Optimism emerges amid shifting buyer behaviors and government support in farmland market - Tom Schutter

 

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Hello, everyone. I'm Paul Yeager. This is the MtoM podcast to production of Iowa PBS and the Market to Market TV show, land values, land prices, land sales, always an interesting topic for us on the program, and especially here in the podcast. As we expand our knowledge base of what's happening now, we bring in a guest from before, Thomas Schutter from Farmers National Company. He's going to give us a good picture of North Iowa, southern Minnesota. We're going to talk about South Dakota, Wisconsin, as well as a little bit of Nebraska and Kansas. In this discussion, we're going to talk about who's buying who's selling. What's motivating is cash still king, all those great questions that are happening. And if you have something you want me to know about, send me an email at Paul dot Yeager at Iowa pbs.org new episodes of this podcast come out each and every Tuesday. Every Tuesday. Let's get to it. To Thomas,

Cold morning today. Does it ever make you question your sanity when you have to go out, when it's, you know, below zero?

Tom Schutter: It does. It does, but, yeah, the cattle, bellering in the in the lot, kind of reinforce the fact that you have to So, yeah, 

Paul Yeager: I think there were always land price stories when I first started there at the station down the road from where you are. That was one of those first lessons of you got to go out and shoot because it's really cold somewhere, and I just like, Oh, it's a land value story. You got to go out and get pictures of the land. But it always seemed to be the wind was blowing or the snow was falling when we went out to get pictures. Do you ever have to go out? And was that ever part of your background? Thomas of like you had to do the land prep and get the picture and get some schematics of land. 

Tom Schutter: So that's it's it's number one. And even when we're valuing a property and looking at comparable sales, and you think you might know a value range, I still force our agents to say, okay, I think we know where it's at. But Go get your eyes on it, because inevitably, there's something out there that you know, screams out and says, Hey, you know, maybe, maybe this isn't quite what it looks like on paper from an aerial view. And so we don't ever do any, any market analysis without it, just because of that fact, there's always something, you know,

Paul Yeager: There's always something with a property. It's like, I think, the old Candlestick Park in San Francisco, where the Giants and the 49ers used to play. They always said, Why is it so cold there? They said, Well, the one day they went to go look at the property, it was the most calm day in the San Francisco Bay ever. And they didn't and no, everybody's like, Do you know how cold it is there? It doesn't matter to you on on farm, grand farm ground, how cold it is, right?

Tom Schutter: No, no, no, as long as the weather will change. That's, yeah, that's what we know about Iowa. It's, it's the weather will change so well, what do

Paul Yeager: What do we know about the report here that was just issued at the first of the year?

Tom Schutter: You know, overall, we're looking back at the last, usually six months when these come out. And so we're, we're kind of looking at that August to December time frame. And if you remember back to August, you know there was a lot of uncertainty. There's a lot of big crop coming. I know that's been adjusted since, but it was dry the back half of the year, and we had a lot of strong bushels out there, what we thought, with the exception of north central Iowa. And so that was really apprehensive going into the fall with depressed grain prices, because we were, where are these land values going to shake out now that these grain prices have fallen like they have, and so there's a lot of uncertainty going into harvest. After harvest, though, I think we really settled into that buyer and seller kind of coming together. I'd say we were maybe falling off ahead of harvest, but after harvest, it felt like expectations were in line with where the market was at and there was the new sense of optimism too from buyers after harvest. And so to recap, the kind of whole it was two different stories on either side of of harvest this year.

Paul Yeager: Do you get the sense when I, when you say buyers, you know, kind of had a realization that the price needed to fall, or that, yeah, no, we need the land, therefore I do need to pay what the price is right now? 

Tom Schutter: Yeah, ahead again, ahead of harvest, I would say a lot of apprehension, right with the depressed grain prices that's on top of mind. Do we have the bushels that we think we do out there just a lot of uncertainty after harvest. We can check a lot of those boxes. We can check some of that uncertainty off. And so I think that's where you saw that. Okay, I know where I'm at from the buyer side. They were willing to or they were able to remove some of that uncertainty and replace it with bushels. In a lot of cases, you know, they a lot of areas, even though, with this depressed grain prices, they did bushel out in some cases, so.

