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The questions are coming in daily – how is the financial crises affecting ag?  Here at the Halderman Companies we try to keep our finger on the pulse and here are some examples of what we have seen first hand or heard.

 1)  Liquidity in Ag: At this time there is ample liquidity for agricultural real estate purchases and for most operating lines.  In fact, one ag lending financial institution said they have money to lend, but no one requesting the money.  The only other restriction we are aware of is where one lender placed a maximum price per acre they will lend up to.

 2)  Real Estate Values
Farmland values at auction remain steady/strong through our September/October sales.  We have heard from buyers concerns over “economic uncertainty”.  We are also aware of a few farms offered at public auction that brought prices slightly lower than expected.
Rural residential sales are very slow with weaker values. This is consistent with the residential marketplace throughout the US.
Recreational land values (woods, water, rolling hills, etc.) are also trending lower due to the economic uncertainty in the marketplace and that these purchases are primarily driven from disposable income or good returns experienced in retirement accounts.
Transitional land sales – This market is nearly dead – not quite, but almost.  Our sellers, this year, experienced more developers withdrawing from contracts or renegotiating contracts to extend them over more years, versus any increase in demand.
Auctions, Auctions, Auctions – When mid-December rolls around we will have conducted 40 sales in the previous 3 months.  This leads us to ask – why?  The reasons for selling vary from traditional life changes, wanting to close in 2008 to avoid capital gains tax increases, a few are financially driven due to poor performance of other assets, and other sellers want to take advantage of the highest farmland values in history. This increase in sales would be a concern if they were all being sold due to financial stress.  They are not! 

3)  Rental Terms
Commodity prices are down substantially from the June all-time highs.  Perspective is important and we need to be mindful that it is harvest season, which is a historical low price time and, based upon what I read the fundamentals support higher prices. Demand for farmland to rent remains very strong and cash rent bids this fall indicate steady to higher rental terms in 2009.  Crop input prices are much higher, but some fertilizer and fuels prices declined rapidly this fall making the costs for 2009 more economical.

 EXPECTATIONS FOR 2009! 
We expect farmland values to remain steady.  The lower prices for corn and beans combined with overall economic uncertainty will prevent the large increases in values experienced the past two years.  Some ask me – are farmland values headed downward like other types of real estate?  In fact I did hear one investor group say they expected farmland to go down 30%.  In my opinion there are dramatic differences in the residential and commercial markets where values are off 25-30%, or more, and the farmland market.  The residential and commercial markets were overheated, overleveraged and to some degree supported by unsustainable lending practices.  The farmland market increases the past two years might suggest this real estate being overheated.  The similarities end there however as the amount of debt on farmland is very low – near 30% debt to asset ratio and there is plenty of liquidity in the marketplace due to the fact that most ag lenders implement regimented, standardized and prudent lending practices. 
The future remains unknown. The key driver of farmland values is rental rates.  Rental rates track the commodity prices.  Therefore a protracted period of low commodity prices will arguably lead to downward pressure on rental terms.  The primary reason why commodity prices would remain at lower levels would be worldwide recession.  The economies across the globe and demand from the world for feed grains and oil seeds will drive commodity prices and farmland values.  That is the key factor in this marketplace near term as the US general economy will likely recover slowly.