There are a number of reasons farmland will change hands over the next few years.
After seeing a windfall in agriculture prices in recent years, many young farmers who tried their hand in the unforgiving industry may have to move on to other ventures as the ag economy calms. For that same reason, many older farmers may also be thinking it is high time to call it a career as well.
On the other hand, one invaluable reason that some farms will remain operational over the next few challenging years will be the wisdom of that older generation, who wouldn’t wish what they had to endure in the mid 1980’s on their worst enemy.
For Niese Farms in Richland and Crawford Counties having the experience of three generations is paying dividends as the farm navigates these challenging times. The elder farmer Jerry, his son Rick and his grandson Casey each bring important perspectives to the table for the farm.
“When I first became a part of the farm it was the heart of the bad times,” Rick Niese said. “We really had to tighten our belt and work closely with our landlords to let them know that they will get their payment, but it may not happen until the crops came in. We never had to stick anybody that we did business with and fortunately they all stuck with us through some very rough patches.”
Even with uncomfortably close margins during the crisis years, the Nieses still kept with the farm plan of putting fertilizer down. They knew that the only way to keep the books above water was to do what was right with the land.
Those ideals not only saw Niese Farms through the lowest points of modern agriculture, but positioned them to expand once the storm blew over.
“By 1988, we added 1,000 rented acres in one chunk of ground,” Rick Niese said. “Then just 12 years ago we made another significant jump by picking up another 1,200 acres. My Dad’s motto has always been ‘sittin’ still is going backwards’, so we are always looking for ways to progress our farm to the next level.”
That forward-thinking mindset has also been put into place from a technological standpoint.
“Our equipment is state-of-the-art and that has given us a big advantage with our rented ground,” Rick Niese said. “Things are so competitive in this area that I’ve been involved in rent wars with 25 other farmers for the same piece of ground. Because of the way we operate, I can tell my prospective land owners two things: that we will treat their ground as if it’s our own and that we won’t be the highest price they were offered.”
Even with the downturn in the ag economy, Niese Farms have been able to pay steady rent prices and have been able to keep highly sought-after ground because of the value they add by mowing ditches, trimming tree lines and tiling wherever needed — all things landowners always appreciate.
While Rick’s farming story started at a dismal point on the farm, his son Casey headed back to the farm a few years ago when things were about as good as they could get. Casey was reminded on a daily basis that $7 corn and $15 beans would not be the standard.
“When they made purchases like building our new shop, they kept explaining to me that we’re doing this now while we have the capability,” Casey Niese said. “They said, ‘Don’t get used to this because they have been through this before and they knew what was going to happen.’”
Casey admits that he would have come back to the farm no matter what the economic situation looked like, but the advice about the good times not lasting forever was hard to swallow.
“No matter how many times they told you that the high prices wouldn’t last, I kind of looked past it and thought there was no way it was going to end,” Casey Niese said. “They were right, but there isn’t anything short of a major catastrophe that would keep me from being right here on this farm.”
With many acres in the area coming up for sale, the farm plan is to continue growing. Jerry, Rick and Casey have all learned from the past and are positioned nicely as land values decline, just as they were positioned 30 years ago.
“We are in an even better position than in 1985 because we have paid for a lot of our land this time around,” said Rick Niese. “We are always in the market for more land, but we have to be smart about our growth and we choose to stay away from $10,000 an acre ground. You have to draw a line somewhere. Our attitude is that if we buy $7,000 an acre ground and we have $500 an acre ground that we acquired a few decades ago, when you blend that out it’s not too bad.”
There will be a time, as always, that the older generation on Niese Farms hangs up the boots and the younger generation hopes they have what it takes to fill them.
“The future is unknown, but I just hope we can keep growing,” Casey Niese said. “My goal is to keep the farm moving forward, maintain this business that Grandpa worked hard to build and keep a good name for my whole family.”
Niese Farms also took advantage of much lower interest rates recently and refinanced at 3% to 4% interest for the life of the loan, which will keep the bottom line a bit healthier through this lean period. Locking in lower rates may be the answer to saving not just money, but farms in the coming years.
“Rates are absolutely worth fixing and that is probably more important today than it has been in years,” said Steve Allard, Senior Vice President and Chief Credit Officer for Farm Credit Mid-America. “We do expect rates to start increasing in 2016, so refinancing would be one place for farmers to look at taking one risk off of the table.”
What would a farm have to look like, on paper, in order to qualify for lower interest rates? Allard said that any lender will look at the financial health of the operation and evaluate the balance sheet to see how much the farmer has in equity versus debt, along with liquidity and working capital.
For the farms that are looking to expand in the midst of an economic downturn, collateral will be needed to get loans. Recently, that backing has been made with cash-on-hand but that may not be the case for long.
“As farmers have had to work through some challenging years, there are some operations that will burn through some of their working capital,” Allard said. “At that point we will see more of a movement towards land being used as that additional collateral.”
Current lending caps, or maximum debt for land, range from $5,100 to $6,200 an acre, depending on where the ground is located and the quality of that ground. Additional funds necessary to make a land purchase would either come from a cash down payment or more collateral to spread the debt over more acres.
For some farms, the loans needed may not be to expand the operation, but to merely keep it going. If the balance sheet is a bit lopsided a loan can become more difficult to get, but still possible.
“The trick with those situations is to understand why an operation is struggling and understanding how that might impact the future,” Allard said. “The question becomes, does it look like those operations can return to profitable status quickly or are there some changes that need to take place?”
“We want to understand what the farmer’s plans are as far as 2016 and beyond and then look at that with today’s prices as opposed as to what we might have gotten in 2012 and 2013. We have tools that will let us get to those break even prices on corn, soybeans and wheat to see what the future holds. Then the conversation can turn to how can a farm that is in the red make the changes needed to get them back in the black.”
The ag banking industry is encouraging farmers to use working capital wisely. The recommended formula for today’s circumstances is dividing working capital by what the farm is grossing on an accrual basis. Over 35% is considered good in the eyes of ag banks. Anything around 15% to 20% is considered low and may require some restructuring.