Land values influences in the Grain Belt - Paul Schadegg

Paul Yeager   Hi everybody. I'm Paul Yeager This is the MToM Show podcast a production of Iowa PBS and the Market to Market TV show. We are going to discuss land values this week and where they are headed historically and currently did the to align? Are there certain years of interest, that may be something to look at about direction of growth, land values usually don't go down. However, double digit growth and prices may be a thing of the past, at least for the near future. We're going to get in with a company that deals with a lot of land in the growing regions of this country, farmers national company, we're going to talk with Paul Schadegg. This week, he is going to take a break from a conference that he's out with growers and landowners. And we'll pick his brain about what's the hot topic and what they're talking about what he's seen. And just some other fun discussions as we always try to do each and every Tuesday new episodes are released in both audio and video form. Now, let's get to our discussion. If I look closely, there's a little bit of sliver of green there. You're sitting in Morris, Illinois today, what are the crops and lamb look like around you there?

Paul Schadegg   You know, every everything out here around since we crossed into Illinois has been pretty impressive. Crops look really uniform. Corn looks looks great coming along great. And the soybeans looked like they've had just enough moisture to keep going into bloom.

Paul Yeager   You made the drive over from Kansas City or Omaha.

Paul Schadegg   I came up from Kansas City. You had a meeting in Des Moines yesterday and Morris, Illinois today.

Paul Yeager   You are with farmers national which I believe is based in Omaha, is that right? That's correct. And then you work out of you know, various places. You're always it seems like you're always on the road. What do you on the road for today? Can you tell us?

Paul Schadegg   Yeah, we have our landowner workshop series is going on. And so we're recovering from Iowa, Indiana this week, and then we'll be back in Nebraska and down by Kansas City next week.

Paul Yeager   landowner meetings is this mostly for returning customers? You got some new customers in there? What do you have?

Paul Schadegg   It's a it's usually a mix of 50-50. We have some potential new clients that come for information and then a lot of our existing clients just come in it's kind of an update, good, great time of the year to to update them on progress of crops and commodities and land markets.

Paul Yeager   Alright, so that's what you're talking about in general, what? What's the headline? What's the first slide? What's the big headline here that you're talking about right now?

Paul Schadegg   In in the landowner workshop series, it's all this year is all about your legacy in owning land, and the opportunities that are there for it.

Paul Yeager   Are you finding how long have you been in the industry? Let's start with that before I go into that second question.

Paul Schadegg   So I've been with farmers national company 24 years I started my career out in western Nebraska as a farm manager, a real estate agent before moving into a sales manager role and then into my current role as VP of real estate.

Paul Yeager   And you're from Western Nebraska is that right?

Paul Schadegg   Yes, I'm a western Nebraska boy right there on the Wyoming border. You could almost spit across the border to Wyoming but yep, out there in where it's a very arid and a lot of a lot of challenges there that they don't see out here east.

Paul Yeager   Did you grow up on a ranch or a farm or Yeah,

Paul Schadegg   combination farm and ranch and cattle and and some row crops and and dryland wheat?

Paul Yeager   How'd you end up deciding to not stay on the farm and do something else?

Paul Schadegg   Well, after college, I actually did stay on the farm for about 15 years. And it was in that glorious time of the 80s. When interest rates looked, today's interest rates looked very cheap compared to what who were back then. And so, you know, we had some success, but it was a struggle. And when I had an opportunity to come to work for farmers national I did that and I've really enjoyed that.

Paul Yeager   And farmers national you're not auctioning you're not a land auction company. Right?

Paul Schadegg   Well, we actually are we're okay, what you'd call a a landowner services company. We have 10 different lines of business that involve everything above and below the ground and our primary focus is is farm and ranch management. But real estate is a close second to that and goes hand in hand when someone wants to add to their forte portfolio or maybe divest some land.

Paul Yeager   Well, like anything you're trying to make sure you have the best information so you also put I'd snapshots of the industry, what's the land ownership industries land sales industry? What's the status right now?

