High land prices squeeze young farmersHigh land prices are making it difficult for young farmers. In one of the most volatile and expensive land markets in history, they generally don’t have the financial resources to compete with established producers or investors. For those seeking a start, just renting a few acres is daunting. But they keep trying.
LAKE WILSON, Minn. — Farm fields in southwest Minnesota are frozen now, but Josh DeGreeff has a vision of a warm spring day. The sun is shining and he’s on a tractor, planting his first crop.
“I’d like to be a successful farmer,” says DeGreeff, a 25-year-old from the Lake Wilson area of southwest Minnesota.
After working full time for a farm family the last three years, DeGreeff feels he is ready. He has planted crops, driven a semi, tended cattle and harvested in the fall.
Now he wants to get out on his own — and he’s let the world know it with ads in local newspapers that say, “Wanted: young experienced farmer looking for farm ground to rent.” But so far, DeGreeff has been unable to find a plot he can afford.
High land prices are making it difficult for young farmers. In one of the most volatile and expensive land markets in history, they generally don’t have the financial resources to compete with established producers or investors. For those seeking a start, just renting a few acres is daunting. But they keep trying.
“Pretty difficult right now,” DeGreeff says. “I’ve had a couple calls and it hasn’t really worked out yet. Just a waiting game. Eventually someone will come along that’ll work with me, I hope.”
DeGreeff is trying to start farming during a land boom, something he has no control over.
Established farmers are after the same land he wants, and they have been offering more money than he has.
“For the most part, I guess just getting outbid, from whatever comes up,” he says.
All that bidding has pushed land values up, both sale prices and, as DeGreeff has discovered, rental costs. University of Minnesota data shows that between 2006 and the first nine months of 2011, average farmland prices statewide increased 38 percent, from $2,560 an acre to $3,533 an acre.
The increase was even sharper for the richest soils, with prices doubling in Cottonwood County in southwest Minnesota. Indeed, prices have increased so rapidly they may be holding down the number of sales.
While there were about 2,600 farmland sales in Minnesota in 2008, by 2011, the number of transactions dropped to less than 1,500.
Finding the reason
Steve Taff, an associate professor and extension economist in the Department of Applied Economics at the University of Minnesota, theorizes that the recession reduced the sales of hobby farms and land for housing developments. Also, the soaring land prices may have seduced some sellers into unrealistic expectations about what their land is worth.
“Folks selling farmland thought, ‘Oh, I see the average price keeps going up and up and up. I’m going to sell. I’m going to make a lot of money,’” Taff says. “But they put their land up for sale and there was nobody there who would buy.”
One thing that most economists agree on, though, is that good harvests and high grain prices have fueled the land price spike.
Joe Mahon, an economic analyst at the Federal Reserve Bank, says those higher prices are also increasing the cost of renting land. He said his survey of bankers last fall showed Minnesota farmland rental prices had risen about 17 percent compared with a year earlier, to about $260 an acre. Prime land was much higher.
“One lender mentioned in his comments that he was hearing reports of land being rented for $500 an acre,” Mahon says. “So (it’s) nearly twice the average in some parts of the state.”
Add to that another $400 or so an acre in seed, fertilizer and other costs, and it’s more than many young farmers can afford.
Some help is available. Brian Berseth, vice president of portfolio management and appraisal services for AgStar Financial Services, says a variety of guaranteed state and federal loan programs are available to young farmers. If the farmer defaults on a guaranteed loan, the government covers much of the lender’s loss.
But beyond financing, Berseth said there is one other crucial bit of help young farmers need: “Seeking out mentors that have been successful in the past, and trying to learn from those individuals, can be very helpful to young and beginning farmers.”
Berseth says a mentor can often provide guidance, but also machinery or even land for a new farmer. Typically, it is a family member and most often a parent. But it can be someone else, like an employer.
DeGreeff says he is lucky to have mentors, from the farm family that hired him.
“I’m glad to be here with them,” he says. “They’re some of the hardest working people I know.”
The family has agreed to let DeGreeff use their equipment to plant and harvest a crop. But first, he has to find some land.