The Values Impacting Land Prices From the Buyer and Seller’s Perspective

[Paul Yeager] Welcome in to another MToM podcast. I'm Paul Yeager. Land prices. We always seem to get a jolt whenever we talk. Land prices, land values, land sales time, Thomas Schutter is always with us to talk about this and and and Tom, do you always feel like it's a broken record? Whenever I ask, I mean, do I have the same six questions every time we talk?

[Thomas Schutter] No, Paul, I feel I feel my responses sometimes they're that way. And like we said before, you know, the markets always change and there's always something new to report and to talk about. So we're happy to do that.

[Yeager] Well let's get to the new what's new right now?

[Schutter] I'd say the new is, is obviously we're coming through probably one of the, the more high supply times of the year, you know, that November, December time frame, lot of land changing hands. And, I think we've seen the buyers really change, too, in the short term with a lot of farmer buyers in the past and maybe not so much in the future. In the short term.

[Yeager] And before I forget, you're with Farmers National Company, regional guy based in North Hyde. Yep. I was just in northeast Iowa over the weekend driving, and I saw a few for sale signs for, you know, auction signs. I always pick up the newspaper, and I kind of look this time of year, and I see the logo of your company and many, many sales. Rate for me, you say November, this is a busy time. How busy is this compared to previous years?

[Schutter] You know, surprisingly, I'd say we're pretty steady from 24, but, we're off from the years prior to that, you know, 21 and two were probably some of the heaviest years that we're going to see, for a while. And it's slowly been trending down. I would say we were more flat than down in 25. You know, we had I just calculated real quick before we jumped down, we had about 27 sales. Land, auction sales in the last 30, 45 days. And so for us, that's heavy. You know, obviously we'd still like to do more, but, it's been a busy, busy month.

[Yeager] So do you. I mean, 20, 21, that was. Is that because there was cash in people's pockets? Yep yep yep. Is there still cash in people's pockets there?

[Schutter] Is, there, is, I would say the pockets are fewer. You know, those pockets are still there's a lot of cash in those pockets. But then there's a wide gap in variance. And there's some folks on the other end of the spectrum that are really struggling right now with cash grain, the way it is.

[Yeager] Do you think people have more cash in their pockets or more banknotes in their pockets who are coming to auctions.

[Schutter] That are coming to the auction? Yeah. I'd still say cash. I would I would venture to say those folks with banknotes in their pockets, maybe aren't as serious, you know, right now. Maybe if things are tight, you know, they're less likely to go and overextend themselves further and buy another piece of farm ground.

[Yeager] And do you attribute that they have the note or that there's a higher interest rate than maybe the last time they came to buy? On that note.

[Schutter] Partially, I would just say that prolonged, I would go back to the profitability of the acre, you know, the prolonged grain prices or the number one factor. Yes, the interest rates play a role in that. But the fact that the cash flow just isn't there like it was, is the primary driver right now. Yeah.

[Yeager] I think we before, we've talked about the age of that buyer. 

[Schutter] Yes. The 75 percent of space I wouldn't say that. I'd say maybe in their 60s is probably your number one buyer. Maybe a family generational farm that's coming into, existence where they're willing to extend for the next generation. I will say, as far as age goes, one thing that's different this year, that I hadn't expected is the beginning. Farmer has all but been taken out in the last 30 days, and primarily because of the government shutdown. That was an unintended consequence, this consequence that we saw in our business. And probably going on into the future here, unless you're really, really aggressive and there's that one piece of ground that you have to have. Those beginning farmers are sitting on the sidelines right now.

[Yeager] Because they were getting some type of government assistance and the like a first time buyer.

[Schutter] Yes. Yes. Those beginning farmer loans is what allows those folks to compete with the larger cash buyer. And so once that government shut down, you know, there was nobody to talk to. There was nobody to reaffirm. Hey, are we still on for next Tuesday at the auction? You know, there was none of that. And so those folks were pushed to the side. And we actually had some closings that were delayed because of that, where we had folks that were, buying farms contingent on that beginning farmer loan coming through and then having to either delay closing or make other arrangements in the short term to make sure we get those farms closed.

[Yeager] You're talking maybe a sale that happened in mid-September right before the shutdown and in the in the process that you always do before you close. That's what you mean, correct?

[Schutter] Correct. Yep.

[Yeager] Just like buying a house, it takes time to get all the paperwork and everybody signed and loans cleared. Let's hit loans again just for a moment. On the interest rate, always a point of contention. The president always wants that lower. It's still not as high as it was in the high times. What do you say we are, are we in high interest rates right now. Higher interest rates or just the normal that we're dealing with now.