Paul Schadegg   What we've seen, you know, it's if I look over longer term, and that's kind of how how I analyze things in that 510 year timeframe, we've seen some, some really nice gains in land value, especially over the last five. But even if we stretch that out to 10, they weren't quite as quick in the early part of those that tenure, timespan and then the past three years have been just just astronomical with, with what land values have done. Now, what we have seen is we saw things kind of slow down a little bit in the fourth quarter of last year. And then as we came into 2023, you know, it was kind of let's see what, how this is going to pan out. And we've seen a further what I call a de escalation of values. And not reading too much into that we're not talking about a drop in value, we're just not seeing increases as strong as we did, you know, in 2021, and 2020, and 21, were just just through the roof, and double digit increases across many states. And now we're just down to where we're seeing some, maybe some single digit increases. We've even seen some slight decreases when we talk about lower classes away and higher, higher classes, Alam still great demand for that. And they're still playing a premium,

Paul Yeager   which is better for the industry, double digit increases are a little slower, one to two to 5%.

Paul Schadegg   I'm, I'm a believer in slow and steady. And if we look out over that time period of go clear back into the 40s, and see how land has appreciated over time, I really liked that slow incremental growth. And so those sharp increases are a little bit spooky, because they tend to breed sharp decreases. But the way the ag economy is today, we we don't foresee that happening. It's in strong hands. It's not highly leveraged. You know, the ag economy in general is pretty healthy. But, but that always is a little spooky to see something go up because I'm a believer in the pendulum theory where, you know, it's hard it swings one way it could swing the other.

Paul Yeager   Well, let's go back to your beginnings, the 80s. You know, you saw how quickly things can can move and change. They are we in a state of the 80s again, here right now.

Paul Schadegg   And based on the way land is not highly leveraged, and that balance sheets look good, or certainly not there. Now there, there are a lot of investment or environmental and geopolitical events that could happen that could drive us to that point. But, but in today's market now we're, we're, like I said, the land is held in very strong hands. Unlike the way it was in the 80s 70s and 80s. So yeah, we feel pretty good about and very bullish about agriculture in general.

Paul Yeager   Who is buying the land? Do you keep track of that?

Paul Schadegg   Yeah, we we keep close tabs on that. And it's, it's an interesting dynamic, you know, we see you hear you read the stories about you know, celebrity buyers and foreign buyers and things like that. But that's what hits the news, the real story lies in that there are the land has been purchased the actual buyer of the land over 70% of the time is a operator farmer local usually, and they're adding to their to their farm operation. Now in saying that, there's a reason that these land values have moved up and there's another class and the investor of type buyers funds and and just individual investors that are very interested in buying land. And so they are definitely holding a floor and they're pushing some of those values up. But when when they reach a certain point for their return on investment, they step away no motion and then that's when the operator will make that final bid and usually ends up with the ground and there's there's a lot of motivating factors you know, there's guys that have never seen a farm next to them come up for sale and so I want to take advantage and you know, there's some pressures with adding making making your operation of scale that will work in today's economy. And so that's that's the motivation on their side.

Paul Yeager   Is there an age of a producer? Because what I hear you saying sounds like an old producer 70 Plus ownership is that accurate?

Paul Schadegg   As far as buyers go, we we do see a lot of buyers in that. Oh, definitely. 50 to 70 range. There's there's definitely a lot of that we we do see a lot of young buyers that are using vehicles, Lone vehicles that are out there and options to purchase Because if they're able, but I would say the majority are in that 50 to 70 range.

Paul Yeager   And are you finding, you say, if a neighbor says, Oh, I've never seen that land across the road come up for sale? Do you have data that says the owner is within zero to five miles from that farm?

Paul Schadegg   Yeah, we do have data that, that shows that shows ownership of land and how far they are, from the from the farm. And it's pretty hard to, we can draw a circle, but it's not a two mile circle, as in today's world, it's more like a 20 to 40 mile circle, just because, you know, with equipment today, that can cover a lot of ground. And 40 Miles is not what it was 20 years ago.

Paul Yeager   And you can easily put machinery on a flatbed and move it from place to place.

Paul Schadegg   Yeah, and edit as mobile as some of these big planters are and and combine some things they, they can, they can roll them 40 miles without a problem typically. And and you know, they can go down there and finish a field one day and be back later that day. So it's, it's just a different ballgame than it was 20 years ago.

