00:00:00 What's going on with Farm Land, the values, the prices, who's buying it, who's renting it? What are the numbers like? We're talking about that. 00:00:05 And an overview in general about farm economics here as we open 2025 in this episode of Extreme Ag Cutting the Curve. 00:00:13 Welcome to Extreme Ag Cutting the Curve podcast, where real farmers share real insights and real results to help you improve your farming operation. 00:00:23 And now here's your host, Damien Mason. Hey there. Welcome to another fantastic episode of Extreme as Cutting Curve. 00:00:30 We got a great one for you today. It was proposed about six months ago from our friend Lee Luber, 00:00:33 up in Gregory, South Dakota. He says, Hey, I got, bring my banker on. You know what? He's really good about it. 00:00:38 He's got a real finger on the pulse of farmland and the overall farm economics and how it's reflected or not reflected in land values, cash, rent rates, 00:00:46 sales, et cetera, et cetera. I know we're gonna probably get some love mail and some hate mail about this 00:00:51 because if you want to get a bunch of farm people stirred up, all you gotta do is talk about farmland to farmland, 00:00:56 rental rates, farmland, sale rates, or who's buying or selling farmland. And by golly, it's just like, you can, it's like, oh, 00:01:02 it's like pulling the, the, the pin on a grenade and tossing it into, uh, the farm discussion. So we're gonna go right into that. 00:01:08 We've got Nathan Sparks, he is with First Dakota Bank, that is Lee Lubberts bank. And we've got Lee Lubers, our friend, who is one 00:01:14 of the original Extre Act guys. Lee, you proposed this topic. It's a good one. Am I right? It's like pulling the pin on a grenade. 00:01:22 All you gotta do is start talking about farmland sales values or rental rates. And, uh, there it blows up. 00:01:28 It's a, a topic that needs to be talked about because, uh, uh, land ownership, I mean, it's, it's a big thing. 00:01:36 You know, it's a huge part of every farmer's business if you're owning land, and it needs to be discussed about and the trends and, and, 00:01:43 and what shapes the trends? Number one, number one, expense for any farming operation. Okay. Maybe not any, maybe not all, 00:01:52 almost all is the real estate. Number two is machinery. Number three, sometimes, depending on the scap scale and size of the farm can be, uh, uh, manpower. 00:02:01 But usually that's even under, uh, inputs. Nathan Sparks. Um, Lee said 00:02:07 before we opened this, the average farmer, uh, has about 87% of their net worth tied into real estate. 00:02:13 I think that's probably accurate. I didn't pull, I I didn't check that. But it seems accurate based anecdotally, 00:02:18 and also from what I've read, um, you see a lot of land stuff. Gimme your opening salvo, farmland February, 2025. 00:02:26 We're recording this. What's your thoughts right now? Well, well, thanks for having me. Um, yeah, you know, we've seen some, uh, 00:02:33 some really tremendous, uh, increases in in farm real estate value, probably the last, excluding 20, 24, uh, four 00:02:41 or five, six years leading up to that. We've, we've seen some explosion in the land value, uh, 24, um, really set back, um, you know, 00:02:50 before that double digit increases. Uh, were not uncommon. Uh, now we're probably looking at more of a five, six, uh, 00:02:59 7% trend. Um, and even in some cases, you're looking at negative trends, uh, in 2024. So it's, it's come back a little bit. 00:03:06 Um, probably some of that related to interest rates, uh, going up some and, and, wait, 00:03:11 Wait, it's, it's come back a little bit. It mm-hmm. Has come back a little bit. What is it? And come, I mean, values have come back a little bit 00:03:18 and come back from where and from what and how much? So values would've come back probably about 5% in most cases. 00:03:25 Um, you know, you get up To win to win. Uh, so from 20, in 2024, we, we saw, um, 5% increases. 00:03:36 In real estate. You go 2020 to 20, 23, 24, um, they were probably 10 to 15% increases. Somebody listening this is gonna say, well, 00:03:47 you're giving me the South Dakota perspective, and you are, but you said 00:03:52 before, hit recording, this may not be applicable to someone in the panhandle of Florida where they're growing, uh, specialty crops. 00:03:59 Where is this pertinent to your, the numbers you just, uh, rattled off? You know, so I'm, I'm looking more 00:04:05 or less the, uh, eastern and and western side of the corn belt. Um, anywhere from Ohio out here to South Dakota, uh, 00:04:11 go down a few more states. That's, that's generally what I look at in, in terms of real estate. 00:04:17 Got it. Lee, the numbers that I could make the argument when Nathan says, yeah, we might be going up 5% this year. 00:04:26 I could make every compelling argument from an economic standpoint, from an emotion standpoint. 'cause that also drives values. 00:04:32 You and I both know that we've been around this game long enough. It's not always just pure dollars 00:04:35 and cents, it's not balance sheet always. It's not even interest rate always. Oftentimes it's demotion. 00:04:40 I could make the case 15% to 20% decline in land values happen between now recording this February 21st, 2025, between now 00:04:50 and New Year's Eve, December 31st, 2025. I could make the compelling argument that we lose 15 to 20% of land values between now and then. 00:04:58 I could make that argument and I can back it up. What do you think? Well, I'm not gonna argue with you that, uh, could 00:05:05 You make that compelling argument that there's 15% a give in this market between now and the end of this year? 00:05:10 There's gonna be some variables that are gonna have to play out, uh, continued, uh, depressed farm prices, uh, interest rates to hold where they are, 00:05:19 or even go up one to two points, would put more pressure on it. Uh, worldwide economics, black swan event, et cetera. 