[Schutter] Yeah. So this is my opinion I'll step out back from Farmers National or any type of I think this is probably pretty average when you look back 20 or 30 years. But in my short time frame in this business, you know, I saw almost zero, right. So this seems very high for me. But when you take a step back at the larger picture, it's probably more normal, from that standpoint. And we have a lot of we have a lot of folks that we've sold farms for that were very concerned on the opposite end, where they were trying to park this money into some asset. And wanting to get these farms sold as quickly as possible before the rates moved down again. And so I, we deal with it on both ends. Right. But it is what it is.

[Yeager] So let's talk about that buyer who's buying, you say 60, but is it somebody expanding an operation or is it somebody parking money as an investment?

[Schutter] Both. So I would say those are our number one and number two buyers right now in the short term is your large could be a family operation, could be sort of a corporate farming type deal. But they're your larger operators in the areas. And then probably runner up in that in that realm would be your investor buyers right now. When we've seen, you know, interest rates the way they are or cash grain down, that's when your market tend to slide in those buys get a little bit more appetizing for the investment buyer.

[Yeager] Is it the dentist?

[Schutter] It could be. Yes. It could be your local investor like that. Or it could be some type of regional folks. That aggregate money for, for farmland funds.

[Yeager] We both chuckle. But that's, that's usually one of those signs, right. When the doctors and dentists are coming in. Not necessarily, the hedge fund person or the regular investor, but that's always. I got a hot tip. Yeah. Go buy this land. I mean, that's true in your industry right.

[Schutter] There, 100%, 100% it is. And 10-31s, they're still out there to 10-31 buyers, those folks that have sold a piece of ground and needing to park those funds into another farm rather than paying the capital gains tax. They're on a timeline. They're on a, you know, on a window of opportunity there, too. So those folks have been coming in, buying a few of those farms that would seemingly be under the market in this high supply time.

[Yeager] Who's selling right now?

[Schutter] So again, to to kind of go back to our seller, our, our typical stereotype, it's, it's it's the folks with legacy assets with some type of a life event in the background where they're typically not trying to offload these, these assets, rather, forced to in a lot of cases based on their current, situation, could be an estate, could be, some type of death in the family. It could be all sorts of things, but it's really based on their goals individually and not necessarily a broader, market dynamic. Now that you do have a smaller facet of the market that's focused on returns, and over time they're going to gravitate towards those higher returning assets and getting out of farmland into some, some type of, stock or some other vehicle.

[Yeager] I think at one point you've told me over the years that there's motivate different motivations. You mentioned the family. I think you said, is it an auction? Is it a listing? Is it something else you don't always hear when it's just, hey, I'm selling it to this person down the road. It doesn't necessarily have to go through you, does it?

[Schutter] It does not. It does not know it.

[Yeager] If those are happening more.

[Schutter] Or less, I do, yes. And a lot of times we'll get the phone call and maybe confide with these folks and say, you know, what do you think about this? Or how do you feel about this? You're in the market every day, you know, what's your opinion? Sometimes they take our opinion, sometimes not. Right. Sometimes we could do a broker's price opinion on what we think we would value the farm at or do an appraisal. We have a great appraisal team that does all types of, not just farmland, but any types of ag appraisals. But at the end of the day, it's their asset and it's their decision on what they want to do with it. And if it is they want to sell it to a specific individual down the road for, for a below market rate, and then absolutely, that's what we're here to help with that or, or, you know, help you achieve that.

[Yeager] Ernie Goss at Creighton University has one of his studies, the Rural Mainstreet Index. I'm very familiar with it, and I just kind of briefed you on it before we started. But one of the things he always looks at, the one he talks about, bankers, 58% of his bankers in his mid-November survey said that lending or that, land values, those lenders think that we're going to see a 3% drop off in the value of farmland in 2026. Do you concur? 

