Saturday, February 24, 2007

Land rent auction shows ethanol impact in valley

InForum- Fargo ND

KINDRED, N.D. - The biggest news in Red River Valley agriculture this past week was a farmland cash rent auction for Orten B. Brodshaug of Horace, N.D., on Feb. 21 at the Fargo Holiday Inn.

The auction prices brought nearly double the cash rents that prevail in parts of the auction area - all in Cass County. The rents set a new and public benchmark for the region and a dramatic demonstration the effect the ethanol-driven corn market is having on land rents. It also may show the concurrent impact of sugar beet and soybean returns, with implications for land renters and landowners up and down the Red River Valley.

About 7,300 acres of Brodshaug's owned land came up for three-year bids.

Scott Steffes, president of Steffes Auctioneers Inc. of Fargo, confirmed that there were about 100 qualified bidders at the auction and about 275 people in attendance. The auction occurred over an hour and 40 minutes, in four rounds of bidding.

To qualify as bidder, a participant needed a $10,000 cashier's check and a letter from a lender. If they were the high bidder, they had to deposit 10 percent of that amount, with the balance due March 1.

Steffes confirmed that the low bid was $126 an acre and the highest was $174 an acre, with the median average between $150 and $160 an acre. On that basis, the average rent in the deal would be $1.1 million per year.

Some bidders who attended the auction, but declined to be named, said one successful bidder is a large sugar beet producer from the northern Red River Valley and rented more than 2,000 of the acres.

Brodshaug, 71, is retiring from operating farms and also owns land in the LaMoure area. He reportedly did not grow sugar beets on any of the land, so the Red River Valley land is especially valuable for that crop, which requires rotations with other crops to avoid pest and disease problems.

“We had a total of nine different renters,” Steffes said. Brodshaug didn't immediately return a phone call at his Kindred farm headquarters, where his staff said he was busy preparing for a March 6 farm equipment auction.

Steffes declined to say whether the land value is twice the 2006 rate, but acknowledged it's probably double the rates of two or three years ago. He noted that comparable land in a 2,800-acre deal averaged about $125 in late 2005. Auction-goers said the land in the western Cass County area saw the biggest change because of the improved income prospects for corn and soybeans.

Steffes said the auction system is a wonderful way to discover prices for “large, multi-tract landowners” and probably will become more common. Steffes said Brodshaug had participated as a bidder in a land rental auction about four years ago and liked the process.

One significant ag lender in the region, who asked not to be identified, said the sale will have impacts even on operators who have multiyear deals with landlords.

“I think people's perception would be that it was significantly higher than what people would have expected,” he said. “It'll send tremors. Cash rents cause more turmoil than land values, and cash flow impact.”

Typically, farmers own a fourth or a third of their land and rent the rest, so the impact from land rent increases has an immediate effect.