Land holds on to value despite economic challenges - Tom Schutter #907

Land values. Land sales. How many sales? What's happening in this land market right now? It's time to have another conversation about the dirt. You know they're not making any more of it. We seem to have a conversation about it quite a bit, and this week is no exception. Hello everybody. I'm Paul Yeager, this is the MTM podcast, a production of Iowa PBS and the Market to Market TV program. Farmers National Company has talked to us many times about land values. Who's buying? Where are they buying. What's the latest trend. And we're going to do it again today. Because if you watched our market to market show over the 4th of July holiday, you heard Ernie Goss talk about land sales values. And we've had other conversations with farmers who are saying the same thing, that they're saying that prices are maybe a little bit lower, but there is still buying. We're going to find out a little bit of perspective from Farmers National today. Tom Schutter is the area sales manager, and he is going to give us a good perspective from Minnesota through Iowa into Missouri, a little bit of Nebraska thrown in for good measure. We'll talk about what is selling, how things are moving and how there is a little bit of changes.  And we'll also get his slide for his presentation that he would give in three months about where we're headed. So we'll look back, we'll look current and we'll look forward here. Here's this new episode, which by the way, they all come out on Tuesday in audio and video for North Iowa. When you say Titonka, of course I know where Titonka is. Where did that catch you off guard? A little bit it did.

[Tom Schutter] There's only about 400 people in that town, so, yeah, it's not too many people that actually know where it's at. So. Yeah.

[Yeager] And you're close to the home area there.

[Schutter] My wife and I, we moved about 45 minutes away, a little town called Garner by Clear Lake there on Highway 18. So we really liked staying close, but, a little bit farther. So, yeah.

[Yeager] North Iowa has, special place in my heart. I started my broadcasting career up there. Still plenty of good friends. As we were talking about, what I learned about that land, that's actually. I will say this, Thomas, I must admit, one of the farmers south of Garner was the one who taught me the first phrase. Rain makes green.

[Yeager] One of the Greiner guys.

[Schutter] Is it really? Yeah yeah yeah yeah yeah. Greiman. Yes. I mean, there's a lot of Greiman around Garner. 

[Yeager] I later found that out. Just how many there were.

[Schutter] Too big family. Yeah.

[Yeager] What's your background in agriculture?

[Schutter] So I grew up on a small family farm like we talked about by Titonka, graduated from Woden, Crystal Lake. Titonka, and then went on to Iowa State and four year degree in business with a minor in animal science and started right out of college with Farmers National Company. So, was heavily involved in the family farm growing up and, and married, my high school sweetheart, who also grew up on a family farm.

[Schutter] So we've been very connected to agriculture throughout. 

[Yeager] And you’re still trying to do a little farming on the side or.

[Schutter] We scratch the edge on the weekends. Yep. For weekend warriors. But, have a few stock cows and getting our kids involved in 4H and that sort of thing. So yeah.

[Yeager] And you're out there having conversations, with Farmers National. I mean, it's a company, with, with hooks in a lot of places. What's the main day to day job for you there with Farmers National?

[Schutter] Yeah, my role as, as area sales manager is to, assist the agents in Iowa and, really help with the flow of information from the client, whether that be a, a new farm sign up or a, real estate process. So a lot of farm sales, that's typically our heavy volume. The farm management, that's more seasonal, you know, the new business, but just interacting with clients and representing however we need to represent throughout the state.

[Yeager] And how long have you been with the company then?

[Schutter] This is my ninth year with the Farmers National.

[Yeager] That'll give me a good sense for this next question. Where are we? Where have we been? Not in the last year, but in the last three months, as like, let's or a four month, we'll go a quarter, okay. 3 to 4 month quarter period. How does this one compare in the last year and the last five years for number of farm sales?

[Schutter] So in the last year, if we're just looking at this small piece in the last comparing it to last year, we're actually fairly consistent as far as volume goes with sales. if we look back probably three years, I'd say we're a little bit lighter. Those 2021, 2022, those were heavy sale years. If you remember, we saw this large spike. And, if you were looking to sell, that was the time. And a lot of people jumped on that bandwagon. And so I'd say we're relatively flat. I thought we would probably be a little bit lower, than we are, but I'd say we're consistent from a year ago, just in this last three month period.

[Yeager] Is that you make it sound like just a little surprising to you. Why?

[Schutter] I think everybody is feeling like there should be this drop in land prices. Right? This is going to end at some point, and we just keep waiting and, and it's been resilient. There's been this plateau in there that's this base that, you know, lands a valuable asset. And people want it. I mean, the demand is is strong and 

[Yeager] Yeah. Is your territory just north Iowa or do you also have some Minnesota in there too?

