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6 staff members and auctioneers have earned at least masters degrees. Our head appraiser holds a PhD.
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In the spring of 2006, we were very concerned about the farmers profit margins being squeezed by higher input costs, higher interest rates and lackluster commodity prices. Some economists and land specialists were predicting steady-to-lower land prices. The land market had already softened in certain areas.
During 2006 we have had a cooling of the housing market and a slowdown in residential lot sales and in residential construction resulting in fewer 1031 Exchange Buyers rolling out of land sold for development into the market for farmland.
The offset to soft housing factors came from roaring commodity markets in October when the USDA surprised most everyone with its crop projection estimates and forecast of projected carryover stocks. USDA lowered corn harvested acreage, lowered estimated yields and lowered crop carryover estimates. The U.S. corn ending stocks was lowered again in the January 2007 report. Combine these positive market reports with the media blitz on the increase in the construction of ethanol plants, and we have witnessed production agricultural land getting a shot in the arm throughout the Midwest.
In the current market, farmers are expanding their role as the dominant buyer force in the land market. Our Schrader sales reports on production agricultural land since September 2006 are indicating prices have moved up from 10% to 35% depending on quality and location of the land. Production land prices now reflect the stronger commodity prices for cash grain and the futures.
State by state markets vary and areas within each state vary as well. The location of ethanol plants is one new variable affecting local markets. The large number of ethanol plants in Iowa together with record yields has jumped the land prices in much of that state. Parts of Illinois had a huge bump in land prices prior to 2006 due to the affect of 1031 Exchange Buyers from the Chicagoland area. Many of these same areas in Illinois seem to be holding steady on land prices currently. In Michigan production agricultural land is steady-to-up 15% with some sales feeling the affect of fewer investors during the down cycle of the Michigan automotive industry. In Indiana and Ohio, the above average production land has seen prices increase in the 10% to 35% range.
We have purposely emphasized production land in earlier remarks. There is not necessarily the same price lift in the non-production land segments. When you study the land sales that have been attracting building site buyers and developers during this last 5-year run, prices of these land sales vary from steady to as much as 20% off of the highs.
High quality recreational and hunting land is still in strong demand, but marginal properties have lost some strength as the buyers with money have become more selective. Recreational properties that have in the past been supported by high-income employees from the U.S. automotive plants have taken a hit for obvious reasons, especially noticeable in Michigan. It takes income to support the hobbies, and as always, the location of the real estate continues to be very important.
Change is inevitable and we are witnessing some big changes in the land market.
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