Paul Yeager: We knew at the time we talked last that, you know, heavy rains had fallen a little bit, you know, a couple 100 miles or two away from you, to the north and west, and then straight West. But did that? Is that always a cycle? Because, I mean, that happens, there's always going to be a spot where a washout happens, or a drought happens, or some other thing we don't know about. So, I mean, that's just kind of, I hate to use the old cliche, baked into the market, isn't it? 

Tom Schutter: It is in a lot of cases, and especially where I'm from here, it's Prairie Pothole region. There's a lot of drowned out areas. But this year was over and above. I would say the baked in average this year was, you know, in some cases, you know, 14 inches in 24 hours. You know, just unheard of weather events that are catastrophic to some very localized areas, like you said, if you back out a ways, you know, still very big crop this year, but, but for those little areas, they really got hit, hit hard.

Paul Yeager: Do you know anything about those areas in particular, about interest in selling land or buying land? 

Tom Schutter: Yeah, I would say this fall or in the last six months, those are the areas that saw the biggest probably change, just from a buyer's perspective, a lot of apprehension going into harvest. Lot of now, thankfully for crop insurance, there is some protection for these folks and and with the new, you know, Farm Bill continuation, with that 10 billion extra dollars coming to help with some disaster relief, these are the folks that really benefit from that, you know, because they need it. And so there are, you know, some price structures in there that will help them to compete. And like you said, land is scarce, and they're always going to be competition for that

Paul Yeager: We always talk about cycles. Is this a cycle like any other time in in the last 20 years, 30 years, is there another couple of years that line up with what's happening right now?

Tom Schutter: I personally believe that. But there's different dynamics too, with these, with the structures underneath that really give us a bottom probably faster than we've seen in the past. Maybe we learn from the past, or maybe we support agriculture in general, and people, people root for AG, and we need a strong ag economy. You know, in general, for the Midwest, it's good for everybody. 

Paul Yeager: What is it? History doesn't repeat itself, but it often rhymes. I think is something rhymes? Yeah, okay, that's right. You've heard that one good. I didn't want to get you a new Yeah. One of the things so cycles was, was something I wanted to talk about, but I also wanted to talk about the buyer who's buying right now?

Tom Schutter: A lot of local investors, I'll call them, you know, folks that have interest elsewhere than AG, but also are very focused in on buying farmland, maybe own quite a few acres themselves. Already. We see a lot of young farmers still with the beginning farmer programs being able to compete on some smaller tracts. We had two tracts outside of Algona here, just in the last month that sold over $15,000 an acre, which is pretty high for Kossuth County. But again, those were smaller tracts of land, and a lot more people could compete in that scenario. But overall, your farmer is still going to be probably the one with the most opportunity and we see a lot of farmers that are still winning out at auctions, but they're very selective, very selective. They're not wanting to drive 20 miles for 160 acres like they were two years ago. 

Paul Yeager: Something closer to home, not farther from home, just because it's land. Were they doing swaps? 

Tom Schutter: Yes.

Paul Yeager: Are they selling some of those 20 mile away plots and taking some of that money and finding land closer?

Tom Schutter: I'm glad you brought that up, because yes, I'd say the majority of our calls, especially recently, have been along those lines. Hey, there's this piece coming up next to. Me, I don't have the cash like I did two years ago to just buy it. What I'd like to do is trade some of this ground that's farther away and get closer to my operation, bring that in tighter. So 100% that's going on. 

Paul Yeager: Ok, I guess, not necessarily makes it local, but it's a lot more of a local discussion. And then when you go into the auction and you look around the room and you're like, yep, recognize, recognize, recognize, yep, yep, yep, those five in the room are people we all know, not necessarily. I've heard of this guy or gal from the next county over.

Tom Schutter: Right, right, right. 

Paul Yeager: Alright. Let's go back to the who the buyer is. And you mentioned cash. They didn't have the cash before. Are people still buying with cash? Or is that how they're doing it is with that swap?