[Schutter] We do get up kind of. It's called southern Minnesota. Seems like a long ways to the Twin Cities, but it covers most of southern Minnesota and then all the way down to the Missouri border in Iowa.

[Yeager] So is what you've said consistent for all three of those portions, the Minnesota, the Iowa and Missouri?

[Schutter] Yep. I'm talking in general about the region. you know, there are pockets that are hotter than, than others and, and more active than others. But I would say consistent from year to year. Yeah.

[Yeager] Have those places that are hotter been hotter or are they new to the game being the hot spot?

[Schutter] Oh, that's a good question. I'm thinking about I think they come and go. I think you'll see an area that that'll pop up. And then all of a sudden, you know, two or 3 or 4 farms will sell in a township and, and then you'll move maybe to a different region. Yeah.

[Yeager] And I, you know, there's a whole reason that that prompted this idea is I had a conversation with a couple of farmers who'd heard, you know, how the farmer talk goes, that they had seen less bidders for some land and they'd actually seen some prices go down. Is that consistent with anything you're hearing?

[Schutter] But I'm not saying there isn't 1 or 2 out there, but absolutely less bidders and, very selective bidders.

[Yeager] Selective are as a seller, you want 2 to 5 bidders in the room.

[Schutter] Yep.

[Yeager] Because it kind of pushes the price. But if you're the buyer you don't want the 2 to 5 in the room. Right. Is either side winning right now in trying to capture some land.

[Schutter] If, if I'm a buyer. Right. I want minimum exposure. I want you to know, I want probably a private sale so I can control some of the terms. as a seller, I think the auction method, if you have a high quality piece, is still probably going to give you the edge, because there is a great demand for that. And so that's where we're seeing that type of sale, whether it's a listing or an auction, maybe a sale bid, based on your goals, if, if you're trying to sell, which we're typically working for the seller, we're trying to identify which method would give you the best success.

[Yeager] I'm not asking to give the store away, but are you doing more sealed bids or auction bids right now?

[Schutter] Actually, we prefer the auction method. I think it's, transparent. It's, you know, very indicative of the market today. And if you've got a high piece, high quality piece, it's just managing those expectations, right? We're coming off of, some of the highest price land that we've ever seen. And so identifying your farm specifically and looking at your piece, and where does that fit, you know, as far as regionally, and then boiling it down to the township and our local agents, who do we know that's looking and who is going to want to buy that? That's where we're trying to set you up for success. You know?

[Yeager] Sounds like maybe you're working a little harder than you had to, two years ago.

[Schutter] Absolutely. Yeah. 

[Yeager] Back to basics. you're having to make some phone calls and get people interested. Is that what you're saying?

[Schutter] Yes. We've had some young agents that started at at the right time. Right. And so they didn't have to learn this the hard way. Thankfully, I got in at a great time. I started in 2015, which was very, it mirrors what we're kind of moving into. Maybe you're the feeling that we got when we were coming off of those high years in 2012, 2013, 2014. We kind of started to see things drop. And then 15, 16, 17, 18 were pretty tough years. And the joke, the running joke was always time. Ever since we hired you, you know, land prices have gone down and cash rents have gone down. So, but it was great for me to learn in that situation and have those conversations with folks and, and just being honest and having integrity is, number one, when you're dealing with difficult conversations.

[Yeager] And then in the last couple of years, they've been able to remember your name and keep you on the, because things are better just right.

[Schutter] That's right.

[Yeager] All right. Let's go into the type of buyer right now. are we seeing a person that is expanding that's already large, maybe somebody that's under 500 acre trying to get to a mid-level, or you see that beginning farmer having a better chance right now at bidding and succeeding.

[Schutter] I think I think the opposite ends of the spectrum. And there are as many operators as there is out there, as many potential land buyers. There's that many stories and that many different, Opportunities are buying power that goes with that. and so I think there's an opportunity for those folks with cash, right. As cash is king. And that's who were honestly seeing at the end of the day, purchased in a lot of these auction type properties. Is, is the folks with cash back just because borrowed money is, you know, seven, 8% in a lot of cases. And the economics just don't support the long term financing for that for a lot of ground, you know, maybe one piece, maybe one quarter for an operation, but to stretch it farther than that is difficult. And then on the last stand, there is some some subsidies available for those beginning farmers. So if we can get a small enough piece together for them, you know, a 40 acre, maybe 60 at the most, they have an opportunity now to compete as we're almost above that middle range guy. If the piece is small enough, does that make sense?

