Recent record-setting prices for prime Indiana farmland prompted The Land Report to reach out to Rex Schrader, chief financial officer of Schrader Real Estate & Auction Company. In late June, the company’s auction division sold properties in Spencer and in Randolph counties. Both auctions saw record prices per acre.
The Spencer County land sold at prices as high as $6,875 per acre, with most of the tillable land selling for $6,428 and $6,554 per acre. “We sold about 223 acres of this land in 2003 for $1,930 per acre, which was good at the time. It’s more than tripled,” said Schrader. Mason Seay, a longtime agriculture specialist for German American Bank, said the price was “the highest ever for land in Spencer County for row crop production.” Approximately 82 percent of the Spencer County land was tillable.
In the Randolph County auction, 551 acres sold to a single buyer for $2,677,500, or $4,859 per acre. “Like the Spencer County land, this property had appreciated considerably,” said Schrader. “The price varies according to quality and location, but across the board the clear direction is up.”
Schrader’s many years in the business led him to share some other observations on the current ag land market. “The larger the acreage offering, the more interest there is,” he says. “Ten years ago at a Schrader auction, a lot more buyers ended up on the winning end. More lots sold in smaller tracts. Today we’re seeing a trend of more and more farms being purchased in whole.”
Read the Chicago Fed’s most recent report on rising farmland values HERE.
Although some skeptics assert that the current market for top ag land has all the makings of a bubble, Schrader disagrees. “I don’t believe it is a bubble. This market is based on income, on expected income. Commodity markets lead land prices. Follow corn prices over the past few years and you can see why land prices continue to rise,” Schrader says.
A second driver pushing up prices is basic economics. Schrader cites the limited supply of ag land and points out that those farms tend to remain tightly controlled by farmers or farming interests.
A third and final consideration is alternative investment vehicles. Anyone who has paid attention to the schizophrenic gyrations of the Dow this week knows that a low correlation exists between investing in equities and sleeping easy.
So who continues to push prices higher? Despite the entry of non-traditional investors into the market, Schrader sees farmers as the principal drivers. “The farmer is still the bull in the market place. They are the ones driving the market. Right now, the debt to asset ratio of most farmers is very low. They’ve made a lot of profit in the last three to four years. On top of that, other investors such as investment funds typically have to look at returns as a rigid guideline. That gives a farmer a little more leeway to pay a slight premium above the ratio of net income to purchase price.”
Schrader’s closing comments aren’t about land. They are about capital:
It’s amazing how much money is out there today. And it’s all waiting to pounce on the right piece of property. – Rex Schrader
Based in Columbia City, Indiana, Schrader Real Estate and Auction Company is a leading auctioneer of tillable farmland throughout the U.S. Individuals seeking additional information about the firm and its auctions may visit www.schraderauction.com or call (800) 451-2709.
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