Tom Schutter: There are some localized areas. I'd say it's very variable, right from one area to the to another. I'll extrapolate a little bit. He said, You know, before we talked, we were talking about some regional comments, and one comment I heard from our South Dakota broker Troy Swee, was that there's a piece north of Vermilion, South Dakota that still brought $12,000 this fall, which is as high as it's ever been. And he said, I grew up in that area. I know that area, and nothing sells there, you know, in a 10-20, mile radius. So there's an, there's a spot that, yes, it's still cash and still a lot of competition, just because of the, you know, the opportunity just hasn't been there for those folks. But if you get in some areas of Central Iowa, I'll pinpoint maybe Hardin County, for example, the ground has just turned over and over and over there in the last two years, there's been a lot of opportunities for those folks. And so we're not maybe seeing the prices hanging in there as much as as those cash buyers with without the same opportunity,

Paul Yeager: Are the buyers, active farmers, maybe retired farmers?

Tom Schutter: Yeah, retired farmers. I don't, I don't know about that one. I wouldn't put them in the same category. I would say farmers typically. And you know, a lot of retired farmers, it's really hard to say a farmer is retired, too, in general, right? They just kind of their role in the operation just changes. So, yeah. 

Paul Yeager: Well, the anecdote I had a couple of years ago that I probably even asked you this before, is that it's the 75 plus farmer who might not be as active, has some cash to will say burn or looking for an investment. Does that story still hold up?

Tom Schutter: Yes, if there's a second generation or another younger farmer coming into the operation, and they're looking out for their interests as well, right to continue the operation, you know, to invest in maybe tile or or invest in more land, something along those lines. Yeah,

Paul Yeager: All right, this one's always the hot one, and you can answer it or not, foreign buyers interested in Iowa farmland or Minnesota farmland right now from other countries?

Tom Schutter: So Iowa has laws against foreign ownership. And so we're really in a bubble, really compared to the outside influence, but in surrounding states, unfortunately, yes, there is some. It's a smaller percentage. We do a nice presentation at our company meetings about the amount of foreign ownership land in the United States. And it's, I think less than 1% is held by China, I believe. And most of the foreign ownership is actually in the Northeast. It's timberland owned by the Canadians, and so I think it is, but it's a hot button issue, like you said, it gets a lot of traction, and especially with what's going on with China right now. Yeah, nobody wants to see our defenses compromised in any way by that, you know.

Paul Yeager: And so that issue, I mean, and the only reason I bring it up, the legislative sessions are starting in states, and it's always something we hear about. There's going to be probably a discussion at the federal level again. So it is something you always, kind of, you always have to answer that question, don't you? 

Tom Schutter: Yeah, you do. And I think there's some new things out there. This, this new law about reporting the LLC, you know, breakdown of the makeup. I think that's part of it too. Is where, exactly, who owns this land, you know exactly I need to know the breakdown. And it's a lot of us that have to fill out these forms, we kind of, you know, mumble under our breath, but to know that that is some of the intent, helps get some buy in, too.

Paul Yeager: When there's a facts and figures and you do year-end reports and you look at sales, do, is there ever a, I'm sure you have a long term planning that goes on at the company and discuss, do you see a picture in five to 10 years of there is going to just be, you are going to be running paper on land like you've never done before, just because folks are going to age out and you're going to be a whole lot of sales going on? 

Tom Schutter: Yeah, no, it's funny. You bring that up. This is the week of our long range planning for our corporate team, so that's what they're working on right now. And we do see kind of the incorporation of AI being a part of this, believe it or not, you know, that's really transforming the market as far as comparable sales, as far as information that you can gather on a piece of land, I still go back to that first point we talked about and getting eyes on it. I really trust our people, and there's a piece of that that you just can't quite put into the machine yet, and so I still see us being a big player in the market, but it's gonna, it's gonna change drastically as far as the incorporation of that information along with our knowledge on the ground.

Paul Yeager: When you say us, you mean companies like Farmers National Company. That's what you mean when you

Tom Schutter: Farmers National I talk about Farmers National Company solely, but, yeah.

Paul Yeager: I didn't know if you were meaning just us as humans. When you talk about AI, that's why. But, but how does AI fit into this? Then they're doing analysis?