[Yeager] Yeah it does. It totally does. And yeah, for two reasons. Because cash is still king, which is what we've heard through all of this. And I'm not an economist, don't even play one on TV. But I've seen enough of these stories to and heard those that don't have to borrow. We're the one still buying in the last 2 to 3 years, that still pretty true?

[Schutter] Yep. I agree, I agree.

[Yeager] And then what about the aged? And traditionally those who are of a certain they're of a certain age that are in that situation, maybe that over 65, 70, is that still the demographic that has the cash?

[Schutter] I wouldn't say necessarily. I would say that might have transitioned a little bit lower, especially in the last few years where you saw maybe that generation exit or this, this new. I would say 50 to 65. It was maybe where I would move that if I had to just go with my gut.

[Yeager] But well, and that's going to help in then if that's the case. Because again, conversation with farmers who are extremely worried of those that are buying land that are over 75, that what could happen in 10 to 20 years is this crazy amount of land that might come on the market. If there's not a family or a family trust situation, or a succession plan that could cause this major cascading event down the road. And I don't need to get into that right now, but that is giving me a reason to think that maybe we are in a little better situation in diversifying who's buying.

[Schutter] I think so, I think so, I think we always look at the worst case and say, you know, okay, if this happens, how are we going to respond and what's the market going to look like? But yeah, it's you're absolutely right. The picture is probably a little bit better than the worst case painted. Yeah.

[Yeager] What are you hearing from I mean we talked a little bit about the lending class. those are those that are trying to borrow to, to pay. Are they still able to be in the room and just having difficult conversations, or are they kind of hamstrung by that 7%, that's hanging over their head on what it's going to cost them to borrow?

[Schutter] No, I think I think, operators and lenders have pretty good working relationships in general. I think, you know, the farm crisis of the 80s is still in the back of everybody's mind. So I think these relationships just get built, you know, in good times. And so when we look at times like this where, you know, interest is up a little bit, historically it's still not, you know, outlandish, it's it's probably where it needs to be in the short term. But, there's a lot more conversation that goes back and forth between a lender and a, and an operator than, than, I think happened, you know, 30 years ago. So I don't see them being hamstrung or feel like the, you know, maybe feel beholden to, okay, this is all I can bid because, you know, so and so we'll only do this. I think there's a back and forth conversation and, and it's it's deeper than that. I think guys are cautious and selective with the ground that they're buying. 

[Yeager] Well now the next question I wanted to go to is where are they from? because there's always that, oh, if this 40 or 180 or what two whatever the next to me opens up, I'm buying it no matter what. Are we still getting pretty darn close to neighbors buying neighbor property? Or are we at a point where they're coming from 60 miles away?

[Schutter] I would say that's very area specific in some areas, 100%. Right. I'd say your your next door neighbor or within a five mile radius. Your buyer is probably in that circle. there are areas, pockets that are not as aggressive. And so if, if that starts to happen and you have a more aggressive area, maybe 30 miles away, you'll start to see these guys move in and buy that. It's a better value buy for them. Right. So they'll start to move in and and with trucks and and large equipment these days, they'll, they'll go a long ways to farm.

[Yeager] So and in some case they're okay with a little geographic diversity for weather situations.

[Schutter] This year is is case in point right. I mean wow 180 to the next or one county to the next is amazingly different. And especially up here in northern Iowa. And you don't have to go very far west of here, but just severely, I mean, devastate it in a lot of places that, you know, you talk about land values and buying power. That's a whole different conversation when you're totally wiped out like that.

[Yeager] So, yeah, we don't have to go very far from you, to get to Blue Earth and to Mankato. And in that area, that's that's what, 40 minutes straight north. You're very close to it.

[Schutter] Yeah, yeah. Oh, yeah. Heart goes out to those people that that lost everything and and feel absolutely terrible for them. I mean, the crops aside and the land aside, you know, the homes and businesses and, yeah, it's a sad, sad thing.

[Yeager] in the last a lot of your answers are they within, are they holding true in the last year or have they switched in the last three months.

[Schutter] As far.

[Yeager] As demographic breakdowns where people are buying from, has any of that shifted? Is there any of those columns that we talk about where someone's from buying cash, buying the neighbors? I mean, has any of that changed dramatically here, in the last three months or a year?

