inSid0 :l:mo誌{ www.FarmProgress.com r December 2015 Prairie Farmer

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I l.and value plessure is greater

than ifl the past several years.

I Farmers have propped up local

land makets with cash.

I Professionally managed larmsmay see lowered cash rents.

backin the land market yet -it's actuallysurprising how much the land market has

sustained itself," he says. "That's due, inlarge part, to buyers in the past 12 monthsbeing mostly farmers, and quite simply,they.'ve used significant amounts of cash

Irom recent profits. As soon as they runthrough that cash and working capital,however, I expectwe're goingto seethingstighten up a bit more."

Remember this, HensleY saYs: Real

estate is a local market. "People always

try to paint the land market with a broad

brush," he says. "tsut from where you're

sitting now, 15 miles in any direction is adiflerent market. What holds true in one

neighborhood may not tle the case iust afew miles down the road."

ened some," hesays. "But farmers are stillpretty well capitalized lrom the past fiveyears, it seems. And if the opportunity isthere to purchase adioinitrq farms, theywill make the acquisition. Stxuetimes, youonly have one chance in a lifetime thatlancl u ill change hands."

Ryarr Aupperlespecializes in farm man-

agemerlt, real estate and appraisal - pri-marily for absentee landowners - {or his{amily's business, Heartland Ag Group, inForsyth. In central lllinois, Aupperle says,land peaked in 2012 at atrout $13,000 an

acre and has now softened to an averageof iust under $12,000.

"We see it on pretty solid footing, withseveral uncertainties on the horizon, in-

ctuding the tliggest wild card of interestrates," he says.

Hensley says many expected landvalues to have decreased Lly this point.

But interest rates were pro.iected to have

increased by this Point. as well.'"I'hat iust hasn't happened," he says. "l

believe that if we continue with lowercom-modity prices, antl if we do eventually see

hiqher interest rates like we expect, we'llsee even rttore dowrtrvard pressure on lardvahres going into the fall of 2016."

More negotiations on the horizon?Fransen says famters, in nlany cttses, nlaytry to push for lower c:rsh rents in the year

to come. Howeve( there is no simple, all

inchrsive solution."ln the case of a professionally nan

aged Iarm, it is Iikely that some <.lownward

casl] rent negotiatiol) may occttr, ' I)e says"lt is typical that these properties make

rent adjustments - boih upward anddownward - at a more rapid pace thannonprofessionally managed properties'"

Hensleybelieves cash rentrates in 2Ul6

will likely depend, in Iarge part, on an indi-virirral's situation.

"Think of it tlris way: A lot o{ people

have traveled 10 to 15 nliles to rent a decent-size(l fa) n]," he says. "ln many cases,

people irave paid a ver-y competitive cash

rerlt to I)ave the right to operate that ploPerty. As people go into 2016, however,many will re€valuate the situation'.ls.itworth driving that mileageand Parate for this fann?"

And despite wlrat manY wouldFra.r)sen says, rates could Poscrease in some areas.

BY CHRISTY COUCH LEE

W'H$fil*ffffi;::^:at $4.(j{} for corn and $i0.60 for soybeans,lilaking positive retums oDsomehiglr cashrental rates could betough. But giving up

ieJrtedlarmland almost guarantees an oPtlioiiiiiiity tosi'lorev9r.: even when the,marketsimpiove. : r.

/ :--r with pro6t maryins tightening in 201 6,

will furmers pushto dropcash rent prices?

And will landowners lei them? Or will pro-

drrcers take the chance and risk losses irlt}le short term, banking on land rates and

markets to implove in the long term?Ultirnately, it's not a simple situation.

But farrners, larm managers, real estateprofessionals artd lenders across the state

seem to be in agreetnent: Land values are

holding strong, and cash rental rates .lrclargely an issue to be determinerl by eachindividual farmer ancl landowner.

Doug Her:sley, presiclent of Gorsuch-Hensley Real Estate and Auction, C:rntott,says he bctit'ves tlrt'pressure otl landvirlrres is Srr;rtrt llrJtt lt lrJS l)( ( ll ill ) t'Jrs.

"ln lllinois and across the Midwest. we

are facing the lirst real negative pressure

that we've had with lattcl values iIr severalyears," he says.