00:05:28 Uh, yeah, you could see 15, 20% come off the top because, well, like Nathan pointed out, we had some huge gains for a while. 00:05:37 You can't sustain that, you know? Right. It's a long-term race. And, and Nathan made a awesome point about the 00:05:44 cost of money interest. Uh, every time we've ever bought a piece of property through our entire career, we've been called crazy. 00:05:52 Well, guess what? Uh, in the last, uh, 18 months, the cost of being called crazy is considerably higher 00:05:58 because we went from two to 3% long term mortgages to now you're looking at eight plus. So the cost of money has gone up significantly. 00:06:09 Uh, so yeah, the cost of being crazy is, is more expensive nowadays. It's across the board also, Nathan, uh, one thing that Lee 00:06:19 and I, uh, talk about, we, we try to always be more on the financial and business side. Uh, a lot of people in agriculture love to talk about how 00:06:26 to grow more corn. Uh, that's great, that's neat. And they just avoid, like hell the business side of this, because they'd rather be out in the field. 00:06:34 They'd be getting their hands dirty, they would be driving equipment, whatever. Um, you've got to pay attention to this. 00:06:40 And then an elevated in, we're not even historically in an elevated interest rate environment, we're only elevated 00:06:46 because of how cheap, almost un historically abnormal is. Really what we're talking about. Uh, historically 00:06:53 abnormal is what we were dealing with for the last 15 years. Seven to 8% money is not historically high money 00:06:59 We're normal. We we're, we're, we are adjusting back to the normal cost of money, of operating land, et cetera. 00:07:06 But it's shock after, you know, being literally artificially suppressed down to multi-generational lows 00:07:14 for about a 15 year period. So I'll give you an example there, Damien. When I started, uh, with first Dakota, uh, 22 years ago, um, 00:07:23 met up with a client he was in, uh, Minnesota and, uh, older gentleman, uh, doing a loan for him. And, uh, we locked that rate. 00:07:31 It was a 20 year fixed rate at the time, and I know it was something over 7% and it wasn't. But within five years, uh, we had bought that rate down, 00:07:41 probably less than 4%. And, and things just kinda leveled out there for the long time. And, and I remember him looking over at his boy 00:07:49 saying, you know what? Um, that is a darn good rate. 'cause I went through the eighties and, uh, I know what that can do. 00:07:56 So where are we at? You know, is this normal? Um, it, it sure not out of norm. Um, you know, with having seven, seven 00:08:04 and a half percent interest on, on real estate, um, you know, we, we really, really enjoyed, uh, some good years, fantastic years. 00:08:12 And, uh, now it's, it's gonna be a little bit tougher to, to have that land ownership. 00:08:18 Lee, you told me, I'm bringing on a seasoned veteran expert in banking here. He says, well, I started at First Dakota 22 years ago. 00:08:27 I have t-shirts that are old as he's been with First Dakota, and this guy's supposed to be the seasoned, I mean, you 00:08:32 and I are the seasoned veterans around here. This guy's only got 22 years of experience. Nathan, what's up with that? 00:08:37 Oh, no. So there's another, there's another career before that in the banking side of it. So I'm just giving you credit for the, 00:08:42 for the first Dakota years, You have been in this game in the ag lending thing for more than 22 years, 00:08:49 you've been, that's what you did before this. So you've been around Probably approaching 30. Yeah. 00:08:54 Um, I'm gonna go with, uh, a couple of reasons and then I wanna talk about who's buying. I wanna talk about the real numbers, but I'll go ahead 00:09:00 and continue to make the case here, and I want you guys to both respond. Um, I'm give you a list of reasons why I see 00:09:06 downward pressure on agricultural real estate to where, and, and it, you know, it's easy to say, oh, 00:09:11 we could give up a few percent. That's like the politically correct. I'm not really taking the stand issue. 00:09:15 I say I can make the case for a 15% decline throughout the corn belt. And it, yeah, it's gonna be different if you were right next 00:09:21 to, uh, if you're right next to a major metropolitan area, uh, if you're in Champaign, Illinois 00:09:26 and the university wants to build a new, uh, sports complex, all those things, but I'm talking actual agricultural real 00:09:32 estate, we've been up too much. If we gave back 15%, we're talking about giving back what, one of the one year's worth of gain of the last 5, 4, 5. 00:09:43 It's not even that big of poultry. So when you go up this much, if you give back a little bit of a big deal, you guys gimme a response. 00:09:49 Is that a compelling reason why we could lose 15% of real estate value farm real estate value? I, I'd say it's a start, quite honestly. Um, you're right. 00:09:57 You know, we've, we've had those years where, you know, you go back 10 years and, and in, in some of them regions, um, 00:10:03 you're up anywhere from 30 to to a hundred percent just in, in real estate values in a 10 year period. 00:10:10 Um, so yeah, 10%, 15% coming off of that, um, it would, uh, it, it'd be about like a drop in the 00:10:18 bucket compared to the last 10 years. You Only heard someone that just bought it yesterday and then absolutely 15%, you know, going up a 70% 00:10:25 and taking back 15. That's kind of like retail sales, right? When, when they say they're doing a sale, Lee, it's 15% off. 00:10:31 Well, yeah, you marked it up, you marked it up 200% and took 15% off of that. So am I right? That's one of the compelling reasons 00:10:36 that we could see a, a, a correction. Yeah, I would say, You know, taking 10 to 15% off of, uh, what values have hit, 00:10:46 it's basically a plateauing effect. And we're, we're probably due for that because it's, it's been quite the stride on, on land values. 