Tom Schutter: Analysis, and the amount of information that they can grab at, the speed is just astronomical, right? You and I can look up things, but it can do it so much faster and incorporated into reports. And, yeah, it's just a matter of, I think we're all trying to figure this out at the same time of, how do I incorporate this into my business? Every business is probably trying to do the same thing.

Paul Yeager: Does AI, I guess, who's running those computers? I mean, who's interested in running those algorithms to make it happen that they see an investment opportunity?

Tom Schutter: Oh, absolutely, especially larger fund buyers, and you know, those are probably the first to adopt, you know, the money managers of the world, this type of technology. But I think it'll be all of us, in some fashion, is to say, you know, tell me, tell me, what's better about this piece of ground than that piece of ground? What's this ground worth compared to that piece of ground? You know that that is simplistic of the idea at the base level.

Paul Yeager: Well, it goes back to what we talked about at the very beginning. When you say getting eyes on land, you can see a good 120 or 160 on a certain part of town, but the only way to get it is to go through town or the road to get there is terrible. Computer might not quite see that, but your broker does. Is that also part of the whole reason for the eyes and how you have that advantage.

Tom Schutter: Yes, yes. 100% 100%. 

Paul Yeager: I just wanted to make sure I'm, I'm following this. I mean, I might, I might not be the brightest person, Thomas.

Tom Schutter: No, no. That was, that was what I was trying to convey. Yeah, yeah, there's an element of this that's, that's human, right? Yeah, you you have to rely on this person's analysis and and, you know, expertise in the space,

Paul Yeager: Alright. So humans are when you have your shingle out, is one thing. But what about buyer-to-buyer? Farmer-to-farmer or widow to are those sales still happening? I mean, not necessarily clearing through a broker, but just having sales. Are you? I know you have to kind of keep track, because you got to go to the courthouse and look and see this exchange. It went from this family trust to this family trust. So I'm guessing, is that still happening? Do you have any sense of higher or lower than the average here in the last five years.

Tom Schutter: I'd say in line with average, but we do get more calls on, I would say, broker's price opinion. So a modified appraisal, quasi, if you will. You know what Tom, you know, I trust you as a broker. I trust you know your you know, insert Farmers, National Company agent name here. I trust this person because we live in the same community. I've known him my whole life. What do you think this piece of ground is worth? And here's the family situation that goes along with that. And so that's where we those family situations are usually driven by a life event in that we might be quasi involved, but maybe not exactly broke. The deal is that makes sense, but they're still out there. With every single life event comes these discussions, and especially around the holidays, right? That's when everybody gets together. And, okay, oh, grandma's farm was managed this way for a long time. Now, you know, she's getting older, so what's our plan? And, so maybe those discussions happen at Thanksgiving, Christmas, Easter, those times when they're getting together, so...

Paul Yeager: So family items and family situations are still motivating sellers right now. That hasn't changed. 

Tom Schutter: That hasn't changed. I call them life events. Yeah, something, something changes. Yep.

Paul Yeager: Is there other motivations of when corn drops below $5 and drops below $10 that someone just the I'm going to liquidate this because I need cash back

Tom Schutter: 100% we had a lot of those calls, I'd say, leading into harvest after harvest, a lot of lending institutions that sort of thing, to say, hey, I have an operator here that's on the edge, and he needs to sell an 80. I do think in a lot of cases, we busheled out, you know, especially in central Iowa and South and then this, the crop insurance helps, and then this new ten billion supplement will, I think, really help those folks that were struggling. Grain prices turned around. I haven't heard of as many calls in the last 30 days that I did, you know, three months prior, yeah.

Paul Yeager: Are  you hearing, I mean, the land value? I mean, it's that number that keeps going up, and the percentage always is making headlines and things like that. If you haven't sold into that, because you're chasing dollars, and I'm not talking necessarily a farmer owned piece of property, because you know what it's worth. But maybe those families, if you haven't sold in the last five years, chances are, unless there's some major, major event in the family, you're not picking up the phone to call you, right?

