1/22/2012
By TIM UNRUH Salina Journal
At an auction this past fall, Charlie Walker bought 600 acress of farmland off Halstead Road northwest of Salina.

The Hedville farmer-rancher, businessman and entrepreneur invested roughly $2.1 million in that agriculture real estate -- partly for its development potential -- and because farmland is "... the safest place you can put your money," he said.

Walker is among thousands of like-minded folks with cash on hand who are making a solid investment in farmland. Some would rather take money out of banks and the stock market, where returns are miniscule, and put it into land.

Farmland is the right buy, said Walker, the founder of the Rolling Hills WIldlife Adventure, a museum and zoo near Hedville, and founder and CEO of Blue Beacon International.

"All I do know is they're not making any more land," he said. "I wasn't the only one wanting the ground."

The tract he bought for roughly $3,500 an acre would have fetched in the range of $1,000 an acre 10 years ago. Some land that sold last year in Saline County flirted with $5,000 an acre.

Demand for land, both from the traditional farmers who have cashed in on high commodity prices or anyone aiming at the best move for their money, has caused land values to soar.

"It's almost a perfect storm," said Dennis Riordan, owner of Riordan Auction and Realty, a farmland auction specialty company in Solomon, and a vice president of Solomon State Bank.

"You've got good grain prices, low interest rates, and you've got fear of the stock market and other real estate assets," he said. "A lot of people with cash are moving to farmland, because it's a good, safe investment and prices are escalating."

And how.

Plenty of buyers

"Spirited bidding" graced a Riordan auction Nov. 3 when 225 people crowded into the Ramada Conference Center, 1616 W. Crawford, for the sale of 378 acres of land east and northeast of Salina, owned by the Joe White Trust.

"It was truly standing room only," Riordan said.

The land sold for an average of $4,147 a cropland acre (land that can be used to raise crops). One tract of Smoky Hill River bottom land sold for $4,937 a cropland acre

"I think that set the record for the highest price paid for farmland in Saline County," Riordan said. "It has great soil, is right next to a river, and surrounded by hedge rows. It's as good as it gets in Saline County."

Schrader Real Estate & Auction, with headquarters Columbia City, Ind., managed the sale of 3,754 acres of cropland in western Kansas during July for nearly $9.6 million -- $2,546 an acre. The company received bids up to $4,800 an acre for parcels of the total sale, said Carl Carter, a company spokesman.

During mid-December, Schrader sold 699 acres of land in southwest Kansas for $2,952 an acre. Comparable land in a neighboring county sold for $1,900 an acre, company president R.D. Schrader said.

"Ag land for farming purposes is up most everywhere. It varies quite a bit by pocket," Schrader said.

Really, $7,000 an acre?

The extremes are in the Upper Midwest -- Iowa, Illinois and Indiana, for example --¬ where the competition for land is the highest.

During the same mid-December time frame, the company sold 616 acres of land in southwest Iowa for $7,629 an acre.

Land with the "highest quality soils" is exceeding $10,000 an acre in that region, he said.

Not all of it is that inflated.

"There is plenty of land in those states selling for under $10,000 as well," Schrader said.

Even the official -- more conservative -- land values reported by the U.S. Department of Agriculture reflect a huge rise in Kansas, said Kevin Dhuyvetter, a farm management specialist at Kansas State University.

Nonirrigated land sold in 2001 for $635 an acre, and $1,250 an acre in 2011. The jump during the same period for pasture land was from $390 to $810 an acre.

Recent sales suggest higher values, Dhuyvetter said, and they will vary significantly by region.

It's just phenomenal

"I have heard of some sales of nonirrigated land in northwest Kansas going for over $2,000 an acre, and in north-central Kansas, going for over $3,000 an acre," he said. "I've also heard, secondhand, of some sales in the far northeast corner of the state going for $4,000 to $5,000 an acre."

Those prices are nothing short of "phenomenal" to Duane Flaherty, a real estate salesman who farms in northwest Saline County.

"We said land was expensive when it was a thousand dollars an acre. We thought we were on top of the world when Iowa was selling land for $6,000 an acre," he said. "Every sale you read about is a new record. This thing is just unbelievable."

A repeat of the '80s?

But is this cycle of high land prices setting up farmers for a repeat of the 1980s, when some farmers went broke buying land with borrowed money, and saw values plummet thanks to low commodity prices and high interest rates?

There are some similarities, Dhuyvetter said, but interest rates and inflation are lower "and the important one is that land is being purchased with much less debt."

The '80s have made many more cautious about their endeavors, Schrader said. Their debt compared to equity is about half of what it was then.

"A lot of banks are requiring a lot higher down payments," he said.

The buyers range from those who tote briefcases to others who actually farm, or a combination.

Better than the market

"Investors are not buying land in northwest Kansas or the Salina Journal reading area out of the blue. They have some contact locally," Riordan said.

The ag economy has maintained a positive independence from the general economy, Schrader said, making farm land attractive for investors.

"When you're making 1 percent on a money market account at the bank, and in many cases losing money in the stock market, a 2 percent return on farm land is not that bad," Riordan said.

"Plus, it's a helluva lot more fun. I love getting on a tractor and riding it all day," Walker said. "It beats sitting in an office."

Attracting all types

Profits snared from agriculture are attracting all types.

Some nonfarmer investors are becoming absentee landowners, Schrader said, but they're not dominating the market.

"The reality of it is the farmers are still winning in the open public auctions," Schrader said.

Walker makes it clear that he didn't buy more land for someone else to farm.

"I'm using the land, not renting it out," he said.

Not due to foreclosure

Foreclosures are not the dominant factors in the land becoming available, Schrader said.

"There are not a lot of forced sales," he said. "You have a lot of folks looking to capitalize on these prices."

In some case, heirs are selling, Dhuyvetter said.

"What's usually happening is from kids inheriting it and oftentimes they don't have an attachment to the land," he said. "Of, they don't have the desire to have to manage it as a rental property."

High land prices won't solely affect the size of farms or the number of farmers. Those trends are also dictated by technology, giving farmers the ability to manage larger operations, Dhuyvetter said.

"Rising land prices will also contribute to consolidation of farms because of the increased capital required," Dhuyvetter said. "Large farms tend to rent more acres" and will be in position to take on land purchased by investors.

Fewer farms own land

Who owns the land may change, Riordan said, same as other professions.

"The average truck driver 50 years ago drove his own truck," Riordan said. "The average truck driver today is driving somebody else's truck."

Likewise, he said, farmers today aren't necessarily the landowners. They are farming a larger percentage of someone else's land.

Whether that's good or bad depends on your perspective, Riordan said.

"To me, the more people involved, typically the better it is for an industry," he said.

Land won't cash-flow

Despite good crop and cattle prices, Flaherty said, there isn't enough income potential to service the debt on that expensive land.

"You've gotta look at it from the standpoint as an investment; $3,000 an acre won't cash flow," Flaherty said.

It'll work if you pay cash, Riordan said, and many buyers have it. They're looking for a "safe secure investment," he said.

Farmland won't cashflow "if you borrow 80 cents on every dollar you spend," he said.

If you're looking to rent, expect higher rates, Flaherty said, which is understandable.

Staying power?

Agriculture will maintain some level of volatility, Schrader said, but perhaps this jump in prices will have some staying power.

"I would say there is a new base, but again, there are so many favorable things pushing this farmland market. I don't think it will stay in place forever," Schrader said. "There will be a correction coming in the future. At the same time, I'm long-term very bullish on farmland values."

-- Reporter Tim Unruh can be reached at 822-1419 or by email at tunruh@salina.com.

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