[Schutter] I will say yes, in the last, I'm going to go even shorter than that. I'm going to say in the last month and a half, we've seen our, our winning bidders at auction or the guys that are buying right now. I'm going to call them local investors. guys with other businesses that like to invest in land, you know, trucking companies, other other businesses that have done well in the past and, and they like owning land. And so now is an opportunity. And you've seen those guys get fairly aggressive in the short term. I think it'll come back. I think it'll I think that broader picture will come back and that your local owner operator is still going to probably win out in the long run because he has the best opportunity to make profit on that acre.

[Yeager] In the commodities market, we call that the speculator, the outside money that puts money into the market, that those on the ground dried because they think it. It doesn't help them, but it really does help them because, for sure, the seller because it pushes up and it gets them a sale that might be 2 to 12% higher than they were going to get.

[Schutter] Oh yeah. Yep, yep. And in case in point, you know, we've seen $2,000 an acre difference between two pieces of ground because of that exact guy. You know, that speculator coming in and pushing those prices higher.

[Yeager] All right. Let's talk prices for a little bit. last year about this time, we started hearing rumblings of some ridiculously high price per acre. This is more in northwest Iowa. okay. 30 was the was the one that grabbed the headlines. Yep, yep. Any of those around you, are those still in existence?

[Schutter] You know, we've seen just last week we sold some $15,000 acre ground, we thought that was pretty good for the time. I mean, case in point, we sold 160 acres in Calhoun County, brought 15 seven, another 60 acres in Calhoun, about 15 five. And so we're still seeing strong prices. You know, 20,000 is a big number. And even if you're in some of those really hot areas, you know, northwest Iowa, or you had maybe Grundy County and eastern Iowa, that seems to be a threshold that guys are going to get very, very selective of at those numbers. Not saying that it's not attainable, but, you got to have the right the right piece.

[Yeager] Are you seeing marginal less marginal land less let's say 10 to 12,000. is that still attractive to people to buy, maybe overpay at that? just to get land or off those days? That ship sailed.

[Schutter] Not forever. I do think that ship generally has sailed, especially on the marginal pieces. We saw it this year in northern Iowa. I'll. Yeah, talk there in southern Minnesota. That's where your wet spots really showed up again. You know, the last few years they've been masked. Now in southern Iowa, I don't know if you've been down there driven across highway 34. I was amazed at their crops. They look absolutely beautiful. pretty much all the way across. And so is some of that land as it transitions. I know we sold some Mills County Farms that sold really, really well. 12,000 611,900 for some of that land. And, and that was well above expectations. And so I do think in certain areas based on the economics. Right, it all boils down to the profitability on that acre and the specific, the specific opportunity.

[Yeager] Now you get to look into the crystal ball, not so much on what's happened in the past, what's going to be a bigger driver for those at your sales in the next six months? Is it going to be interest rates or is it going to be what you just said, the cost to, produce that bushel?

[Schutter] I, I think in general, it's going to be the profitability of that acre, I think from one area to the next. You know, there is so much variability, and I think there's going to be a lot of variability in yield this year. That's going to be a big driver locally. whether you're impacted by some sort of disaster, there's a lot of hail, a lot of wind, a lot of flooding, those sorts of things. So there's going to be some insurance checks that are coming that are going to impact those local profitability. But at the end of the day, it's going to boil down to the economics and where's my money? Best, best served. Right.

[Yeager] That being said, when you look at prices that are flirting with below for corn below ten for soybeans, does that, yeah. Make you shake your head a little?

[Schutter] Yeah. Those are tough numbers to swallow. Right. And, as much as a farmer is negative right now, right. We think that we're going to be negative. I just told this highway 34 looks good. I talked to several folks. It sounds like the eastern corn Belt looks very well. so we're right. The crop has always gone three times before we get it in and barn. But, you're absolutely right. I mean, the farmer has to be optimistic, though, to in order to be in business. And I think, the short term. Yeah, the grain prices do not, do not help, hold these land values steady. The demand is going to come from, you know, the again, the, the long term viability and the stability of the asset.

[Yeager] It could be that more of your business in the next 6 to 18 months is going to be less planned sales, whether it's, not so much a family that says we're done, it's somebody who is maybe out of business. I'm not saying that farmers are going to go out of business. That's not what I'm trying to say. But there could be some situations where a bank says, I just can't extend you anymore. You're going to have to drive, divest of some of these. These holdings.