Tom Schutter: No, I would say a year ago, folks were feeling this change coming, and we're on the back side of the swing. Now I'm going to ride this as high as it'll go right. I'm going to sell my corner at the highest price. And now I feel it turning the corner. Now I want to make sure that I'm on the bandwagon. I think we've flushed through a lot of that. To your point, I think we're back to more of a cyclical life event type of transacting. Yeah. 

Paul Yeager: Okay, so somebody's not necessarily not as many people are chasing dollars. It's just as they maybe once were

Tom Schutter: Right, right, right. 

Paul Yeager: When averages are figured. I guess I just don't flat understand how this works. If there's not the large volume of acres turning over, does that? How does that compute when we say the average land value is this, or the land average sale price is this, how does all of that figure in if there's just not as much land moving

Tom Schutter: it makes it hard, especially in some localized areas where there isn't like, like Troy set up in South Dakota, you get some of these areas that just nothing has happened, sometimes very tightly held or very quietly transacted. It makes it harder to establish a value. And then you're pulling off of data that's maybe a year, year and a half old, and trying to extrapolate and make the adjustment for time, but it definitely makes it difficult in some areas. 

Paul Yeager: You mentioned your regional friends and co workers. You talked a little bit about South Dakota. Let's move over to Minnesota. What's happening there?

Tom Schutter: You know, it's Minnesota, Southern, Southwest Minnesota. They were really impacted by that rain early Central Minnesota, I'd say we're still seeing a lot of strong sales. There lot of lot of strong sales. Brecht ground seems to be holding its value too. And then there's a lot of specialty crops grown in Minnesota. Whether you get some peas or or you go up north, you go to sugar beets and that sort of industry, but more strength than I would have gathered compared to Iowa, more strength or more steadiness there.

Paul Yeager: And there are those buyers, again, fitting with the narrative that it's mostly local.

Tom Schutter: It is, yep, yep. I would, I would say that it's pretty typical for the region,

Paul Yeager: Okay, anything to the east of there, Wisconsin, Illinois, Indiana, that you're aware of yet?

Tom Schutter: You know, Wisconsin's a different animal. I saw in the Fed report that they were actually up. Up a little bit, which is, it's unique. It's a different area. I actually, there's a gentleman that just moved to our area, from Wisconsin, and there's a lot of dairy up there. It's a different market than Iowa. So I'd say their tillable ground doesn't compute one to one, where there's a lot of integration in that, in those operations. It was funny. This is just coming to me, but his first comment about Iowa, he says, is always this windy, you know, and the fact that it, I hadn't really thought about that, but, you know, and we do have a lot of windmills in Iowa, and that that's, that's a piece of it too. So I didn't mean to get off track, but it was just when you said Wisconsin, that's what I thought of. 

Paul Yeager: No, it's all fair. And again, all part of the story and the work and the diligence that that, yeah, I have to do, and to understand how locations work, and how what motivates sellers and understand buyers and how they're thinking. I mean, I would imagine that just allows you to do your job better when you understand

Tom Schutter: As far as that goes, I can, I can comment a little bit about the southwest territory. I talked to Steve Morgan, who's, who's our area sales manager in Kansas, in Missouri, you know, they just got hit with a lot of snow there. He actually said his Brecht ground was selling as high or higher than ever. You know, a lot of the quasi pasture ground that is maybe hunting potential, but their tillable ground is suffering, you know, or it's come down from what it was in Nebraska. Cole Nickerson had a good comment on the 50-50, ground. He called it when you get about halfway across and starts turning into some upland pasture. The cattle guys are really making out right now. And he said, cattle have been great, and so those 50-50 farms are holding steady or higher than they were two years ago. He said, I haven't seen it on the pasture land, just straight pasture, just because our cattle numbers are down. But, but those 50-50 farms are worth it right now. So that was interesting. That's something that I wouldn't have come up with in Iowa. Yeah. 

Paul Yeager: Well in, in the cattle, yeah, you mentioned the cattle prices. I mean, they have continued to be, you know, seems like a record gets printed every week, or every two weeks, or something in there. So there is some cash, maybe not necessarily in the inventory of the animal, but they're looking for a place to put. They're looking for a place to put the animal? 