00:10:55 I mean, it's, uh, every time you turned around, it's like the, the next sale is higher and you go, wow. And then the next sale is higher yet. Mm-hmm. 00:11:04 And we kept that pace up for a pretty lengthy period during cheap money. And now that's not the case. 00:11:12 There's a real true cost of money that really changes the numbers in a hurry. So that's why I was gonna go with number two reason 00:11:19 interest rates, uh, in, in general, and I, I'll let the banker comment on this in general, if I'm using 8% interest, whatever I'm using that for, needs 00:11:28 to make more than 8%. Now, either the farming operation itself, meaning crop production has to be make more than that. 00:11:35 Or the, uh, appreciation on the asset needs to make more than that, or the two of them combined need to combine for more than that. 00:11:41 That's the rough way to look at it. Am I right, Nathan? You, You're correct. And, and 00:11:45 in our world, we want the production side of it to make up that 8% because the, uh, the other side of it doesn't put any, 00:11:52 any value onto your balance sheet. Quite frankly, The appreciation does put money on your balance sheet. It just doesn't, it just doesn't keep the ongoing 00:11:59 operation correct. But the appreciation isn't realized until you sell it, Right? Right. 00:12:04 So Lee, uh, the interest rate, you brought it up and one thing that you and I have talked before, when someone says, oh, interest went from three 00:12:13 to 8%, that means it went up 5%. I say, no, it went up 125% because, so that's where a lot of people, Nathan, I'm, 00:12:21 I'm sure you have had to have this conversation. Well-intentioned intelligent people still say things like, well, interest went from four to eight, 00:12:27 that means it went up four points. No, it went up 100%. The cost of money doubled, right? Correct. It did. 00:12:35 And, and, and not just on the real estate side of it. I mean, it doubled on the, uh, on the operating side of it as well. 00:12:40 So it's, uh, it's, it's that, it's an expense that was realized before, but just exploded in the last, uh, probably 18 months. 00:12:50 Another reason I think that we could see a decline in real estate values oversupply, and I do not see this changing 00:12:57 unless RFK Junior, uh, makes it so that we all have to switch to organic production tomorrow. We're gonna be in a perpetual oversupply. 00:13:05 When you have oversupply, that means that that land is capable of producing a whole bunch of stuff, but it depresses prices. 00:13:11 And because then the prices go down, the, the, the, the price, the commodity is derived from the acre, therefore the acre becomes worth less. 00:13:19 Lee is oversupply, perpetual oversupply a reason to be skeptical about these price, these land prices getting better. 00:13:29 Uh, as ag producers, we do a phenomenal job of overproducing. Give us, give the, give the world 12 months 00:13:36 and we can overproduce anything. So really the only chance we have at higher price is sad to say is that's gonna be a pain for somebody. 00:13:45 It's gonna be economic, drought, supply, uh, demand something, something's gotta go to trim away that number because if we, 00:13:53 if we're hitting trend line consistently on any of the major crops, guess what? Uh, it's not gonna be a, a profitable number. 00:14:04 Mr. Sparks, um, you and me and Lee have come up in this industry where we talked about feeding the world 00:14:10 and we gotta make more and we're all gonna starve. And I've been telling my audiences for more than a decade, that was really cute back in the day. 00:14:17 But guess what? That hasn't really been the case since about the sixties. Starting in the 1980s, we began being oversupplied. 00:14:24 We invented things like the pick program. By the way, I talk about this in my speeches. If you're just listening to this 00:14:30 and you're like, what's he talking about? You can Google it after you're done with this episode payment in kind. 00:14:33 We paid farmers like Lee in corn to not plant corn. We, we've been oversupplied arguably for 40 years. China bailed us out with their massive expansion, uh, 00:14:44 that began 20 years ago. Oversupply means that land is worth less, but I think it's very situational. 00:14:51 I think that you're fine in South Dakota, I've been to Lee's property, he could use a little bit more precipitation, but by God, he's got organic matter. 00:14:58 He's got deep prairie soils. I think that oversupply means that farmland in the panhandle of Texas goes from being not very valuable 00:15:06 to having almost no value, because we don't need it. Am I right? Uh, you know, I would say yes, you know, 00:15:11 'cause it's what is your production down there? It's, it's very limited production for the most part. Um, you know, you get up here in, in, in South Dakota, 00:15:19 Nebraska, Iowa, Illinois, uh, Indiana, Ohio, um, there's your productive ground right there. And, uh, as Lee, uh, stated, you know, we've, we've over, 00:15:29 we've outproduced ourselves every year, and that trend line continues to go up. Um, in, in, in general, where's the population of the world? 00:15:37 And, and I can remember 10, 15 years ago, we were gonna save China because, uh, of our production and really hasn't materialized, has it. 00:15:47 Um, so there's, I I don't know that we're gonna be, um, outpacing our ourselves with the real estate side of it, as you're saying. 00:15:54 But is it oversupply? You don't make it anymore. Um, you just overproduce it and, and it, it could cause some problems that way. 00:16:04 I like the fact, Lee, that he gave credit to Indiana as being a big agricultural productive state. My home state, our producer of this show, 00:16:14 a guy named Will and Lee knows him. He's very difficult. He's, he's as prickly as a cactus. And he commonly just to get in my hair insults Indiana 00:16:22 and says the not real I state. Do you know what he says? That Lee Not Real. I state 00:16:28 You, you get no respect, Damian. It, It's not just me. It's an entire state of 7 million people 00:16:34 and the fourth biggest soybean producer in the country. And I don't get any respect in others. Indiana. I Love Indiana, man. I love it. 00:16:41 Alternative investments. I can make this case. Uh, stock market has had maybe too much of a run, a lot of froth, right? 