‘No-sales’ dampen land auctions
November 24, 2008
PANORA, Iowa (DTN) – It had been a stressful afternoon for auctioneers and their elderly clients, landowners from Minneapolis. Crude oil was tumbling below $53 per barrel, stock markets were hitting five-and-one-half year lows, and December corn futures hovered near a contract low. Two dozen central Iowa farmers and investors gathered here were in no mood to over-pay for pure agricultural ground, some of it highly erodible. The standoff threatened to end in another “no-sale” public auction.
“If people listen to bad news 24 hours a day, pretty soon they start to feel bad themselves,” said Jerry Lage, a Hertz Real Estate agent, during a break in the bidding. He estimated land values had fallen 5 percent to 10 percent since the appraisal of this land two months ago, but some higher quality land in Story County had sold for $7,000 per acre, just in the past week.
“The problem is you don’t know what to expect when you hold an auction today,” Lage said.
Several bidders held checks in their pockets, ready for deposits. They were hunting for bargains, though, especially if they thought the land had drainage issues or less-than-ideal soil ratings. The fact that corn prices lost $2 per bushel since August has hardened their resolve.
“My brother-in-law says there’s been four no-sale auctions near Winterset,” said one potential bidder who had brought his lender and wife along but lost nerve. “There’s always another farm on another day,” he said. “I’ve seen crops drowned out on some of these fields.”
At another table, a group of seasoned grain farmers estimated half of the county’s land is owned by estates and trusts. They think many heirs will be unloading property in the not-too-distant future, if the operators are patient.
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Seller John Dahlmeier, a retired structural engineer, had been on the cell phone with his brother in West Palm Beach for much of the day. He needed frequent consultations because none of the bids on three central Iowa properties in their parents’ estate were meeting his siblings’ pre-agreed minimums.
Dahlmeier wanted to sell before January 1 to avoid the risk that Congress will retroactively hike the 15 percent capital gains rates next year, but he tried to be realistic. Land values in this rolling stretch of central Iowa gained 20 percent in the year ending Sept. 30, according to a Chicago Federal Reserve. In fact, it racked up bigger gains than any other territory in the Fed’s five-state region the past 12 months.
“That won’t reflect what’s happening in November,” Dahlmeier said. “We probably left $200 per acre on the table compared to two months ago.”
Still, the Dahlmeiers agreed to sell their first 80-acre property at the nearby Stuart Town Hall earlier in the day. They settled for $3,800 per acre, or about $54 per Corn Suitability Rating (CSR) point, the state’s grading system for land, below their reserve price. But when two separate farms close to Panora attracted bids of only $4,450 and $3,050 per acre and about the same CSR price, the sellers balked. Some of their farms had been in the family since World War II. They weren’t going to give them away.
Such standoffs are becoming more common across the Corn Belt, speakers told a national agricultural lender conference in Des Moines last week. “Land is lagging what’s happened in cash markets since July,” said Michael Swanson, Wells Fargo agricultural economist. He admitted he is most bearish on marginal land, noting that it costs almost as much to farm soil that yields 180-bushel-per-acre corn as it does soil that yields 225-bushels per acre. At even $4 per bushel for corn, that means there should be $1,000 value differential between top and mid-quality land, a spread that hasn’t returned to normal yet. “When markets get stressed, poor land should get stressed even more,” Swanson said.
The Dahlmeiers aren’t taking any chances. The last two bidders are hanging around the hall, still hoping for a deal even though the auction was cancelled. In the end, their 114-acre and 88-acre tracts sell privately, eking out another few hundred dollars per acre.
With the clock ticking on capital gains, “the buyers know they have more time than we do,” said Dahlmeier’s wife, Gloria.
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