[Schutter] Absolutely. I would agree with that in the short term. Just from what we've seen in the last 30, 45 days and we talked about this back in August with our team and that we've talked about this equilibrium point coming where we've seen a gluttony of buyers for a long time and not as many sellers. And we're starting to reach that point where maybe there's some farms out there that aren't getting sold at auction for what the sellers would like. And so that really tells me that there's a lot less buyers out there, especially for those lower quality or average farms. In comparison to what there was even six months ago. I think, you know, the lower crop this year, you know, we were all boasting in July what we thought this corn crop was going to be, and it just wasn't there for a lot of reasons. So that plays a role into it, too. Just the cash on hand. And, and, you know, we can get a lot, a lot of short term focus on, you know, the, the wet that we've had, especially in northern Iowa, just how wet it's been. So especially those farms that have drainage issues right now, they're getting discounted heavily. And so unless you have a top tier farm that's patterned tile 90 CSR or better, great, 80 acres in a great location. The farms are getting discounted for a lot of reasons right now. And so I can see that continuing on into 26. Now hopefully we're in that bottom trough right now. Hopefully we're not continuing to slide, but, but but these things lag, right? So even if we do gain a dollar on the corn or something outlandish, it's going to take a little bit for our market to catch up. On the land side.

[Yeager] So land is lagging. I'm sorry. Land lags always or just in this scenario.

[Schutter] I would say in this scenario, especially on the downward trend, we don't want to believe that things are negative, right? Nobody wants to. Our farmers are eternal, eternal, optimist. And so, but I do think just that cash on hand and working capital is going to be a continued struggle this winter and into the spring for sure.

[Yeager] And I'm going to make you squirm. Let's play a what if game. What if we don't get that rally? What if farmers don't have the cash? What if this last another 18 to 24 months? What happens is.

[Schutter] There's going to be a lot of farms for sale without buyers. Because I do think we're working on expectations that are in the past. Right? A lot of times when we talk about putting a farm on the market, we're dealing with comparable sales that are six, 12, sometimes 18 months old when we're talking to our sellers. And so that's the expectation. So as we move down, unless I have to sell, I want this price, right. That's what I think it's worth. And who's to argue. But it's hard when it's changing and changing rapidly. So I do think there would be a lot more farms for sale. Whether they'll get sold, that'll be based on the individual family dynamic or owner dynamic. Those folks that don't have to sell right now, they're in a good position because they can hold that price to where they'd like it to be, and they can wait for that buyer.

[Yeager] So who becomes a buyer then in that scenario, if you said that there is possibly could be more land than buyers, is that one the investment class returns?

[Schutter] Absolutely, absolutely. That's when you see these good buys, right. There's a lot more opportunities in that type of a market for somebody that is looking to buy. And so they can wait for those pieces and be very selective on rate of return where they're at. And in my mind, those farms that are going to be good buys are going to be those farms that maybe they have poor drainage, but they could be fixed, maybe, you know, just around the edges. It looks tough. The waterways aren't being kept up. The terraces, trees, those things that could be relatively quickly improved upon. And then once this market would change, those are the first farms to appreciate. And so that gap will come back for those farms. And so that's where we're seeing a lot of the investors getting in on those B quality farms. Maybe they have some issues, but they could be improved.

[Yeager] I don't know how well you can answer this one. But again make any square. These investors, they are all from the United States.

[Schutter] In Iowa they are right. We have laws about foreign ownership of land, which I love. Personally, as an Iowa farm boy, I like I like that, it does keep folks out. You know, I was in Illinois last week, and I'll just share it at that auction. We had four tracks available, and we had one, one farmer bidder in the whole auction. Everybody else was investor. So it does keep a lid on our prices just from a competition standpoint. But I think we've all agreed or our legislators agreed that that's okay. You know, because we're rooting for the farmer in a lot of ways by doing that.

[Yeager] I, I'm not 100% sure I follow that because. Are you saying that when it's three farmers or four farmers in the room bidding, the price goes up, but the investors don't necessarily bid each other up like the farmers do? Is that what you meant by keeping.

[Schutter] No, no, no, I would say by just a free market perspective. Right. The more folks that can compete, generally the higher the price. And that was my take in the Illinois farms. And typically they can have a little bit higher prices than us on average. And I think that is some of the reason is that they don't have those same ownership laws where they have a lot more investors that come in there, not necessarily foreign investors, but they are just a lot less stringent on that.

[Yeager] So the the ownership, the investor class is still they'll bid, they'll outbid each other.

[Schutter] For they will.

[Yeager] Give it as a, as yeah, as a good investment for them. They want that piece I'm sure they were always looking for a deal.

[Schutter] Yes.

[Yeager] They're just like they look at a tractor and they go yeah it's got too many hours on it. I'm going to walk down. It's the old kicking of the tires like we do with a car, right? I can relate to that. I mean, and but farmers will pay if they feel that it's the, if it's the track land there versus four miles away where I got to move equipment a whole lot different.