00:16:48 2024 was up like 25% across the board on stocks. You can say, well, alternative investments are why land is staying up. 00:16:56 'cause investors might be afraid of going into other overvalued assets, but I could make the argument, all assets are overvalued. 00:17:04 Am I right? Nathan Sparks, You know, you bring up a really good, uh, good point. The froth. Um, 00:17:10 do we have froth on the real estate side of it? I sure don't think so. Um, do we have froth on the, on the, on the non-tangible thing 00:17:19 that all you see is a statement on every month? There's probably some froth there. Um, but, but the real estate side of it, I, I don't know 00:17:27 that there's a bunch of froth there that, uh, I would be too worried about. I think it's very stable. 00:17:33 Um, in, in there, there's, there's a, there's a long line of list of producers that are wanting it. 00:17:39 Yeah. So that's why we're gonna go with then I just gave you the reasons why there's a 15% decline between now and yours. 00:17:46 End. Now we're gonna go through the flip side, you know, it's like high school debate team, 00:17:50 why there's gonna be a fif, why there's a chance for 15% upside on real estate. So we'll go through that. Before we do, 00:17:55 I want to talk to you about our friends. At Nature's Nature is one of our business partners here at Extreme Ag. 00:17:58 Nature's focused on providing you with sustainable products that can help you produce more yield 00:18:02 and get more out of your every acre. You know what, featuring high quality liquid fertilizers there at Nature's, they use Bio K. 00:18:10 That is their technology that can target specific periods of influence throughout your growing season via precision 00:18:15 placement techniques, as a means to mitigate plant stress, enhance crop yield, and boost your farm's. 00:18:19 ROI. When you got a low commodity environment and you're talking about tough margins, you need to be very, very smart about where your fertility dollar spends. 00:18:26 Natures can help you with that. Go to natures N-A-C-H-U-R-S natures.com to learn more. Alright, you, you opened me up here, Lee. 00:18:34 Give me the upside. Gimme the other side of it. Why we could see a 15% increase in land values between nine years in maybe not even 15. 00:18:42 Just go be just, uh, maybe more, more half of that, seven and a half percent to 10%. 00:18:48 Uh, well, a lot of things are on hold right now, uh, with the new administration, like, uh, 45 z uh, renewable energy policies 00:18:57 and carbon, a lot of the carbon programs are hinging on that. So, uh, there's an announcement there 00:19:04 that could change a lot of things, uh, or start, you know, things going in a positive direction, uh, getting it with a drought 00:19:12 and prices going up 25, 30% plus, uh, just a lot of things that could happen, uh, worldwide economically, uh, 00:19:22 money flow into the United States. If we have, uh, no trade wars and no tariffs getting negotiated, that's positive for us. 00:19:30 You know, uh, trade wars, uh, can be tough on the bottom line, you know, short-term, paying long-term gain deal, 00:19:36 but maybe none of it's gonna happen. So that can be a positive too. So there's a lot of dynamics in the next six months 00:19:45 that could really change not just the flow of money, but the value of land. Yeah, I, I, I was gonna say also, uh, Nathan, I'll run 00:19:53 through my list after you go. So, uh, so, uh, I've got four or five things written down here. 00:19:59 Why I can make the case that, uh, that we can go up 15% on land values between now and the next 12, 10 months. 00:20:06 Yeah, I, I sure think it's, uh, probably gonna be pretty tough for it to go up 10, 15%, uh, over the next 12 months. 00:20:13 Um, it, we're, we're, I don't know that we're set up for it, quite frankly. I, I think the, uh, as, as Lee said, 00:20:20 the administrative change, uh, we've got tariffs, uh, to, to discuss and maybe negotiate. 00:20:25 Um, I, I see it just being more of a stable, um, real estate market here over the next 12 months. You ever, these banker types will never 00:20:39 actually give you a real hardcore prediction or an opinion, Lee. I mean, I, I get, I I need, I need somebody to come in 00:20:45 that's, I need somebody that's a little more flamboyant with their predictions. The one thing I will say, I have 00:20:51 to issue the ultimate disclaimer. I will have a unconscious subconscious bias, because guess what? 00:21:00 I'm an ag producer and we own land. And we love land. So Yeah, you want, You want it to go. So 00:21:06 yes, I do have a bias, you know, but it, we don't want it to just keep going up, up, up. 'cause guess what? We, we like to buy land too. 00:21:15 Yeah, right? I'm okay. Maybe, maybe Nathan's right, maybe he's doing that usual banker. By the way, most every deal that ever is gonna be good. 00:21:24 There's usually three kinds of people that get in the way and screw it up. It's bankers, attorneys, and accountants. 00:21:30 I mean, if it wasn't for them, great deals would happen. Am I right, Nathan? Huh? You're laughing. 00:21:35 You're, you're, yeah, you're absolutely correct. Why the heck would you wanna, wanna put us in the way? Right? 00:21:41 Bankers, attorneys, and accountants are three professions that were taught to play defense. 00:21:45 They're not really offensive players, they're defensive players. Am I right? 00:21:50 I I would say, uh, we're, we're looking out for your best interest. How about that? 00:21:55 Uh, reasons why I think that the, that land can continue to go up in value, whether it's five or 15%. 00:22:00 I mean, we can argue over that. I'll go, I, I was going big for dramatic effect. There's still a boatload of money floating around out there. 