March 3, 2015
Where are farmland values headed in 2015?
The 60 farmland auction attendees at the Wapella Auction House in the Central Illinois town of Wapella were wondering this very question as they sipped coffee and ate donuts on the last Saturday morning of February.
The public land auction is one option for farmland owners who hope to realize the maximum possible sale price through an open bidding process. The auction “season” – and the farmland sale season in general – is typically fall through late winter.
During this period, farmers, who make up 68% of farmland buyers according to the Illinois Society of Professional Farm Managers and Rural Appraisers, are finished with harvest and not yet busy with planting. Farms sold in this time frame are also typically sold with an “open lease” and are ready to be farmed by the purchaser or a new tenant in the coming season.
Every auction and auction company are a little different, but buyers and spectators can expect some common attributes.
What preparation goes into a farm auction?
The auction company advertises by direct mail, posters, and on its website. Information provided includes the basic terms of sale and as much information about the farm (acres, aerial and soil maps, soil tests, yield history, etc.) as possible. The property may or may not be made available for physical inspection during an “open house” or by appointment.
Where are farmland auctions held?
Because the majority of buyers are local farmers, and the strongest bidders tend to be neighbors, expect an auction to be held close to the location of the farm. Most auctions are not held in auction houses, but rather in a rec hall (e.g. Eagles, VFW, fairground building) that the auction company rents for the occasion. The Wapella Auction House is conveniently located in farm country.
What are the requirements to attend and bid at a farm auction?
Many auction companies require all attendees to register upon admittance and issue bidding numbers at this time. The sale to the winning bidder is not contingent on financing: potential buyers need to have secured any necessary financing in advance. At the close of the auction the winning bidder is expected to enter into a purchase and sale agreement and provide a down payment or earnest money. The seller or their representative is present to accept the final bid and execute the paperwork.
How does the farm auction process actually work?
Auctions begin with the auctioneer or the seller’s attorney reviewing the key terms of sale. An overview of the farms may be made in a presentation by the auctioneer, provided on displays throughout the room, or included in an auction brochure. The auctioneer and seller determine how best to offer multiple tracts for sale: they might be bundled together, offered individually, or offered in any configuration that nets the greatest proceeds to the seller.
In Wapella, the auctioneer offered the three tracts by “buyers choice” — the highest bidder could choose any or all of the three tracts at the winning per-acre bid. And then bidding would recommence on any unsold tracts. Ultimately, each tract sold separately in the order of desirability.
The auctioneer usually works with several helpers who work the room and potential bidders, handle telephone bidders, answer general questions, help coordinate buyers interested in specific tracts to cooperate on a winning bid, and raise the general excitement of the crowd.
How does bidding work at a farm auction?
An auctioneer sets the opening bid and guides the bidding process. Prices may be quoted as a total parcel price, or in dollar-per-acre pricing. In Wapella, the auctioneer set per-acre-pricing, with $100/acre bidding increments. When bidding slows or stalls, it is common for an auctioneer to call a short break before restarting. Some auction companies use a white board or a projector to show the leading bids and bidder numbers.
The number of attendees does not always reflect the number of active buyers: of the 60 people in Wapella, only three were active bidders.
So… where is the farmland market headed in 2015?
The three tracts that sold in Wapella on Saturday morning went for $10,800/acre (77 acres), $9,850/acre (40 acres), and $8,500/acre (19 acres) – confirming a continued softening of the market and a year-over-year decrease of 10-15%.
The remaining auctions on the calendar over the next month will provide a few additional opportunities for price discovery before attention is drawn back into the field and sowing a new year’s crops.
At Moore & Warner, we are advising clients looking to purchase farm ground to form a buying strategy and define purchasing criteria now in order to be ready for the attractive opportunities we expect will become available later in the year.