[Schutter] Right? Right. If it's right next to your base of operation, they're much more willing to extend for that piece than something farther out.

[Yeager] Okay. So yeah, again let's discuss Illinois the foreign if it you know, the limitations aren't there as much in other states. They're there's issues. What are you getting a sense of legislatively in certain states and pressures of changing those laws one way or the other? Is there do you see, as we come to the new year, new let new lawmakers have new ideas?

[Schutter] You know, I think I see it. I'm not one to get into politics a whole lot.

[Yeager] I was going to make you squirm, it was the theme.

[Schutter] But, there's definitely a push for like, you heard on the national level on the concern about China specifically, buying Iowa Farm Ground or any type of land in the US. I know there's other ways that foreign owners, can own a piece of the production system, like through easements or through wind energy, solar energy. I know there's opportunities for them that way because rather than owning the specific acre that it's on, it, it obviously impacts our tax base. You know, when we have solar or wind development in some counties, you can see, you know, there's there's better roads, there's better, you know, bridges, those types of things that come with it. But yeah, there's obviously consequences on the backside too. If it gets out of hand. And so I'm glad I'm not in those seats to make those decisions. But you know, it definitely impacts what we're doing on the ground.

[Yeager] So but I've also heard and it could just be speculation inside our office as we discuss the world, that there is this potential of looking at, limited. There'll be benefits to somebody who's 100 miles or less from where that land that they would buy. So a much more local ownership than someone from outside. Maybe it's not a foreign company, but somebody from Mississippi buying Iowa land or Ohio buying Iowa land. But if there could be some benefits, if you are within a circle of that land, is that something you think could ever happen? Does that make any sense?

[Schutter] I'm not sure I follow. Is there a tax incentive for owning?

[Yeager] Okay, tax incentive because of putting money on improving the local tax base during the ownership, knowing the owner and the renter, or the owner and the buyer better? Yeah. To prevent people who live in Colorado who still own Iowa farmland.

[Schutter] Yeah, I could read it both ways. I see the argument. I also see, you know, the benefit of, of the free market, the open market. And the more folks that can play, the higher prices that we're going to get together at auction. From those folks, I've also we've worked with landowners. This is a great story, but one in particular said, hey, is there something that I can you know, donate to? Is there especially this time around the holidays? Folks are giving back and, you know, give it to the local fire department or giving to the, like, local toys for tots or something like that, he said. Because I'm an absentee landowner, you know, the, the, the land base, the local operators paying cash, rent and is coming to me that I don't live in that area. I want to give back. I thought that was a great message where he's seeing that, right. He's understanding that. So it is something we're always impacted with. No doubt.

[Yeager] It's a yeah. Because that money that's what it is. It's that fire department. It's whatever charity that might benefit. Just the overall, you know, the school, however it is renting wise, rents going up or down.

[Schutter] You know, a lot of our rents stayed steady from last year to this year. And a lot of those were negotiated pre harvest just with the lease laws that we have in Iowa. It forces that conversation much earlier right, than we would sometimes like it to be. So a lot of them were negotiated around that September 1st time frame either side of that. And a lot of them continued at that time. Just rolled them for one more year.

[Yeager] Just kind of see what happens on the other side. Let's go back to something you said earlier. You said if we put a dollar on corn, we put $2 on beans. Again, there's a lag and there's a sale. Do we say we get a rally. Say China does continue to buy, say this happens. Say that happens. Say there's a crop problem in another country. And we do rally. Is that the biggest driver of what might turn things around from where you're seated?

[Schutter] That's going to help, I think any sort of government facilitation program that would that would come out. I know there's a lot of talk about it. Any sort of quick relief that could go straight to the farmers, that would be much more impactful, because a lot of that grain is sitting in a bin somewhere right now. It's hard to pry that out of a guy's hand, especially when it's on the rally. He thinks it's going to go another dollar, you know? So not all that grain gets capitalized when we just move it up. One. But yeah, any, any sort of impact on the profitability of the acre is going to impact prices in a positive way.

[Yeager] Do you get the sense more land is going to go in and out of production, whether there's a program to reserve some things or to, let we know that you always have the farmers think they can produce their way out of it. And it's like if we would just have less land in production, that's just realistically not going to happen.