Paul Yeager   A few weeks ago, on this podcast, I asked a data scientist about this question, is the ownership going to be stale local, is there a front for someone else that they're buying for? Do you track that or even want to dip your toe into that,

Paul Schadegg   some of that's hard to to disseminate. Because only if you have a fund that comes in and buys land, that ownership could be very diverse. And that could be a long ways away from the farm. But again, that is a minority ownership in land. But, but definitely a fact that some of those are hard to disseminate. Some that you do see, some are very transparent, also that they let you know, and it might be, might be a group of five to 10 individuals and and they're, they're happy to be part of that community and and buy land and turn around and lease it back to maybe the guy that's been farming it or another local operator that they have a relationship with.

Paul Yeager   I understand farmers national is a business doesn't matter who owns land to you.

Paul Schadegg   I think when we look philosophically, we all would rather see a lot of that land be owned by people that want an attachment to it. So an operator without a doubt has an attachment to that very emotional and and as a business. And so I'm always really encouraged when we have people that maybe grew up in an area or maybe it was they had a family farm that had come in and buy, even if they are not going to be the operator, that they are a landowner that is leasing it out to a local individual. And if we look back over time, you look back in the 20s and 30s, my my great grandfather had ended up with a bunch of farms, he was in the banking business. And when they went through the stock market crash, he ended up with some farms that were not close to him, they were clear across the state. And sometimes that's a necessity where someone has to own that land. And what it did is it allowed a lot of those operators who didn't have the capital to buy the land, they got to stay there and they got to farm that, that land. And we're seeing a little bit of that in today's market, not like we did back in in 1929. But definitely I I enjoy seeing that. On the flip side, I'm also very encouraged by some of these, some of the funds or investment groups that come in and want to be involved in agriculture, they see that there's a positive aspect to agriculture, and that they can be a part of that. So that's that's also encouraging.

Paul Yeager   So you're seeing that as a positive for agriculture, if outside money comes in, because we talk about and commodities all the time, if outside money comes in, that usually pushes the value up. And we though who though that person who has a bushel of corn or beans to sell benefits from a higher marketplace, but is the same hold true when it comes to land, when it becomes more expensive? You know, it certainly

Paul Schadegg   can it sometimes, like I was describing holding that floor in the value, you know that that pushes those local operators to have to pay more for that land. That's probably not an advantage for them. But in the overall picture, if you know that the land is going to be owned by by someone, and if we can, if we can keep those operators operating the farm I see that It was a positive moreso than then splintered ownership in or from faraway places.

Paul Yeager   In the latest release from your company, you talk about ebbs and flows, is this part of that natural ebbs and flows of the industry that you were referring to?

Paul Schadegg   Well, I think it, it certainly can be. Because when we look back across the charts in history, you look at the 70s is probably the biggest ebb and flow that we've seen, he saw a huge run up in values, and then a huge drop in values. And, and then it mimics a pretty incremental increase going through the 80s, especially from the 90s, up until today, or actually, the from the 90s till about 2016 to 18. And then that's when we started to see that sharp increase in values. And

Paul Yeager   overall,

Paul Schadegg   I think, the the trend, the trend line, will, will continue to go up the, the ebb and flow that we're seeing now, we've definitely seen the high side of it, I hope that we don't see a dramatic, equally, equal drop in value. And like, like we've talked about with the economy where it's at today, I don't anticipate that I would rather see a reset of a new normal. And, and then, you know, we want that trendline to continue up, eventually, because that benefits everyone. Because the you own land, you want that to appreciate in value, you don't want it to stay flat, or defects.

Paul Yeager   Paul, we talk about ebbs and flows. We know that farm economies have tendencies to be bubbles at times. Are you concerned that land had a bubble? Or was this one of those slow? D acceleration of values that you talked about in the beginning?

Paul Schadegg   Yeah, I'm pretty confident that when we compare it, especially back to what happened in the 70s and 80s, we saw a huge run up in values, and then a sharp drop. And the economy, foreign economy at that time was was quite a bit different than what it is today. So I think what we'll see, what I anticipate seeing is, even with the sharp run up, if we do see a decrease, I look for more of a resetting of values, and maybe setting a new normal, that may it may come down and settled that I don't look for a sharp drop.

Paul Yeager   What would be factors that would play into your thinking?

