One in three lenders predict uptick in land sales

Almost one-third of agricultural lenders expected an increase in land sales during the second half of 2017, according to a survey by the American Bankers Association and Farmer Mac.

The survey – conducted in June, with a report analyzing its results released Tuesday – polled more than 580 agriculture loan officers, managers and executives from institutions with total assets ranging from less than $50 million to more than $5 billion.

The ABA and Farmer Mac wrote in the survey report that lenders reported that lowered land prices, reduced profitability and an aging customer base have all contributed to a lower volume of land sales in “the last few years.”

“Many lenders expect the number of transactions to pick up in the second half of 2017 compared to recent experience, particularly those lenders in the Plains region,” the report’s authors wrote. “In total, more than 30 percent of respondents anticipate a higher volume of land sales in their areas in the second half of 2017, compared to only 8 percent that expects land sales to slow.”

Jackson Takach, Farmer Mac’s director of economic and financial research and one of the report’s authors, told Agri Investor that the more than 30 percent finding was an average across lenders from four of the five regions examined in the report (the Northeast was excluded from regional-specific analysis due to a lack of valid responses) driven largely by the Plains states that stretch from North Dakota down to Texas.

Takach added that while almost 40 percent of respondents in those Plains states expected an increase in land sales during the second half of 2017, just 23 percent of respondents in the western states held the same expectation.

Red Reef Partners managing partner Suzanne Petrela told Agri Investor that the survey respondents’ June expectation of an uptick in land sales has been borne out by anecdotal evidence in the market during the months since.

Petrela oversees the assembly of US farmland for high-net-worth and institutional investors at Red Reef, which maintains close relationships with ag lenders, and said that seasonal factors play a role in driving land sale expectations, since farmers often wait until after their harvest to make decisions about what to do with their land. Thin and sometimes negative profit margins on row crops, Petrela said, could be encouraging some farmers approaching retirement age to accelerate their timelines in a way that has added momentum to some regional land markets.

Petrela stressed the degree to which conditions vary between – and even within – regions, saying that the link between farm profitability and proximity to end markets can be an important determinant of whether a farmer sells their land, citing certain regions that have higher farm level losses, creating more pressure to exit.

“You also have lenders who are no longer able to extend and have to take some corrective action to resolve and help borrowers address their non-performing loans,” she said. “We’re starting to see more transactions around that. We were wondering why it hadn’t happened sooner, because the deterioration in cash flow started years ago and it’s taken some time to work its way through, given equity reserves and record crop volumes that provided some cushion.”

For borrowers, Petrela said that the market conditions described in the ABA / Farmer Mac report present a challenge, but also a chance to work with their lenders to get themselves onto stronger footing. For investors, the “prolonged downturn” examined in the report could also create attractive entry opportunities, according to Petrela.

“It is creating more of a natural complementarity between the institutional investor and the farmer, where capital is needed and it can be provided in a challenging operating environment,” she said.