Tag Archives: prices
15 Questions To Ask Before Purchasing Farmland
Friday, May 31, 2013 WASHINGTON — The increase in crop and livestock prices have generated significant profits for many farmers, which some are using to buy additional land. Growing demand has driven land values to record highs in many areas. Whether farmers are using cash or borrowing money, buying land should include a well-researched financial plan. “Farmers should consult their banker throughout the land buying process, to ensure decisions made today best position them to prosper and obtain credit in the future,” said John Blanchfield, senior vice president of agricultural and rural banking at ABA . “When it comes to buying land, you cannot spend too much time researching all of the contingencies.” Given current market conditions, ABA’s Agricultural and Rural Bankers Committee , made up of leading agricultural bankers in the country, has developed the following recommendations for buying farmland: • What is your business’s financial condition? Consider needed investments, expected expenditures, and crop conditions to determine if buying land is the best use for your cash. Are there other opportunities that can provide a better return? • Have you created a pro-forma cash flow? Research sales trends and expected revenue of a potential plot of land to determine how well the purchase fits within your plan. Does the potential return meet your objectives? Your banker can help you develop this essential planning tool. • Given your revenue forecast, are you overpaying? If you are paying a premium, how long will it take you to recoup? Determine how much your business should prudently spend on a land purchase and the revenue needed to justify your purchase and stay within those targets. • Have you thought long and hard about it? Never be rushed by a broker and never confide your best price or financial goals with a party working for the seller. Don’t buy impulsively or make a deal before visiting the property numerous times. Rework the standard broker’s purchase contract with your lawyer, deleting what you don’t like and adding what you want, before presenting the offer. • Does it make more financial sense to rent the land rather than owning it? Rental rates are high, but renting frees your cash for other activities. What will be your total land payment per tillable acre owned and how does this compare to cash rents in your area? • Should you go all in with your cash? Talk to your banker about alternatives to using all cash in the transaction. Land is an illiquid asset and purchasing it will impact your farm’s liquidity. Your banker can work with you to structure a loan that will enable you to acquire the land you need while preserving some of your working capital for necessary expenditures. • How much land are you acquiring? Sounds simple, but many times there is confusion about how much land is actually being purchased. Know exactly what you’re getting before making a bid. See if the land has been surveyed and make sure it matches the details of the offer. If the land has not been surveyed, work with your attorney to determine the acreage based on the legal description or consider having the land surveyed and determine who will pay for it. Make sure that there are no special easements tied to the land. If there are, make sure you spend time studying them and understanding them completely. • What does the land appraise for? Are there some comparable sales in the area? Appraisals are expensive, but they are the best way to establish value. Even if you do not get a full appraisal, attempt to find some comparable sales to determine if the purchase price is reasonable. • What is the soils story? What is the capability of the soil you are buying and how does this impact your revenue forecast? Good soil is paramount. Know the type of soil you’re buying and the history of annual crop rotation. Any seller should be more than happy to provide you with a soil’s profile and information about past farming practices. • What is the water source? Is the property irrigated? Do the water rights convey with the property? Adequate water is essential to establishing the value of the property. Account for water cost in your financial plan to ensure this cost doesn’t negatively impact your return. Make sure all water wells are registered with the appropriate authorities. Each state has its own water laws so make sure you are familiar with the state that you are doing business in. • What do you know about the gas, mineral, and wind rights for the property? Do these rights convey to you as the purchaser? Have they been surveyed or severed from the surface rights? Are they currently under lease? If so, under what terms? Have a thorough knowledge of property rights, as mining and drilling can have an impact on surface and water quality, access to the property, and the viability of the farm or ranch. • How is the property zoned? Will your plans for the property conflict with existing zoning restrictions? Are there conservation easements that could restrict use of the property? This factor has a significant impact on your valuation of the property, particularly if your plans conflict with current zoning restrictions. Make sure that you understand the assured leases that may go with the property — many of the states in the west have a large percentage of their ground that falls into this category (bureau of land management, forest service, state land, national grass land). • How will you hold deed in the property? Will you own it individually, jointly with a spouse, in a family owned entity (corp., LLC, LLP) or in a trust? The pros and cons of how you own the land will depend on your long term goals. • Are there any environmental problems? The last thing you want to buy is a costly environmental problem. Paying for an onsite environmental audit before you buy the land may be worth the cost and will help ensure you are not buying into an expensive cleanup. • How long will you actively farm? Make sure your financing plan matches the rest of your intended career as an active producer. Will you fully retire all debt from the acquisition before you retire? Do you have sufficient life and disability insurance? Continue reading
China Property Digest: Home Prices Keep Rising Despite New Curbs