[Schutter] Yeah, Paul, you're absolutely right. And we're already seeing it unfortunately. Or we're already seeing some of that. We have a lot of private listings or what we call quiet listings where there's there's opportunities for investors to come in and purchase some of these acres or rent them back then to the, to the operator. and that's how it kind of starts. Is that, hey, I'd like to hang onto this land and rent it back, but a lot of those, it's got to fit for both parties, right? It's got to be good for you and it's got to be good for me as the investor and the operator. And so trying to find a balance is, is the first part. But usually there's a stretched, stressed situation that's pushing that. 

[Yeager] Are we to the highest you've seen in nine years. That type of listing?

[Schutter] Boy that's a good question. I would say.

[Yeager] No, it's hard and I know it's hard to I know it's hard to quantify because you don't really list that on the sheet. But you're saying.

[Schutter] Right. I would say no. I would say we saw a lot more of it trying to happen in 15, 16, more than we are today. Not saying they can't get there, but I would say there is a lot of stressed accounts back in 15, 16 as well. Yeah.

[Yeager] But when you say and you've said it already, 15 and 16 were tough times. That's coming off of 2014, which is what a lot of people are comparing the commodity markets of 2024 to right now. Correct. I make you stand up differently in your chair or you already knew that. Correct?

[Schutter] No, I, tend to agree. I mean, history doesn't, I've always heard it doesn't repeat itself. It rhymes, you know, it's close. And so yes, it's definitely looking like it could be the transition year. And I think when you talk about commodity prices down from where they were a year ago, there's going to be a lot of, conversations this fall about cash, rent, leases. And, that September 1st deadline is going to make people make a lot of decisions. I guess this fall.

[Yeager] Sometimes cash rent situations as somebody, a family who holds some land that might be three states away or in town 100 miles away and they see large, they see these $30,000, $25,000 sales. Are they see these rents that are that high. how do you battle that and engage in a conversation to help both the owner and as a farm manager side of things, and then also a potential, operator.

[Schutter] So now we're putting our manager hat on. Right. Okay. So we're going to balance the leasing discussion. really education and just being in constant communication will help hopefully. I hope if they have the best farm in the county and it's legitimately worth 30,000, and I think that I'm going to tell them. But if it's not, I got to tell them to write and tell them. Nobody likes to hear that their farm is not the best one. But we got to be realistic, too, about our expectations.

[Yeager] And that goes on the rent side too, not just on the sales side.

[Schutter] Absolutely. Yep. Yeah, absolutely.

[Yeager] Do that conversation with someone who's how do you help them understand what the current situation is in agriculture? As a landowner, if they're absent or a little, maybe less involved than maybe the people that they inherited the land from?

[Schutter] Yeah. It's tough. It's tough. If you didn't if you weren't directly connected. It is hard and it's an intricate business. And there's a lot of things that go into the profitability of the acre. You know, there's a lot of pieces that go into that puzzle. Think about every line item expense on your on your schedule. F you know, there's a lot that goes in to and on the income side as well. Right. With all the different programs out there, there's a lot of different things feeding in. It's it's not just, you know, yield and price.

[Yeager] All right. You're supposed to headline a speaker's bureau in three months. What's going to be your headline? What's going to be your lead slide?

[Schutter] Cash, I want to use variability, but I would like to pick a bigger word than that. But I'm going to say variable. I think there's, there's going to be the haves and the have nots, and there's going to be areas that are really doing well and, and profitable. And then there's going to be areas that were better, not so much. There's going to be people, you know, neighbors. One guy is, you know, if you have a lot of cash right now, cash is king and interest is good. And things are great. but then there's the guy that has to be on the flip side of that. So I think it's going to be highly variable but also flush with opportunity. That's that's one thing in this market there is going to be a lot of opportunities, whether you're buying or selling. that's one thing I think this fall is going to is going to give to people.

[Yeager] That's a good way to end, with that, I think, I won't put you on the spot anymore, Thomas, because I think I, didn't mean to spin you around there a couple of times, but you bring something up, I just have no.

[Schutter] I, I, I enjoy it, I appreciate, I appreciate it. 

[Yeager] All right, Thomas, thank you so very much. Appreciate your time.

[Schutter] Thank you.

[Yeager] This is a production of Iowa PBS on the Market to Market TV Show. Production assistance comes from the following. The supervisor is Chad Aubrey. Sean Ingrassia, Kevin Rivers, David Feingold, Julie Knutson, and Neil Kyer are the technicians that help make this thing sound better. And we also appreciate the support of the boss, David Miller, executive producer of the TV show. I'm Paul Yeager, your host and editor and producer. I guess I do a couple of things. We'll see you next time on the pod. Bye bye.