N.D. farmland selling strong

Maurice Hanson was surprised at how many potential buyers showed up Nov. 6 at the Wagon Wheel Bar & Grill in Michigan, N.D., for the auction of his family's six quarters of farmland.

"We had calls of interest from all over the country and the room was full of bidders," he says.

But his surprise didn't end at the turnout.

"It was pretty amazing how the prices escalated," he says. "We thought we were too late to see prices like that.

"Everything was hot in the spring and now everything seemingly had fallen apart. But there was still a market out there. We got exactly what we were looking for."

Farmland prices soared in the spring, the product of bountiful 2007 crop yields and high-and-still-rising commodity prices. By fall, the commodity prices had dropped dramatically, a reason Hanson and other sellers feared they were too tardy to capitalize.

The fears were misplaced. The price of farmland dipped, but only slightly. Despite a less rosy agricultural picture, land prices had fallen only an estimated 10 percent from their peak in March and April, says Kevin Pifer of Pifer's Auction & Realty, which handled Hanson's sale.

"This is a strong and very confident land market even with the issues we have," Pifer says. "Even with the economy dropping, credit tightening and commodity prices down, we still have strong land prices."

The prices aren't deterring buyers. It all adds up to more farmland swapping hands this year than in any other in brokers' memories.

"It's the most farmland I've seen on the market in any one season in my 31 years in this job," says John Botsford of Grand Forks, N.D.-based Botsford & Qualey Land Co.

Pifer will sell more than 60,000 acres this year, 15,000 more than 2007 and double the amount of two years ago.

"It kicked into motion late last year and now there's a stronger surge," says Dennis Biliske of Biliske and Merrill Real Estate Marketers of Grand Forks. "As traditional markets become more risky, people are going back to land, a more tangible asset."

Good investments

Maurice Hanson, who lives in Fargo, and brother Lloyd inherited three quarters from their parents and purchased another neighboring three quarters. After renting the land for many years, they figured the time was ripe to sell.

"The market seemed to be at a high," Maurice says. "I just retired and my brother is close to retiring, so we figured we might as well get it all cleaned up before it's too late. And it looks like capital gains taxes will be going up with the new (Barack Obama) administration coming in office."

Landowners became more eager to sell, brokers say, when word came of a state record sale in January. A 140-acre parcel near St. Thomas, N.D., sold for nearly $5,700 an acre, more than $1,000 higher than what was thought to be the previous record.

While that sale was an exception, experts say some of the best farmland had appreciated by 40 percent in the past year while most had gone up at least 15 percent. In July, a report by the North Dakota Agricultural Statistics Service field office in Fargo said North Dakota farmland was up 18 percent from 2007 and 33 percent from 2006. That news also motivated landowners, even if they had to wait until after the growing season to sell.

Five of the Hanson brothers' six quarters were purchased by David Jallo, a 40-year-old Omaha, Neb., pharmaceuticals representative who has roots in the area. He was born and raised in Bismarck, N.D., but spent summers helping his grandfather Clifford Jallo on his farm near Fordville, N.D.

Jallo says he paid more than he expected for the land because he was highly motivated to get it.

"First of all, it's an investment," he says. "Over the long term, land holds its value.

"More importantly, I plan on farming to some degree in my semi-retirement years. It has to do with my love of being back on the farm. I see this as an opportunity to do that."

Prime land

The five children of Ray and Marion Hofer fit the common profile of farmland sellers. They inherited 274 acres near Larimore, N.D., from their parents, who inherited it from Swedish immigrant Albert Lilja, Marion's father. The five children were third-generation absentee owners who lived across the country.

They remember "driving around looking at the crops" as youngsters, but their ties to the land ended there.

"None of us felt any emotional attachment at all to that land, unlike when we sold our parents' house," says Jennifer Halda, a daughter who was the estate's executor. "I was sad, all welled up, when I drove up to the auction, but that was because this marked the end of who we were in Larimore."

At the Oct. 13 sale at the Larimore Golf Club, Terry Petsinger and Carl Hoverson, both large growers in the area, each bought a parcel.

For the Hofer offspring, managing the land from a distance sometimes was a hassle. Cash rent split five ways didn't amount to a lot of money. They didn't want to pass the land onto the fourth generation because it numbers 14, meaning more potential complications.

And they wanted to capitalize on the appetite for land in a window of agricultural prosperity.

"Looking at the economy, we didn't know what was going to happen with land prices next year," Halda says. "We figured we'd be better off to take the money and reinvest it rather than pass it on to our kids."

Land brokers say none of this year's sellers are active growers. Only a few are retiring farmers. And a forced sale is even rarer. Some sellers are investors, but the vast majority is heirs who don't live on the land.

Buyers are investors, large landowners

David Jallo fits one profile of a farmland buyer -- the out-of-state investor who seeks to earn about a 5 percent return on his dollar through cash rents. David Rye of Buxton, N.D., fits the profile of an even more common buyer -- a big operator who is getting even bigger.

Rye and a cousin farm 7,500 acres of sugar beets, wheat, corn, soybeans, pinto beans and navy beans. They bought 225 prime acres east of Buxton in late summer in a deal that didn't go through a bidding process. It was land they had been renting.

"We feel like we paid top dollar for the land, but if it went on the auction block, it probably would have gone a lot higher," he says, citing investor bidders.

He, like most growers, had a highly profitable 2007 earning year that allowed the buy.

"We had built up enough equity from the year before that it made it feasible to make a down payment and finance the rest," he says. "If a guy had to finance the whole dollar amount, it would never pencil out."

Two consecutive good crop years have helped spur purchases. "The big difference now from the land boom in the 1980s is that a lot of the land is paid for with cash," says Dwight Aakre of the North Dakota State Extension Service.

"There's not a lot of leveraging like in the '80s."

Prime land such as Rye's new parcel in Traill County's Belmont Township is drawing high interest and prices. Cropland that has a soil productivity index at least 75 carries strong prices, Pifer says.

Optimism

"Prices on good land will remain high even without high commodity prices because there won't be as much of it for sale in the future," Biliske says. "There may not be as much good land on the market as there is this year for a long time."

The belief is that the larger producers will continue to buy the better land and will be less likely to part with it.

Rye says land values probably are inflated, "but coming off a good year, people feel they can do it," he says. "We had a lot of decent (commodity) prices locked early. If we were selling at today's prices, it would be a bad year."

Aakre says growers remain optimistic despite the second half's downturn in crop prices.

"They look at the world as needing more and more food every year and with limited resources to supply it," he says. "Land is a long-term investment, so they're looking beyond the current commodity prices."

The brisk selling of the past 15 months means that fewer people will own farmland.

"The majority of sales are going to expanding farmers," Aakre says. "Those with sizable land holdings have a far better chance to finance the next sale. It will make for bigger farms and fewer of them.

"That means it also takes that piece of land off the market where a beginning farmer might get involved. It eliminates that tract from helping a startup."