00:22:08 There is a lot of cash on the sidelines, like the investment people say, and it's looking for somewhere to go. 00:22:14 It's looking for return. It would like 10 or 20% return, as would any investor's money. Whether you're talking about you taking your passbook 00:22:21 savings investment, or you're talking about somebody with a, a a hundred million dollars 00:22:24 to spend, there's a lot of money. At some point it has to go somewhere. Even if they have to settle for a low return. 00:22:30 And by money coming into something, it usually then pushes up values. Your thought 00:22:37 Y you know, there's, you, you're right, there is a boatload of money out there and they're looking for a safe investment. 00:22:41 They're looking for for that, that next investment. Um, you know, our, our, our cap rate on real estate has normally run from two to 3%, 00:22:51 um, years ago, maybe got up to 5%, uh, but that's when values were a little bit, uh, a little bit less. 00:22:58 So I don't know that a, a 3% cap rate or return rate is really, uh, intriguing to that, that main investor 00:23:06 and to that boatload of money that you're talking about. Yeah, they usually want more than that, by the way, 00:23:10 to the person that's not, uh, as financially savvy as, uh, doesn't wanna sound stupid, explain cap rate. 00:23:15 'cause investor people talk about capitalization rates and, uh, really just break it down in layman's terms, please. 00:23:21 Essentially, that's just your return. Um, after you, uh, get paid cash rent and have your expenses coming out, uh, 00:23:27 that's basically your return on that investment. Another reason I think Lee is head dead on, we don't know what's happening. 00:23:33 We're recording this February 21st, 2025. We do not know what's gonna happen from the political standpoint, whether it's USDA, Congress, Senate president, 00:23:42 whatever we talked about 45 Z tax credit. We talked about environmental programs. Talk about everything from the, 00:23:48 the whole USDA is maybe going to go through some, uh, reshuffling those programs. Lee can really change the farm economics 00:23:59 as then once farm economics change, land values change. Uh, yeah. Correct. Uh, one thing I wanted to point out, uh, that changed in the last five years for 00:24:13 generations, literally land values, you'd always go, well, the flow of money, people putting 00:24:18 money into the stock market. Well, you look in the last five years, that billions of dollars that have flowed into cryptocurrencies, 00:24:26 people looking for that investment, that great return that they've been achieving the last few years, it didn't exist five years ago. 00:24:34 Uh, the, the Elon factor, everything from electric vehicles and ai, uh, that's in the last three years, start looking 00:24:43 where flow of money is going. There's more places competing for the flow of money AKA land than there used to be. 00:24:51 It used to be the conventional stock market. Now we've actually created whole new segments to the worldwide economy, 00:24:58 and that's billions in money flow that's looking for a home. And that can be flowing into land if the numbers are 00:25:06 right or away from it. And like Nathan said, right now, 3% doesn't really light a fire under, under a lot 00:25:13 of investors when it comes to land. So that's why you're seeing more producers stepping up, but they're only gonna step up so many times. 00:25:21 Mm-hmm. This one might be honestly, and, and you don't hope for it, but I could see a flight to safety is usually good for agricultural real estate. 00:25:33 And global conflict creates flight to safety. The United States is still the gold standard of a safe place to be. 00:25:41 So we are in an era right now between the Ukraine and Russia, China, Taiwan, uh, you know, name the next, the Islamic, uh, the Islamic regions of the world 00:25:51 that are waging war, um, with bombing ships that go through, you know, the Suez Canal, whatever it is, red Sea, that does put 00:26:02 upward pressure on farm real estate. Am I right, Nathan? Oh, absolutely. Um, no doubt it, it's gonna put some, uh, 00:26:09 um, upward pressure on that and, you know, not, not anything that we want to see, right? Um, but it, you know, when, when conflict does happen, um, 00:26:19 that that does, uh, bring it back into some reality, back to some safety net. And, uh, and that's one of those safety nets is real estate. 00:26:26 And, uh, people, people do flock to that when, uh, when conflict comes up, At least nodding his head. 00:26:34 Uh, two years ago, our, a lot of our risk management, our marketing plan was based off of a war premium because of the Ukraine and $8 wheat. 00:26:45 And there was guys wanting to buy land because it, man, eight $9 wheat, you wanna be a wheat farmer? 00:26:50 Well, right now we're back down to reality. And that's in two years. Yeah, Five 70. What, what is, 00:26:57 what's your wheat number look like right now? Uh, with basis, we wouldn't even pull five bucks. So, so farm real estate in South Dakota looks a lot less 00:27:07 appealing at sub $5 wheat versus $8 wheat is what you're telling me. Yeah. Yeah. And, 00:27:13 and you just looked, the mindset totally changed and, and that, and that also affected land at that time too. So one other reason is my last one that I want to go 00:27:22 to who's doing the buying, and then I want you to gimme specific examples. And I would like names and account numbers, Nathan. 00:27:28 So just be prepared to pull that up. So get your computer out right now. Uh, I, I I wanna know your entire book of business. 00:27:34 I wanna know their net worth. I wanna know who's desperate and who looks like maybe they're, uh, up against the ropes. 