"[,and values are driven predonlit)antlyby a couple of thillgs l"elated to each otl)er:

crop production in any given yeilr and thecommodity prices associated u'ith tllatproduction, and interest rates.' Henslev

adds. "We have seen a rentarkaille run-rt1lin larrd values over the l)ast 30 years, andit's become even rnore pronounce(l sincethe implementation of the Renewable l"uel

Standard in 2005."

Randal Fransen, president of the IllinoisSociety o{ Professional Farnl Managers

and RuralAppraisers and fart]r nlanager at

First National Bank of Dwight, agrees thatland values are holding strong in the state'

"surprisingly, myperception is that land

values have held up quite well, despite a

significant drop in the value of comnrodi-ties during recent months," Fransen says.

"Althou(h land is not payingas well as it didduring 20I3 and 2014, it is still perceived tobe a stable investment with long-term ad.vantages over many other investh6fitq.";,,'

Bill Christ, a Country Financial agent

and a 2015 Prairie Farmer Master Far:nib;

from Metamora, says he's seerr land\alueSholding steady in hls area, with farms lnMarshall and Woodford coutrties recentlyselling for $l 1,000 to $ 12,700 Per acre.

"l thought the land values had soft-

"ln the case where a farmer has en-joyed a lower rent level over many years

in a more relaxed rental arrangement, it ls

quite possible that the rents may remain

the same, or perhaps even increasestightly iI yielcl levels were outstanding,"he says, 'Although yields were gener-

ally ihought to be harmed by excessivewater drrring 2015, some communities saw

amazing yeld levels on quality larmland.lf rents have historically been low on thistyyrr: oi l;irrl. tlte reltls nlay holrl firnt, tlrever) increase sorllewhat [or next season."

It is inrportant k)r pro(lucers to eval-

uate thc quality atd convenience of Iented

farrls, Hensley says, to detern)ine if oPerating in a low or tregative ntargin for a

period oI time is wortl] the eventual long-

tel'm returns."l believe sorne farmers will push back

on rents," Hetrsley says. "Whether thelandlord wil I neqotiate'l'l'hat's dependent

on the landlord and his or her goals."

Lee urites lntm ,Yellirulton.

I For more on how to think like a

HoihA.l.

r, with commodity prices onerd trend for the past 12 to 24

months, producdrs could see red illk on

2015inaome statements and caslt flows.

as wellas in the comingyeal', Hensleysays,"l don't think we've seen a lot of pull-

wru$[hkI& re1ry**uru"r"..*-.

inside l‖:nois AgPrairie Farmer

」

Pushing pencilsI ANDOWNERS will likelv see landLvalues softening in the years tocome. ln return? Balance sheets, andmore importantly, cash flow state-ments could sutfer, particularly in theland value and equipment categories.

"Balance sheets are going tosee pressure," says Doug Hensley,Gorsuch-Hensley Real Estate andAuction. "What really matters, though,are cash flow and income statements.Farmers have traditionally beenasset-rich and cash-poor - and thatwill generally continue to be true.They're really going to have to watchtheir working capital and their underlying ability to pay their bills."

Randal Fransen, First NalionalBank ot Dwight, says most farmershave prepared for the current situ-ation, and hopetully in return, theirfinancial statements will remainhealthy.

'Obviously, significant value willbe lost from balance sheets of thosewho hold most ol their asset values infarmland propertiesi' he says. "Rightnow, however, it would appear thatland values are not dropping dra-matically and rapidly, so most ol thedeclines occurring in balance sheetvalues now appear to be somethingthat most prudent larmland ownersand their lenders might have an-ticipated. Like any other investment,farmland will certainly cycle throughperiods of value increase and valuedecrease. This is something to beexpected from most any investment."

Hensley warns larm operators tobe cautious as lhey deploy capitalin 2016. "1 would make sure I havesome dry powder, so to speak, so I

can make a move if I need to coverexpenses," he says.

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⑩

lnside!llinoヽ

BY CHR:STY COuCH LEE

ONVEIISAIIONS about cash rents between farmers and landowners in thecoming year will be many, says Ryan

Aupperle, Heartland Ag Group. One viable

solution: variablerate cash leases."Variable-rate cash rent allows for

shared risk between farmers and land-owners. F'lex leases allow rates to movehigher and lower, according to how thegross income is being carved up," he says.

