Editor’s Note: BankBeat spoke with five Midwest ag bankers in March, including Darla Sikora, Dave Yahnke, Nate Franzén, Heather Malcolm and Gary Mueller. This story includes a portion of the Q&A. The first portion was posted May 1. The last section will be posted May 15.
CONTRIBUTORS
Darla Sikora
SVP – Agricultural Banking
Citizens State Bank of Loyal
Loyal, Wisconsin
Dave Yahnke
Senior Vice President/Chief Credit Officer
Iowa Trust and Savings Bank
Centerville, Iowa
Nate Franzén
President – Ag Banking Division
First Dakota National Bank
Yankton, South Dakota
Heather Malcolm
Vice President of Ag Banking
Bank of the Rockies
Livingston, Montana
Gary Mueller
Vice President/Farm Manager & Trust Officer
Havana National Bank
Havana, Illinois
Land values have generally stayed high throughout the last decade. What impact is this having in your area?
On the positive side, higher land values add strength to the balance sheet, albeit “unearned” equity. High land values also bode well for farmers who are exiting the business, as many are. For the buyer on the other hand, especially young producers or those who are highly leveraged, strong land values may make purchasing land at these higher prices cost prohibitive. Given today’s commodity prices, I see farmers using more caution as they pencil out whether the asking price for land is a wise investment. At the same time, it is always difficult to pass up high quality farmland, especially if that land is in close proximity to the main farm site.
— Darla Sikora
Strong land values are a double-edged sword in agriculture. On one hand, it’s a really good thing because it’s the largest asset on a farmer or rancher’s balance sheet. If your largest asset category continues to be strongly valued and go up in value, that’s good from a net worth and a growing wealth standpoint. The challenges with it, though, are that if you’re trying to buy more, it’s extremely expensive. If you’re a young and beginning farmer trying to get into the business, it’s very difficult to find the resources to buy your first few pieces of ground at these high prices.
Quite honestly, I’ve been surprised how strong they’ve stayed. Usually when interest rates go up, you would expect that to have a negative impact on land values, just like it would on commercial real estate values or home values. We haven’t seen that. There’s several reasons for that. One is farmers have continued to perform quite well up until this point, both because commodity prices were good and also through the pandemic timeframe, Uncle Sam was really good to everybody. That helped farmers improve their financial positions as well, so they can afford to buy higher priced land. They were in a position to keep buying, and that kept good demand in place. The other thing is farmland is a rare resource. It doesn’t come up to sell often, and so whenever demand is outpacing supply, it’s gonna keep value strong, too.
— Nate Franzén
In south central Iowa, we’ve had a lot of impact on land values coming from two segments. Recreational land sales have been very strong, whether it be for hunting or we’ve got a pretty good-sized lake in our region. Both of those are a draw that are bringing people back to the Midwest and back into this area that’s had a pretty strong impact on the lower value ground in this part of the world, which ultimately affects pastureland sales and those types of farms as well. And then on the row crop side, our ground is generally cheaper than some of the more fertile soils farther to the north. But the market for crop ground has actually been pretty strong. Last year in the land value survey, south central Iowa had one of the highest percentage increase in land values in the whole state.
It’s certainly having an impact on younger farmers who are just getting started. But we’ve been able to be pretty supportive of beginning farmers over the last three years with the help of the Farm Service Agency on some beginning farmer loan programs to help them make some purchases to supplement their base or even help them get started. Obviously with commodity prices coming down, it’s making those cash flows a little bit more challenging, but we’ve been able to help several young farmers. So would it be better, obviously, if land values were cheaper for young farmers to get started? Certainly it would. But that’s always been the case.
— Dave Yahnke
We saw an increase in land values in Montana due to Covid and what I call the “Yellowstone” effect. Out of state buyers purchased Montana property with cash, which decreased supply and increased purchase prices, especially in western Montana. These higher land prices make it more difficult for the next generation to purchase real estate or for the older generation to pass it to the next generation. There has been an uptick in conservation easements in southwest Montana. This is a method to provide some financial relief now and keep the property in agriculture.
— Heather Malcolm
Land values have stayed constant at higher levels over the last decade-plus. The outside investors are really the ones now purchasing the ground in our area. The large sales, if the neighboring farmer isn’t in a position to buy it, it seems like it’s outside investors coming in.
With higher cost of ground, you need a higher profit margin, and that’s putting pressure on farmers. It’s also exerting upward pressure on rents as well. At some point you’re really going to have to consider what the true costs are.
— Gary Mueller
This winter has been unusually mild/dry in some parts of the country. Is that the case in your area? What are the current conditions like and are there any worries about potential drought?
Our area, like many others, experienced the mild, dry winter. This came on the heels of what was also a dry year overall in 2023. In spite of this, although last year’s dry weather negatively impacted the hay crop, most farms reported a stellar corn crop and a decent soybean yield. Soil moisture however, has been depleted and there are definite concerns because of this. As per the mild winter, recently a customer shared that this spring may require additional soil management to help control pests that usually die out over a cold winter. Most of our customers raise their own forage and some grain for their dairy and/or beef herds and are coming into 2024 with decent feed reserves. We all agree, however, that more rain in 2024 will be a major plus.
— Darla Sikora
Weather is always a concern in farm and ranch country. If you look at the drought monitor, in South Dakota probably 70 to 75 percent of the state is in some level of a drought. That’s a concern for most producers in the state, but this time of year, I don’t get too worked up about it because, that can change awful quick with spring rain. But because we’re dry going into it, everybody’s a little more concerned knowing that we don’t have much in reserve.
— Nate Franzén
We’ve had a really dry winter. Going into the fall in most areas down here, our crop production was generally better than expected because of some timely rains in early July and early August. But our subsoil profile was really dry. We had two weeks of winter in January, and a lot of areas around here had at least two feet of snow in two fairly major storms. It melted off fairly fast and, and the ground wasn’t frozen underneath it. So we’ve been able to replenish some of the subsoil moisture because none of that water ran off and we’ve had a couple rain events that are helping out as well. So we’re in a little better shape from a moisture standpoint than we were in the fall, but certainly well short of where we were at on moisture in the subsoil profile this time last year.
— Dave Yahnke
We have had a mild winter with low snowpack. We are at 65 percent of normal, which is causing worries about a dry spring and summer. Customers are looking at planting different crops or preventative planting. With the lower snowpack, irrigation water is a concern. How much water and when will it be turned off are worries for our irrigated ground customers.
— Heather Malcolm
The last couple days we’ve had 2 inches of rain, which has been welcome. It’s added a lot of subsoil moisture. We’ve got a lot of irrigation, so it’s a lot more forgiving of low moisture. We’re good for now, but that could change. Last year we planted with the idea it would warm up and we would get some rain, but the rain didn’t come so we had to turn on the irrigation early just so it would start germinating.
Havana is right on the Illinois river, so we pay attention to what the snow is doing up in Wisconsin and northern Illinois. They haven’t had a lot of snow. A couple years ago, we had too much water between the river and the precipitation but now we’re in the opposite.
— Gary Mueller