[Schutter] I, I tend to agree with you especially, and I've noticed it in the last year with our CRP situation where with a new administration, whether it was intentional or not, we just saw a larger crack down on existing CRP made contract management encroachment. A lot of these production practices that the monitoring of the CRP was, was way amplified this summer. And so you saw a lot of frustration from the farmers. You're the folks that are taking care of it. And then on the back side of that, to have the government shut down in that time period when the payments are being made, really put a sour taste in folks mouth and I've, we're noticing it on those CRP farms for sale. And that's the narrative is that they don't want anything to do with that CRP unless it's coming out in the next year or two. So that makes me think, too, that there's going to be less incentive to jump into these programs, especially when the government shutting down. And we're not getting the answers timely. It could be a struggle in the short term.

[Yeager] Just happened to I mean, I know the land where you're where you're seated. Thomas. I know how it's much marsh here, and there's more of it around you. So, yeah, you use a front row seat to those discussions that happen north and west of Clear Lake there. And to the south. So, yeah. It's an incredible insight there. Okay. As we get close to the end, talk to let's talk to the seller and the buyer right now. Things to watch here in the next six months.

[Schutter] For the seller. For the seller. I think we need to take a very, very close look at what's going on in your local neighborhood, your township. How much land is been changing hands. And then what your goals are, are they short term, long term? If you have to sell in the short term, then let's make sure we're doing it the right way. If that's a live public outcry auction, okay. That's what we would recommend. But we also want to look at different types. Is it a listing or is it a quiet listing? Is it a sealed bid offering or maybe an online only auction? And there's pros and cons to each one of those and reasons why we would suggest one over the other. But it's going to be very localized and there's going to be pressure to drive those prices down. As we talked about, and for the buyer, for the buyer, I would say keep your eyes open and be watching every single one. Don't assume that this farm is going to go for $16,000 because the last one went for $16,000. There's two different auctions we've been to that have no saled. And all the buyers, that's exactly what they said. We thought this farm was going to bring X, so I wasn't even prepared. And so I would just say be prepared for everyone because you don't know when the opportunity is going to be there. And when it does present itself, you want to be ready.

[Yeager] And we still could have something that pops off ridiculously high, right?

[Schutter] Oh we will. Absolutely we will. Yes, yes. Like I said, those flat black square 80 acre pieces that are parent child 90 CSR, they're going to sell well, as good as they've sold the last two years.

[Yeager] Especially in an area where maybe there's some animals. Because I was talking to someone close to the, you know, the land behind me here who sold. And that was a family situation and a generational change. Of a passing. And they were super happy with the price that they received as these sellers. It was somebody who was in the area, the bought. And I don't know if that was a public I think it was a private listing because they couldn't tell the seller for quite a while. Sure. And then I said, I said, well, you know, locally the county this the local, the county that, you know, you're very close to the border there. And then I have the conversations from northwest Iowa still about everybody saying, yeah, that's still going to go high, that's still going to go high. And I'm guessing by your smile.

[Schutter] No, not up there. It's a great place to be. A lot of demand, a lot of strong cash buyers and a lot of livestock too.

[Yeager] And I get to get into the regional side of things. So if we could are there areas that's still a strong area. Are there hot spots?

[Schutter] Yeah. I would say to if you move across the top of the top tier counties that Mitchell County right now, there's a lot of cattle up in there and that's very, very strong as well. You know, southwest Iowa, we're seeing some pasture farms that are bringing really, really good money, too. There's just a lot more cattle down there. And yeah, there's a pocket there, kind of state center area, kind of in central Iowa that also has quite a quite a few cattle. And those, those would be my, my view.

[Yeager] So the cattle area something to do with cattle. Cattle adjacent.

[Schutter] Yes.

[Yeager] Not necessarily manure, but maybe grazing have become.

[Schutter] And the diversification those folks that have, you know, aren't just cash grain farming. They've been, you know, on the on the receiving end of some pretty nice profits here of late, whether that's going to continue or not. I grew up liking cattle, so it's in my blood. And what happens is you just buy more, right? You want. So. So, anyway, there's some areas around there that need the manure or, or need the, the land for expansion and, and we're still seeing strong prices there too.

[Yeager] See, Thomas, you were worried we were going to talk about the same thing. See, we diverged a little bit.

[Schutter] Yes, we do every time, but it's all right.

[Yeager] I always appreciate your time. Thomas Schutter from Farmers National Company, good to see you. Thank you so much. I appreciate you wedging me in because I know it's a very, very busy time of year.

[Schutter] Thank you, Paul. And likewise, thank you.

[Yeager] That has been this installment of the MToM podcast. I'm Paul Yeager. New episodes come out each and every Tuesday. If you have any feedback for me, send me an email. MarkettoMarket@Iowa pbs.org. We'll see you next time.