Corn Belt offers ‘best entry point’ since 2010

The president of Halderman Real Estate and Farm Management tells Agri Investor that farmers are likely to be less aggressive buyers of Midwest farmland in the near term.

The challenged near-term outlook for corn and soybean producers provides the most attractive entry point for US Corn Belt farmland since the start of the decade, according to the president of Halderman Real Estate and Farm Management.

Howard Halderman, whose separately managed account service Halderman Real Asset Management merged with Hageman Group-backed US Agriculture last year, told Agri Investor that amid signals of improving sentiment on farmland values among producers that can be attributed at least in part to cultural factors, current market conditions constitute a “window of opportunity” during which farmers are likely to be less aggressive buyers in the market.

“Prices went up, it was very hot and we just wanted to stay out of that marketplace, which we did,” Halderman said. “We’ve come back in in the past year because we’ve seen values come back to what we think is a good foundational basis for a long-term appreciation.”

‘Trump bump’

Halderman explained that his firm uses software that divides the sale price of farms by the average productivity weighting of the farm’s soil to calculate a dollar-per-corn-bushel of soil rating. Using that measure, he said, the peak of the Indiana market came in early 2014 at $62 while this year has seen prices improve from the high 40s into the low 50s.

“Producers do feel better about the industry today,” he said. “They are feeling that way because what they are seeing in the marketplace are steady to stronger values than a year ago.”

Still, Halderman highlighted that strengthening sentiment among producers could also be partially attributed to factors other than developments in the underlying land markets.

The Purdue University/CME Group’s Ag Economy Barometer’s reading of producers’ expectations of the future, for example, had stayed between 89 and 121 (on a scale of 200) between October 2015 and October 2016, before jumping from 95 to 130 right after the US presidential election.

“There was nothing new in the marketplace to change producers’ sentiment, but for some reason it did. Call it the ‘Trump bump’ or whatever you want to,” Halderman said. “But in reality, is he going to be all that favorable to agriculture? Tearing up NAFTA might be beneficial to manufacturing, but it’s not going to be beneficial to ag, most likely.”

Ingrained optimism

Another important factor explaining stronger producer sentiment despite challenging market conditions, according to Halderman, is an optimism about the future among farmers that he called an “underlying, foundational part of agriculture that I think the institutional investor can’t miss.”

This underlying culture of optimism has the effect of removing a degree of volatility that might otherwise mark farmland markets, he said. It also encourages farmers, a group which Halderman labelled “bullish by nature,” to sometimes pay what may appear to be irrationally high prices for farmland.

“The institutional investor would say: ‘Why in the world would they accept a percent-and-a-half return?’,” Halderman said. “The reason they will take that is: Grandpa bought some land for $200 per acre and when they average it all together in their portfolio, the return is satisfactory to them.”