investment.
Event-goers heard an eclectic group of experts, ranging from Bill Wilson, a world renowned agricultural economist, to top drawer ag market gurus and regional experts on such things as wind, mineral and gas discussions.
Sponsorship was by Pifer’s Auction & Realty, KFGO radio, Ag Country Farm Credit Services and The Forum of Fargo-Moorhead, a sister publication to the Grand Forks Herald, which owns Agweek,
Kevin Pifer, Pifer’s founding president and chief executive officer, said the event exceeded his attendance expectations. He said many landowners in the crowd may be looking for help in managing land that they own for its maximum potential return.
Wilson said oil markets and agricultural markets are strongly correlated today, and ultimately affect land values. Generally, the outlook is positive, with agricultural demands growing faster than productivity growth. But potential investors also must recognize the risks.
“Interest rates are a risk,” Wilson said. “Policies on biofuels in the U.S. and Brazil are risky. China, and a change in the structure of their demand, is a risk. Another risk is how effective is biotechnology in increasing productivity. And the last risk is if other countries are capable of developing logistical systems at a lower cost than ours.”
Interest rate risk
An increasing world population will demand some combination of more land and more technology to produce the food.
“Ultimately, that means labor-saving,” Wilson said. “Anything in this country to save labor is a big deal in our country because of the changing demographics.”
More automation and even unmanned technologies are a key to large-scale farming economies and more multi-year contracts with inputs and outputs, he added.
Wilson showed a map that indicated the largest increases in land values have come in states such as Nebraska, with values increasing nearly 90 percent since 2006. North Dakota, Minnesota and Iowa are states where values have gone up more than 50 percent.
He noted that ag technology companies in such areas as farm equipment and food processing, also have seen market value gains in the past several years. Deere & Co., for example, has seen nearly 40 percent annual share value growth, and Archer Daniels Midland and Bunge, averaging returns of 20 percent per year.
“I think you have to recognize this big shift in the geography of ag production, worldwide as well as within North America,” he said.
He noted cereal grains are shifting west, and the corn and soybean production moving farther north and west, and flows moving west to the Pacific Northwest ports.
One of the most accessible investment opportunities is on agricultural outputs — commodity markets. That is what spawned part of the Goldman Sachs hedge fund, Wilson said, but he also said there are investment opportunities in land and alternative technologies.
A baby bear year
Sue Martin, a Webster City, Iowa-based commodity markets analyst who writes a column for Agweek, was one of the speakers.
“We’ve had a very volatile year, and when I look at 2012 I don’t see a year of volatility like we’ve experienced,” Martin said. “I see things settling a bit. I’m still bearish (on) grains. I think 2012 is not a bull year,” adding she doesn’t expect the market highs to be in January and stair-step down through the year.
Ed Schafer, a former North Dakota governor who served as agriculture secretary in the final year of the George W. Bush presidency, welcomed conference-goers. He offered a relatively bullish overview of the agricultural future, noting that the principal problem in the world is inadequate food producing capacity, considering an expanding world population. He noted that the 1986 World Food Summit had a goal of cutting in half the world’s undernourished people by 2015, but that by 2008 the undernourished actually had gone up.
Schafer said the U.S. must find ways to share its technology, including equipment, to help farmers around the world boost productivity.
“We must help them do what the American farmer has done for decades — just get better,” Schafer said.
It is unclear what the impact of such an event had on its participants, most of whom paid a $95 registration for an event at Fargo’s Ramada Plaza Suites. It didn’t appear that the crowd had a direct conflict with the Northern Ag Expo or the big Steffes Ag-Iron auction, also going on in neighboring West Fargo, N.D.
Most who talked to Agweek declined to be quoted by name, or even location, but said they are hungry for information and insight into the strength of agricultural markets and their implications on land as an investment.
Five percent annual return
Nov. 29, Colvin & Co., L.L.P. of Minneapolis, offered an “ABCs” of land market program. Among other things, the agency said land investors should be able to expect a 4- to 5-percent return-on-investment in ag land —- before inflation — for some undefined future.
“If you figured 8 percent on inflation and 4- to 5-percent return on a cash rent return, if you’re renting it out to a farmer, you have basically a 12 percent annualized return — if inflation continues,” Pifer observed.
He said that is realistic considering performance in the past several years, although he’s seen a range of 2 percent to 7 percent.
The Colvin crowd observed that farmers can go out with their equipment and realize a greater return on their farmland investment than the investor can because they can go out and work it themselves, “and they have this one piece of equipment they can spread out over 20,000 acres vs. 19,000 acres,” Pifer said. “I think the returns are closer to 4 percent today than to 5 percent, on an average,” Pifer said.
One Fargo man at the event in his 70s says he was there to learn more about investments he already has in farmland.
He grew up on a North Dakota farm and though he didn’t make his career in farming, he has invested in both family and nonfamily farmland in the region through the past 20 years. Among his dilemmas was whether to buy more land or to cash out.
Two other Red River Valley area veteran farmer/landowners said the Colvin & Co. people are working for absentee landlords — people in Connecticut or other remote areas who may own land in the North Dakota region.
“You don’t find the first and second generation selling land, because they’re still on the land,” said one of the men. “But you take the third and fourth generation, and they can use cash for weekend recreation and other things. I’ve got some grandchildren I don’t think have ever seen the farm, but they’re going to be the ones that end up with it because I’m not going to let my in-laws have it.”
The other farmer said a more realistic return on farmland is 3 percent because of relationship. One land sale in North Dakota’s Cass County area went for $4,300 an acre and should have gone for about $3,000.
“If the fellas that bought that land for $4,300 borrowed money for 4 percent, which you can do, that is $172 an acre just in interest. Year-in and year-out if you can net $172 an acre, that’s probably a pretty good year. It can be done, but it’s a long-term deal, it’s not no five-year fix.”
Figuring out the future is not an easy deal. One farmer said land in his area went for $1,200 an acre in 1980 and he bought land in 1986 at $500 an acre and at the same rate for the next seven years.
One of the statistics that surprised the veteran farmers was the Colvin statistic that 72 percent of Iowa farmland is held without any loans.
“That’s hard to believe,” one farmer said.
They both said that 70 percent of the farmland ownership is going to change hands in the next 10 years because of the aging farm population. They agreed that farmers in their 60s have been farming longer than they might have planned because of $6 and $7 per bushel corn.
“What’s going to escalate the thing the fastest? Four dollar corn. Our John Deere dealer tells us that a lot of guys wanted to quit farming but when they got $6 and $7 corn, why would we quit farming?” one farmer said.