It's important to remember the land-

owner's perspective in these n)arkets, too,Aupperle says. "lt's easyto saylandownersneed to back up rents," he says. "However,

they had previously enjoyed returns ofabout 47o on land values. Recently, the returns have been as low as 2.5%. So we dofeel like landowners have shouldered someofthe burden, too."

Aupperle says he's fielded many callsfrom fann operators asking ror advice ontalking with their landowners. His greatest

recommendation is to evaluate entirelarmcosts before making the catl.

"No one wants to take a loss. but if it'sa small loss on one tract - versus a losson the entire farm - and it can absorbedinto the cost of the operation, it could be

worth it to absorb that loss alld keep thelandowner happy," he says.

Randal Fransen, First National Bankof Dwight, agrees. Sometimes, paying a

higher-than-profitable cash rent rate for a

specilic tract of lancl can be justified for a

short time. Other times. that's not the case."Perhaps a farmer has an opportu-

nity to retain a highly productive tract offarmland at a rental level that seems to bequite high, given the recent drop in earningpower, due to weaker commodity prices,"

Fransen says. *This larmer may retain thisland at a rate that seems quite high, but hemay also lrave other properties rented at

rates far below what the market mayallow.In this case, some farmer equity may be

'burned,' but not necessarily to the pointwhere it will cause great harm to his or heroperation. Yet others will, out of a senseof pride, attempt to mailrtain leases whenrental values are clearly not iustified. lnthese cases, a farmer may be hurt and a sig-

nificant amount of equity may be burned."Remembering the relationship aspect

of farnring is critical when approaching dis-cussions between farnrers and landowners,Aupperle says. "lt's hard to say you'rewilling to take a bss. But ultimately, this isa relationship business over multiple years.

lf larnrerscan maintain that relationship bytaking a loss lor a year or two, it could lead

togettingthe phone call when aguy retiresor looks to make a change. You have to be inthe situation to take that opportunity whenit presents itsell."

Aupperle encourages farmers to workwith landowners for solutions. "We're allin this together, and we're going to have tocollectivelyget throughthis cycle," he says.

Lee wites horn Wellington.

Prairie Farmer

"Going forward, we are going to beright back to where we were 20 Yearsago, before the boom. one has lo beprudent of every investment. lt seemslike in the past five to seven years, youcould do anything and it would workout. That's not the case anymore.'

Bitl Christ, Metamora farmer

'Transparency is important in relationswith landlords. My brother farms, andone of the things I believe he doeswell: He communicates etfectively withhis landlords. Hes not necessarilytrying to influence them, but rather he

wants to provide information to themso that they can undeEtand the situ-ation with their farm. This is importantall the time, but especially duringtimes ol tighter margins.You mustcommunicate."

Doug Hengey, Gorsuch' H e nsleYReal Estate and Auction

CONTENTS

lnside lllinois A9........................... 1

Prairie Views ..............................20

Cr0ps...............................,,.......22

TeGhn010gy.................................52

l,lal[ral Besources...,.,,.................60

Falm Management .......................64

Livestock ...................................68

Markelplace/ClassiliEd ..................74

Prairie 1i|e.................................85

marketing ............86

CONTACT USSenlor Edlton Holly Spangler,

3369 E. Cucumb€r Hollow Rd.,

Marietta, lL 61459309-926 - 6082, ho ll y. s@n g I e t@ N ntn. c0 m

Condiutlng Edlto6: Curt Ar8ns,

Tom J. Bechman, Tyler Harris. Eryce Knorr,

Ftrn o'Leary Bod Swoboda and J0hn Vogel

Erocutho Dhsclor, Contentand User Engagement lvillie vogt,

w ill ie. v W t@ pe n lon. c o nsales: Jett Smith. 2l 7-877- 1662

Subscrtpdons: 800-441 - 1 41 0

For additional sales and company informali0n,

soe the last pao€ ot the Markoiplace or Classifi€ds

section.

$ www.FarmProgress.com o December 20:15

THEY SA:D:T

Volumel87 lNumber12

POSIIUIASTEE: Please send address correclions to Prairie Farmer, 255 38th Avenue,

Suite P, St Chartes, lL 60174-5410.

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