Tom Schutter: Yes

Paul Yeager: So that's, that's the areas there, Missouri. Anything changing there? I mean, that's a pasture and lots of different crops too. 

Tom Schutter: We've saw a lot of the same in Iowa, I would extrapolate Iowa down to Missouri. We did have some larger sales there this fall for one family that was tied into both Iowa, Kansas and Missouri. And we were able to, you know, successfully sell all their farms across those areas. But they did, you know, suffer on some of those highly tillable farms, I will say they commanded a high rent. Guys were willing to rent them, but it just didn't seem like the they were seeing the same opportunity on the buying side.

Paul Yeager: There's one phrase you though you haven't mentioned at all, Tom and that's interest rates. Where's that in this discussion right now,

Tom Schutter: You know, I think it's been priced in, or I think it's baked in to your comment of the, you know, normal, drowned out areas in north central Iowa, it's baked in a little bit. People are comfortable, and they've been settled, you know, at this level. And so I think most people are, you know, checking that box as not that variable in the short term. And so I'm going to consider that off of my, How do I want to say it? You know, when you don't know something in the future, We don't. Nobody knows they're they're Considering that constant in the short term. Yeah.

Paul Yeager: I mean, that's it is an unknown. We just There you go. That's the word. Yeah, that's fine. When who loses? When land values fall,

Tom Schutter: The landowners, a, right? I have this valuable asset that, over time, has increased in value, and it's it's scarce, right? We're not making any more of it when we see a backup in land values, landowners lose number one, and it trickles down from there. So no every. Everybody, everybody buys in, wanting that appreciation.

Paul Yeager: Because then there's, there's going to be less if it's not an appraisal and sale, are two different numbers. And what the county appraises the land for taxable valuation, is different. But the farmer who's buying it, don't they benefit a little bit when that maybe that price comes down a percent or two.

Tom Schutter: He may. But you gotta think about his balance sheet too, right? He probably has a land base there that's now also moving down. As a banker, you see that? And maybe you're not as willing to lend money on that piece of ground as you were if it was up here, and so, yeah, I don't see it as a positive when we're when we're moving backwards, but it we go through these cycles and land changes hands either way. It doesn't care if it's going up or down. It moves

Paul Yeager: Well, it's, like a farmer input. You mentioned balance sheets. I mean, they're always talking about, you know, when are we ever going to see inputs go down? And if it doesn't sound like cash, rents are going down from what you said there earlier, and if the price of land isn't falling fast, now, granted, that's not always a cost, but it's still in the equation.

Tom Schutter: Yeah, oh, 100% it's in the equation. Yeah. 

Paul Yeager: Okay, as we look wrap up here, 2025, you can't predict, but you can guess. You said the bosses are planning some strategies, things right now. What can you tell us about what to kind of expect here? 

Tom Schutter: You know, I think there's a little sense of optimism. I think we're probably too hard on ourselves when we try to be too honest with folks about values. You know, we really never like to extrapolate and say, Oh yeah, we can get you $20,000 an acre. You know, we want to be honest with people. But I think there is some optimism in the market. You know, today too, we just had a grain sale for corn, and we'd have seen a little rally there. I think, just speaking with folks that they're excited about, obviously, this new government program, this this 10 billion that's going to help the subsidy market, and then just the normal flow. We usually see more sales here before spring. Maybe they're leased. Maybe they're not yet, but I do think there's going to be a lot of opportunities in real estate this year in 25.

Paul Yeager: We're probably going to have to have another conversation. You keep doing stuff like that saying you can't leave me hanging. We're going to have to talk again this summer and see how things go.

Tom Schutter: Well, I'd like that. Yeah, I appreciate it. Paul, put

Paul Yeager: it just pencil me in. We'll talk in July. All right, Thomas, great to see you again. Thank you for the time.

Tom Schutter: Thank you, Paul. Have a great one.

Paul Yeager: If you have feedback for me, send it in an email MarkettoMarket@Iowa.PBS.org. New episodes of this podcast come out each and every Tuesday. You never know what we're gonna put on the back of the next one might be one of those fun behind the scenes episodes we'll talk to you next time you.