00:27:39 'cause I might just come up there with a, uh, you know, a suitcase full of cash and just start buying. Imagine me buying a farm down the road from Lee. 00:27:47 We get to get hang out, drink, drink Coors banquets. He could farm my ground for me. The only thing I'd be the easiest landlord ever. 00:27:56 I just, when I get together, I just say, eh, Lee, we get together and visit, and then we drink some Coors banquets to talk about ag stuff. 00:28:02 He'd be like, I'd love that. Winner winner. Chicken dinner Inflation persists is one of the things I wrote down. 00:28:11 Generally, farmland real estate is a one-to-one hedge, a one-to-one, uh, against inflation. So that's why non-ag money sometimes comes into 00:28:22 farmland real estate. A lot of folks think, uh, that's because it's, uh, uh, the huge upside. It's more the protective reason. 00:28:29 Comment on that both of you. Please Go ahead, Lee. Uh, well, I, like I mentioned a little bit ago, a lot of things have changed in that aspect in the last three 00:28:42 to five years with whole new segments of the economy Yep. And how it relates to inflation. 00:28:49 Uh, you know, as a producer, I actually feel like it's a little bit like we're in uncharted territory and, 00:28:57 and I'm not talking about cost of money because right now it's a what we would refer to as a normal cost of money. 00:29:03 And we have farmed long enough that we know what that was prior to the cheaper era of 15 years. But it's still, it's like trying to get a feel for it 00:29:12 because, uh, you would think that land prices, yeah, they've retraced a little bit, maybe somewhat plateaued, but not a big pullback. 00:29:21 Even though grain prices are depressed and stock market's doing good, there's huge investments in AI and, and, uh, cryptocurrency 00:29:31 and all that pulling away from land, but we're still holding in pretty good. Yep. And, uh, the cost of money has gone up quite a bit. 00:29:39 So as a producer and a landowner and, and as someone that likes to buy land, my brother and myself, we're trying to figure all this out 00:29:48 because it's a little bit uncharted to a certain degree as far as like correlating it to inflation or the economy because to us some things aren't adding up. Right, 00:29:58 Right. You know, when, when you're talking inflation in, in real estate, I, from, from the, from the real aspect 00:30:06 of real estate being the base, it's inflated a little bit. We've gone through some numbers, 00:30:10 little double digit numbers here over the last few years. But really to me, where 00:30:14 that inflation's coming from isn't the, the real estate cost itself. It's your inputs that you have to put onto that place. 00:30:23 I would love to see those numbers side by side to see, okay, what has real estate done in the last five years? 00:30:29 And what is your chemical, your fertilizer, everything else, all those inputs, seed, what has all 00:30:33 that done in the last five years? Um, that number to me would be the scary number. And that's where the, uh, the big ticket item of, 00:30:40 of inflation comes in, in, in my opinion. Got it. Um, alright. I wanna talk, and you're still pulling up those account 00:30:49 numbers and names, but Sure. You're gonna gimme some, huh? You're Laughing. 00:30:54 I've got up here, huh? Alright. Who's buying? Who's buying? And I want you, I want you to tell me, uh, there is a 00:31:04 persistent belief in within agriculture that bazillions of dollars are pouring in from outside of agriculture to buy this real estate. 00:31:18 There's the threat that it's from China, which is actually quite muted. Like, it's, it's my understanding that of the foreign held 00:31:26 land in the United States, only like 3% of all foreign owned land. So it's something like, uh, three to 8% of, of land is owned 00:31:36 by foreign entities. And of that only like, a few percent of it is from, uh, a couple of Chinese companies. 00:31:41 So there's, I think, a, a little bit of that. So talk to me about who's buying and what the reality is. You know, I'd say over the last, uh, six months, uh, 00:31:49 we've, we've seen a lot of ground in this area. Um, this area being Eastern South Dakota, uh, will be my example, 00:31:56 but, uh, we've seen a lot of ground changing hands, and I don't have an exact percentage, but I'd say the lion share of that, 00:32:03 probably 75% or greater even. And, and it might even be closer to 90% of that ground is being purchased by the producer. 00:32:12 Um, a little scary. Yes. Um, some of them being young farmers just getting started, um, it's tougher than nails for them to get it going. 00:32:21 Uh, but there's there, there's some programs out there to help us along with that. Uh, but for the lion share, it's, it's gonna be producers, 00:32:28 um, and they're, they're, they're generally smart with their purchase. You know, what, what I like 00:32:35 to have them do is which one can you live without? And if, if that piece is up for sale and you can live without it, let's not go to that sale. 00:32:44 Let's stay away from it. But let's get really interested in the ones that you can't live without high producing great 00:32:49 soil right next to you. Um, I've, I've had producers, in fact here in the last few months, I had a producer that, um, they were interested in this ground, um, when it came 00:33:01 to, uh, about a week before they were not interested in the ground, and then they came right back at the sale 00:33:06 and they were just pushing it, but the pushing became purchase and, uh, I ironically it came in. 00:33:12 They, they bought it and, uh, appraised out just short of what, uh, what the, what the purchase price was. 00:33:18 So there's support out there for it. Um, so it's, yeah, I, uh, there's, there's, uh, there's many cases like that. 00:33:31 Um, but it's for the most part producer purchasing the ground. Lee, are you buying your stuff publicly 00:33:38 or are you buying it privately? Uh, we've actually acquired two pieces in the last 16 months, uh, contract for deed, uh, from people. 