Paul Schadegg   So the the things that could affect that thinking is geopolitical events, maybe some environmental events that could impact have a huge impact on the farm economy, because as strong as it is right now, it's going to take something pretty drastic to effect make a big effect in the economy to slow it down.

Paul Yeager   So geopolitical. So I guess I'll go back to the very first question. I asked you about the weather. And if it's green and how the crops look, how does that influence a crop season a drought or that type of impact on on a crop? Does that impact land values to?

Paul Schadegg   It certainly can. And an example would be we're out west they've had in some areas of the third year of drought, and we're starting to see an impact of, of land values there. So one year of drought maybe doesn't impact land values to certainly can and three probably will. And then when we talk about the geopolitical side of it, you know, what's happening today again, and Ukraine and, and things like that those those will have some pretty, some pretty sharp impacts or have the potential to make some sharp impacts in both the economy and subsequently could be land values.

Paul Yeager   Do you see land values and their increased strength tied more to say the overall economy and the stock market than say, the commodity market?

Paul Schadegg   Well, commodities are gonna continue to be the main driver, inland sales without a doubt. But with that being said, there's a lot of other things that can play into the equation. The one that that we really see right now is a supply demand scenario, where there are simply more motivated buyers out there than there are willing sellers. It really boils down to simple economics there

Paul Yeager   are the old economics Right?

Paul Schadegg   Exactly. Do you see

Paul Yeager   the motivated buyers? I guess it goes back to that earlier discussion we had about this outside money coming in that sees value in agriculture. I'm guessing it's important to see value in agriculture, but how do you how did agriculture land big have such a good place for some of those outside buyers?

Paul Schadegg   Well, I think when you look at the market dynamics, stock market dynamics in general, and they, and you have individuals that historically have invested in the stock market, and then when when you show them a graph of the long term value of ag land and how it's appreciated, even with its ebbs and flows, I think there's a lot of people that saw value in that. And then with the ag economy, showing that there's a potential for Euro returns, in general, without taking into account land appreciation, then it started to make sense. And we definitely have investors look at it two different ways. Some want to see my annual ROI, some want to see my annual ROI plus this appreciation in value. And a lot of investors back in the early 2000s came in and said, we all want to buy this farm and slip it into yours and make money. And now we're seeing more they they'll have a longer term vision, if they're buying a farm or farms, it's a longer term vision,

Paul Yeager   which is better, the long term or short flipper?

Paul Schadegg   I take long term any day.

Paul Yeager   But a long term buyer or a long term holder of of land doesn't give you any business though.

Paul Schadegg   Although it it's true that that could be part of the equation. But I think when I look at the overall economy for agriculture, and making sure that stays healthy, I think that longer term investment and whether longer term means 10 years, five years rather short 10 years plus, I think is is a good is a good plan.

Paul Yeager   I asked what the lead slide was in the presentation to your customers right now, what's the lead question that they're asking you?

Paul Schadegg   You know, the, the that crystal ball question of what happens next? What's going to happen in the next six months? And yeah, that's, that is the the interesting topic that everyone wants to ask at the end. And, you know, that's fortunately we, we have some pretty good insight, we have a lot of data in today's world where it helps us plan better. And so when we, when we see and look what the economy is like in agriculture, we can feel pretty confident that we're going to go into the next six months and into the first part of 2024, with some stability, and I think we're seeing that right now. And in especially in land values.

Paul Yeager   We get the crystal ball question all the time. That's always the big one, what's the second one then

Paul Schadegg   discussing legacy? And, you know, what are you going to do with your farm? Are you going to retain it as an asset? And if you do, what's the best vehicle? Is it, put it into a trust is it to, you know, change it to your kids names, or different things like that, mainly to avoid taxation, and, and some of those things that can can impact after death.

Paul Yeager   And I'm guessing that's something you can help with.

Paul Schadegg   Yeah, we do have people experts beyond ourselves that, that help talk, talk to individuals through that. And that is, every situation is different. That is the beauty of that one size does not fit all, because everyone's family situation is different. Our ship structures are different, and goals are different. And so that that makes a big part.

Paul Yeager   Exactly. And so the goals might be different of let's say, it's a family of four kids. So you got an equal 25% that may now part be part of a trust. as years go by, and they're 20 to 40 years removed from the farm. Does that make them good landowners and the right type of landowner?

