Flat isn’t always best in Land.

Okay I am from Clayton County, I didn’t know what straight head rows or fields that didn’t have curves and elevation changes in them were until I moved to Bremer Co as a junior high student. Renewable rocks as a practice management issue were also a new thing but that is a different story for a different day. I was also under the impression flat land was good land. However, when land is flat in price, that is not so pretty.
The last Chicago Fed letter indicated that land prices in the Midwest have not moved in the last quarter. What has moved is inflation. Compared to last year, land value is down 3.7%. It hasn’t been that bad in a decade. I have often times talked about land prices in Iowa since 1850 as being an elevated alligator tail. Generally going up, but depending on the bumps on the tail, you see a decrease before it increases again. The gap between those bumps is the issue. Factor in that transmission lines, solar easements, data center 1031 exchange backed purchases and other non farm operating factors and perhaps the loss would have been more pronounced. Few lenders see increase in farm land sales and many predict stagnation.
Who cares? The banker that lends you operating money, the input sales person and the school that wants you to donate to the new lacrosse field . $10,000 last year versus $10,000 with 3.7% inflation buys less stuff. That means your asset base isn’t covering what inputs it might have been covering previously. Operating loans averaged over 7%, and real estate loans for all farm operations averaged 6.79%.
Reporting indicates that the highest number of stressed farm loans since 2020. Lenders are reporting steady to dropping repayment rates. Many loans are getting extended and renewed rather than paid down but the demands for dollars to operate remain steady to increasing and lenders report less dollars to sell to customers. New Iron, new tin, and new dirt loans are likely to be trending down.
So the days of machine sheds, concrete, grain legs and shinier paint , despite the aggressive tax policies of Washington, may be slipping away and yielding to discussions about per head, average production, and whether you need to buy all that input from your favorite supplier when an alternative input is available from a supplier that maybe doesn’t visit as often, give freebies, or have name recognition.
Farm Operators that are prepared to discuss the details of their operations are far more likely to get access to reluctant lenders’ limited supply of loan capital when compared to those who have always just done things the way the elder generation did and pray for the dice to come up doubles.