BEIJING | Wed May 22, 2013 4:19am EDT May 22 (Reuters) – China’s home prices are still on the rise despite stricter measures by the central government and major cities in the past few weeks to calm frothy real estate market. The rise fuelled expectations that China could adopt further cooling steps, particularly the widening out of property tax on home owners. Property investment accounted for 11 percent of China’s gross domestic product in the first quarter of 2013. Here is a look at the latest news, numbers and more from China’s real estate market. REUTERS NEWS MAY 18 – China’s housing inflation accelerated to its fastest pace in April in two years, driven by a jump in prices in Beijing and Shanghai, complicating the task of policymakers trying to cool the property sector while supporting economic expansion. MAY 13 – Growth in real estate investment in China quickened in the first four months as developers saw improved liquidity conditions, though property sales slowed slightly due to continuing government curbs. MAY 10 – As central banks print cash to boost moribund economies, investors in Asia wanting to hedge against rising prices are dumping gold and doubling down on property. MAY 6 – China Vanke, the country’s largest real estate developer, said it sold 12.4 billion yuan ($2 billion) of property in April, up 67.6 percent from a year earlier. MAY 2 – Average home prices in China’s 100 biggest cities rose in April from the previous month, the eleventh straight month-on-month rise, a private survey showed, raising the risk of further tightening steps despite recent government measures to crack down on speculation. APR 25 – China should expand property ownership taxes to more cities instead of imposing a 20 percent capital gains tax on transactions if it wants to prevent a steep rebound in home prices this year, the Chinese Academy of Social Sciences, a top state think-tank said. DATA Beijing’s property sales reached 5.6 million square meters in the first four months of 2013, up 71 percent from the same period last year, according to data from Beijing Bureau of Statistics. China’s central government will allocate 66 billion yuan to local governments to help build public housing for rent this year, the Ministry of Finance said. Existing home sales in Beijing plunged to 5,212 units in April, slumping 88 percent from the previous month and dropping 48 percent from a year ago, according to data from local property brokerage Home Link. Land sales in China’s 53 major cities rose 3 percent in April from a year ago and were down 11 percent from March, data from a private consultancy CRIC showed. CHINESE PRESS MAY 22 – About 30 Chinese developers have raised almost 80 billion yuan so far this year from overseas to support expansion. (Securities Daily) MAY 13 – China should gradually rely on market forces to control the housing market as the current administrative curbing measures could not change market sentiments on rising home prices, the newspaper said in a commentary.(People’s Daily) MAY 12 – China’s government is studying a long-term policy system to control the housing market , which is expected by analysts to improve its way of regulating the market and replace current home purchases restrictions. (Xinhua) THEY SAID — “Considering the special position of property industry in the economy , the policymakers will treat the market more reasonably and cautiously.”(Li Daokui, former academic adviser of the People’s Bank of China). — “Expectations on home price rises have not waned yet. China’s property tightening campaign is still at its critical moment and the country needs to reinforce implementations of cooling measures.” (Liu Jianwei, senior statistician at the National Bureau of Statistics, said in a statement accompanying the release of April home price data) (Reporting By Xiaoyi Shao and Kevin Yao; Editing by Subhranshu Sahu) Continue reading
Farm Belt’s Boom Shows Signs of Slowing
The Wall Street Journal Menu By Mark Peters The rise in prices for agricultural land slowed somewhat to start the year in parts of the U.S. Farm Belt, new reports showed, signaling a boom in land values might be moderating as commodity prices cool and incomes for farmers are expected to weaken. The Kansas City Federal Reserve Bank said in a report Wednesday that prices for nonirrigated farmland in its region rose 3.4% in the first quarter from the fourth quarter of 2012. That was much slower than the 7.7% quarter-to-quarter increase recorded for the same region a year earlier. A separate report from the St. Louis Federal Reserve Bank also released Wednesday showed that land values in parts of the Midwest and Southeast regions fell by an average of 2.3% in the first quarter compared with the previous quarter. Analysts cautioned against making too much of a single quarter. And even with those slower rates, values for nonirrigated farmland in the Kansas City district, which stretches from western Missouri to Wyoming, have soared a total of 19.3% over the past year to record levels, the bank said. More information will come on Thursday in a report expected from the Federal Reserve Bank of Chicago, whose region includes several of the biggest corn-growing states in the upper Midwest. Economists have been watching farmland values closely, with some voicing concern about a possible bubble, as farmers have plowed the money from a record run-up in commodity prices back into the land. A low interest-rate environment has exacerbated the situation, making the rising farmland more attractive for farmers seeking better returns on their money. But signs of a slowdown are emerging. The benchmark corn contract has fallen more than 20% from records set last summer as federal forecasters predict a record corn crop this autumn. Farmers’ costs also are increasing, especially for key goods such as seed and fertilizer, the Kansas City Fed said. On Wednesday, tractor maker Deere & Co. forecast net cash income for U.S. farmers will fall 9.5% to $122.7 billion in 2013. But executives added that farmers should be able to withstand lower incomes because debt levels aren’t rising, even after big investments in land and equipment in recent years. “You see in the U.S. very strong farmer balance sheets, despite what’s been happening with land prices,” said Deputy Financial Officer Marie Ziegler. Nathan Kauffman, an economist with Kansas City Fed, said it will take a few quarters to determine whether the first quarter’s “modest” slowdown marks a fundamental shift in the farmland market or a short-term ebb. Bill Davis, chief credit officer at Farm Credit Services of America, said the agricultural lender saw a flurry of sales at the end of 2012 as farmers sold land ahead of tax increases that took effect this year. And while sales continue in farm states such as Iowa and Nebraska, the surge in prices hasn’t. “We have seen things level off in the first quarter,” he said. Bankers surveyed by for the Kansas City Fed’s latest report said debt levels for farmers generally remain manageable. But they noted that young farmers and those who are expanding operations face rising debt levels. The Fed bank has warned that farmers historically have increasingly turned to debt to continue capital investments even as incomes decline, which can magnify problems in a downturn. –Bob Tita contributed to this article. Continue reading