Paul Schadegg   Not all agriculture? Yeah, not always. And we see those family dynamics every day. You know, you mentioned you know, say there's four siblings, you might have two that have attachment to that land, and two that don't. And the two that don't, would just assume sell it. And the two that that do would say, you know, this is a good asset, we should hang on to this. And so then, if, if someone has the wherewithal to purchase the others out, and and they own it themselves, that's great, but that doesn't always happen. So we do explore a lot of different options in selling and reinvesting. And we partnered with a couple other groups where we have some options to help facilitate the goals of those landowners.

Paul Yeager   The Federal Reserve says they'd like to see inflation on a 2% clip. That's their goal. Is that a good land value in Risk goal that you would like a 2% gain each year,

Paul Schadegg   when I look out cross that long term chart, I, I feel good about a, a smaller gain than what we've seen the last few years. That's that's where I say, you know, those sharp gains are a little bit spooky because you worry what's on the other side. If I'm speaking for other landowners, 2% might be a little bit low, they would probably rather see something closer to five. If I'm if I look at it from a landlord perspective. Perspective, I would say that I would be rather, I would rather be a little higher, but but I also understand we have some struggles going on with the economy in general. And we've got to we've got to figure out how to get a handle on that.

Paul Yeager   Well, each time you know you're you're based in Kansas City company in Omaha, Ernie Goss is a frequent guest on our program. And he's long his survey head for the I'll say we'll go in the last year. Oh, whoa, is coming. And then just in the last three months things have kind of changed? Well, maybe it's not so bad. Is that accurate? What you're hearing from customers in your area?

Paul Schadegg   Yeah, I think I think there's a lot of that, you know, they, they want to talk about all the bad that's that's happening, whether it's economy or world events. But then if they step back, and and I just had a conversation with a gentleman yesterday about what interest rates were in the 70s and 80s, compared to today. I mean, they're cheap today compared to that. So it's all a matter of perspective and what you become used to. And I think that some people are pushed to that realization level, as you talked about with Ernie that you say, Whoa, wait a second, this may not be as bad as what we thought.

Paul Yeager   Is that do you think what's happening?

Paul Schadegg   I think there's a lot of that I see a lot of that, especially in the last six months to a year. Some people just kind of sit back about well, you know, if I compare if I truly compare a year over year comparison, it, it really probably isn't as bad as what we thought.

Paul Yeager   So again, the comparison and the perspective, we've pulled up our view, instead of in front of our face, we might be above the neighborhood with the drone, not yet quite up to 10,000 feet.

Paul Schadegg   Exactly. Yep.

Paul Yeager   All right, I'll ask you this to close. Paul. You say you get the question about the crystal ball. And we've talked about where, you know, a little more stable growth, maybe not that double digit. What's the healthiest scenario for land here in in the Green Belt? What's the perfect conditions to achieve that perfect growth rate?

Paul Schadegg   Well, I think that I like the fact that we have a healthy audience, I'll call it in, in where we're specifically talking land and land sales. I like the fact that there is a, an appetite for ag land, whether it's by operators, whether it's by investors. And I also like the fact that, that we have a very vibrant ag economy right now. And and I certainly want that to continue. So that that equilibrium, I mean, the when it's land prices go too high, that kind of is turns into a negative. And if we can keep that in equilibrium somewhere, maybe maybe it's going to be in this resetting of the normal land values. And, and keep that ag economy rolling. I think we'll we'll see some prosperity throughout that time period.

Paul Yeager   Oh, the chase of the word normal.

Paul Schadegg   Yes, that's, yeah. What is the new norm?

Paul Yeager   Right. Oh, gonna be the old normal. I mean, what was wrong with normal before? Right. Exactly. All right, Paul schattig. I appreciate your time. Thank you so much, and have fun at your meetings this week.

Paul Schadegg   All right. Appreciate it. Thanks. And anytime.

Paul Yeager   My thanks to Paul Schadegg from Farmers National Company based in Omaha, Nebraska. New episodes each and every Tuesday. If you have feedback for me, or the show, send an email to Market to Market @ Iowa PBS.org. We thank you if you've made it this far. We say Have a great day.