00:33:50 And, uh, we showed them how that works and they actually liked the sound of it. And for well over 10 years, 00:33:59 nobody had an interest in sewing ground on a contract for deed. And now it sounds appealing to 'em, uh, 00:34:06 with the cost of money changing. So, okay. So just without getting completely into your checkbook, what are we talking about? 00:34:12 So this is somebody you already farmed to the land and you're just acquiring? Or is this a new, new pickup? Uh, 00:34:17 These were pieces that we farmed and, uh, the way they viewed it, it was, uh, basically the contract for deed was gonna function 00:34:25 as their retirement account. Okay. So you, if if the cost of money is 8%, are you essentially paying them 8%? 00:34:32 Uh, we were ab able to negotiate a better rate than that. Okay. So you buy, they hacked as bank 00:34:38 because they held the asset, they acting, they're acting as bank, they're selling you the asset, 00:34:42 and they're also acting as bank. Mm-hmm. Yeah. 10 years, 20 years. How long are you taking to buy that? Sorry, Paul, uh, Nathan, 00:34:51 Uh, we did it at 15 on each of those. That's where the numbers made sense for both parties involved. 00:34:58 Nathan? Yeah, I was just saying it's, it's kind of an annuity for them. Um, you know, they're getting paid every year. 00:35:04 They're, their, their taxes are reduced because, you know, they're, they're not taking all of that money at the, at one time. 00:35:10 They're, they're spreading it over the 15 years. So it, it does make sense. It's not a, not real popular, I would say, uh, 00:35:17 but when you've got, uh, great landlords like Lee, it does out there, um, it, it makes sense and they're, they're maybe not ready to 00:35:26 part a hundred percent with it and, and have to give it all over to the, the tax side of it, uh, so they can, they can take it over time. 00:35:34 Talked about the money out there, Nathan. How much of this, what's the leverage situation like the loan 00:35:40 portion of it look like? Uh, and I know it's gonna vary from this, you know, this young kid is getting A-U-S-D-A backing and, 00:35:47 and it's a note from his mother, and then this person over here is just floating in money. But what's it look like in general cash versus leverage? 00:35:55 You know, the, it we're levered up. Um, there's, there's a lot of operations out there pretty well leveraged. Um, 00:36:02 And does that mean that they have 25% of equity and, and 75% is note? Yeah, I would say when, when we get into the leverage side 00:36:10 of it, I'd say anywhere from that 20 to to 40%, um, is, is what your equity position would be. 00:36:17 Um, you know, and they're, they're still eager to go out there and buy ground and, 00:36:22 and, uh, it just, like I said earlier, uh, just needs to be the right piece. And we may have to go into some of them, uh, 00:36:29 USDA type programs to, uh, to get some financing because the, our secondary markets don't support it. But, uh, still very, uh, viable options. 00:36:41 Got it. So we, we went through the reasons for it to go up, the reasons for it to go down, who's doing the buying, and then we talk about cash 00:36:48 versus leverage, et cetera, etc. We talked about interest rates. What did we not cover from your perspective as an agricultural lender when we're 00:36:55 talking about land prices going up, down, who's doing the buying and what the picture looks like for right now? 00:37:00 Yeah. I, I think you hit darn near all the bases. The only one we didn't hit was the home run. And, and, uh, in, in our world, uh, 00:37:07 if you don't hit home runs all the time, that's just fine. Uh, singles and doubles are, are perfectly good. 00:37:12 What about the defaults issue? Let's, that's one that I was hoping you're gonna lead me to. Again, these bankers just 00:37:16 don't wanna take enough of a stance. Um, are you the guy that's going out there and kicking people off their farms 00:37:21 and, and, and taking it back? Are you the evil banker? Are you the rich banker that's doing that? No, you're not. But the point is, what's our 00:37:26 default situation look like? I mean, where are, where are, where is the, where is the pain? 00:37:32 Yeah. So we certainly saw a number of producers lose money this year. 2024 was not a, uh, if, 00:37:38 if you were a straight up crop farmer, uh, was maybe not your best year ever. Um, and the default on that, 00:37:46 although I don't have exact numbers, it's still very low. Um, I, I would say within the bank, um, 00:37:53 we've gotta be something less than 1%, Less than 1% of default on across your whole book of agricultural loans. Correct? 00:38:01 Yep. That's Pretty darn. And we're talking, we're talking well, on the ag side of it, uh, in our Dakota Mac side of it, 00:38:07 who I, I work in that division. It's all ag real estate financing. Um, if, if it's over 1%, I'd be surprised, 00:38:14 but I don't have that, uh, number right in front of me. Lee, we've, we've been through a couple of, we've been through a couple of wars in this front. 00:38:23 I think there's going to be some pain. I don't think it's going to be, uh, anywhere close to the bad old days. 00:38:29 What's your pro, what's your thought on that? Well, just the Cost of operating, like you said earlier, is just so high anymore. 00:38:38 That number's just so big to do anything. Yeah. Cost break or to buy land, to rent land to operate on it. The numbers are just huge. 00:38:47 And I am a huge proponent of having a great relationship with your lender. And that doesn't mean you go 00:38:55 golfing and drinking beer with them. That's, that's not what I'm meaning have a great working relationship with a good ag lender 00:39:02 that understands your business. And I know you just cussed these three segments of people out, but for us, they're the most critical, uh, 00:39:10 other than our landlords. And that's the relationship with our lender and our accountant and our law firm 00:39:19 and their ability to have those conversations with us, that we can be open-minded where they play devil's advocate and say, are you sure you need to do this? 00:39:27 Or What if this goes down 30%? Have you thought about this, Lee and Terry? Those, the ability to have those kind of conversations 00:39:35 put you in so much stronger position for times like these so that you have stronger working capital 00:39:42 and you can actually be a functioning operation. You're not, you're being proactive, not reactive, but it takes those great working relationships 00:39:52 and I'm a huge proponent of that. Uh, it's all about those partnerships that make it really work. 00:39:59 Yeah. We talked about interest rates earlier to, to, uh, to further on Lee's point there. 00:40:04 We talked about interest rates earlier, but, um, 2024 and going into 2025, I, I would imagine most producers out there have 00:40:12 at least had a conversation with their banker. Maybe not gone through the whole renewal process, but at least had the conversation. 00:40:19 Um, the, the, the, the relationship is going to be huge. Um, it it's, your conversation's probably not starting out 00:40:28 with, uh, what's my interest rate gonna be. Um, your conversation's probably gonna be, am I credit worthy? 00:40:35 Mm-hmm. Um, you know, and, and we're seeing that, we're seeing that all the time. Um, you know, it's credit right now is, is a, uh, uh, 00:40:43 if you've got credit worthiness right now, you're, you're in a, in a good position. Yeah. So that's the, that's the tough part is that you, 00:40:50 you maybe we're not in a default situation, but we're, our pool of our pool of farm operators that are in a buy position is, uh, more limited 00:41:00 because of where the economics are, I think is the way to sum that up. Absolutely. Yep. Absolutely. 00:41:06 Lee, I'd like to point out also, I never cussed the bankers, accountants and attorneys. I never cussed them. I'm, 00:41:13 I thought about cussing them, but I didn't cuss them. Did I cuss you, Nathan? Well, No, no, Not too bad. 00:41:20 All right. So the, I think there's the, the big picture, um, on, uh, on the default situation. 00:41:26 You're feeling good about it. Um, and then we, you talk about black swan. So what are you looking for? Now, we went through all this, 00:41:32 but what are you actually looking for this year? Farmland? What do you see for real? Uh, I think we're gonna pla kind of plateau 00:41:40 to maybe pull back a little bit. Yeah. Uh, unless there's some real big economic trigger to make it go up, and I think Nathan's correct, it's gonna, 00:41:51 it'd be really hard to get that 10, 15% to get back up in that next rung of the ladder. 00:41:56 Mm-hmm. Uh, we're kind in a phase in agriculture where, uh, my belief is, is your ability 00:42:03 to have those hard conversations during hard times is where you're gonna ultimately really pay yourself and stay in a strong position to get through this. 00:42:13 Uh, the pool of buyers is smaller. Mm-hmm. But there's still a pool there. Uh, so I think land will hold its own, uh, 00:42:23 but less people bidding on it than what there's been the last few years. Mm-hmm. 00:42:28 I like that Nathan's nodding his head. Nothing else to add. Right? No, nothing. You know, um, if there was only one thing 00:42:34 to add, you know, we're, we're kind of sitting right where we were, you know, from an economy standpoint, from an farm economy standpoint, uh, go back four years, 00:42:43 five years, um, 2019, 2000. I was gonna say 2018, this reminds me of 2018. Exactly. But then what happened? 00:42:50 We had the Black Swan event, we had the covid, and it just, it pushed so much money out into the economy and, and, and into the world that, um, 00:42:59 that's why we see those huge increases. And we're now, We saw 40, we saw generally 40% inflation, uh, across cars and groceries, and also farmland went up about 40%. 00:43:09 Again, it's a one-to-one inflation hedge. Um, all right. I didn't cus the profession, I, uh, I, I love bankers. 00:43:17 Um, as I point out, when I go and meet with my banker and I need a little bit of money, the banker says, okay, well we're gonna pull your profit and loss statement 00:43:25 and balance sheet from last year. Is it still pretty much the same? I said, I don't know. I made those numbers up then. 00:43:30 So anyway, we all know how this works. Nathan, I'll, I'll call it tough love date, Damien, if that makes you feel better. 00:43:36 You expressed tough love, Talked about land values. Are they gonna go up? Are they gonna go down? Who's doing the buying? I think it was 00:43:42 neat you dispelled that rumor. Also, there's this belief that somehow it's all this and it's just, yeah, there is institutional investment, 00:43:48 but it's really not the bulk of the buying. No, it's, it isn't. Producers are out there doing it all day. Yep. 00:43:54 His name's Nathan Sparks. He's with First Dakota Bank. That's, uh, Lee Lubers agricultural bank up there in South Dakota. 00:44:00 His, uh, he's joined by Lee Luber, my buddy up in Gregory, South Dakota, who sometimes notices 00:44:06 that I deliver tough love to professions like bankers. And you know what? I say that they've got it coming, but not as bad as the accountants and the attorneys. 00:44:13 Let's face it. Anyway, till next time, thanks everybody for being here. This Extreme acts kind in the curf. You enjoyed this show. 00:44:18 Go check out our new show, the Grainery, it's shot at my on farm hangout where we bring the guys in, pour a drink and we talk about all kinds of stuff. 00:44:24 Professional, personal, everything about agriculture behind the scenes in front of the scenes. It's a lot of fun. Go check it out. Extreme Ag Farm. 00:44:30 Also be sure to subscribe to the Extreme Ag YouTube channel. Just go to YouTube, type in extreme ag. 00:44:34 It's all free and there's all our great content there. Until next time, thanks for being here. I'm Damien Mason with extreme Ag cutting the curve. 00:44:40 That's a wrap for this episode of Cutting the Curve. Make sure to check out Extreme Ag Farm for more great content to help you squeeze more profit out 1076 00:44:48.645 --> 00:44:50.165