U.S. farm managers buoyed by Baby Boom, land values

OMAHA, Nebraska Mon May 3, 2010 11:30am EDT

1 of 2. Jim Farrell, president and CEO of Farmers National Company poses in his office in Omaha April 30, 2010. Relaxing in his suburban office nestled in the agricultural U.S. heartland, Farrell sketches his job as the single largest professional manager of farms in the United States. Picture taken April 30, 2010.

Credit: Reuters/Rick Wilking

OMAHA, Nebraska (Reuters) - Jim Farrell doesn't look like a typical tractor-driving farmer. But he doesn't look like a Wall Street titan, either. Maybe he's a little of both.

Relaxing in his suburban office nestled in the agricultural U.S. heartland, Farrell sketches his job as the single largest professional manager of farms in the United States.

"One of the statistics people forget is how much farmland is owned by folks who do not farm it. Throughout the central Midwest, 50 percent or better is owned by people who do not farm it. It's all land that is leased to farmers -- either custom farmed, share cropped or cash rent," Farrell said.

Farrell's company, Farmers National, manages over 4,500 farms in 23 states covering 1.5 million acres of crops, pastures, a total that is roughly the size of the state of Delaware, along with forests, hunting grounds and oil and gas interests.

Each year his farms sell about 25 million bushels of corn, 5 million bushels of soybeans, a million bushels of wheat -- a value of about $142 million based on current prices -- along with many other crops for the owners.

It's a booming business, he says, driven by demographics of aging farm owners and investor interest in U.S. farmland. The 50- and 60-year-olds of the post-war "Baby Boom" generation are inheriting more properties as absentee owners, requiring his management services. Despite their severed ties to farm life, many farm heirs and aging owners also remain reluctant to sell -- underpinning land and farm prices.

"When you have 80 percent of the land owned by people over 65, obviously there is a lot of transition going on," he said.

"The next generation is the baby boomers. They are the folks inheriting the land right now. One of the trends we are seeing is fewer and fewer of them are willing to sell the farm, they are holding it.

"When a farm comes up for sale it's almost always nonoperating land owners or heirs selling. Farmers only sell land when they have to," Farrell said.

When farms are up for sale, he added, farmers and their heirs also remain the most active buyers of U.S. farmland, representing about 75 to 80 percent of today's buyers. But newcomers, "part-time" or "hobby" farmers are also growing as a buyer class, some for "lifestyle" and some for security.

"It's a stable investment. They've watched stock portfolios up and disappear, companies disappear where the stocks just go away, i.e. General Motors. The farm will always be there ... there is that stability of the investment. For a lot of people that is kind of comforting," he said.

FAMILY FARMS

So is the U.S. family farm dying or not?

"I don't think so," Farrell said. "But I think the family farm has redefined itself today. Most of the land farmed is a family farm. It may have incorporated, may have some sort of LLC (limited liability company) structure, hired hands. It's not uncommon for an individual to farm 1,200-1,400 acres, with seasonal help.

"If you want to look at the family farm nostalgically, look back on the '50s and '60s. I don't know that farm exists in that form any more. But most of agriculture is still very family orientated."

Large farms, those with annual sales of more than $1 million, produce nearly 60 percent of all U.S. agricultural production.

Farmers National, founded in 1929 after the great stock market crash, was born of crisis as farm foreclosures soared.

Farrell, who grew up on an Iowa farm, began his career with the firm in 1986, managing farms in southeastern Minnesota.

In 1986, insurer MetLife bought the company as it struggled with foreclosed properties in the last big farmland crisis.

The Federal Reserve under Paul Volcker pushed up interest rates to break inflation. But many debt-ridden farmers went bankrupt, farmland prices plummeted -- and MetLife needed someone to manage the many properties it suddenly owned.

In 2000, Metlife sold Farmers National back to Farrell and his employees. Now the company of a couple of hundred employees has the feel of a quietly efficient, "old money" juggernaut -- like its Omaha neighbor Warren Buffett and his company Berkshire Hathaway.

Farrell says the firm has been in the right place at the right time. U.S. agriculture has been one of the most productive sectors of the world's largest economy for decades.

According to the U.S. Agriculture Department's Economic Research Service, assets used in U.S. farming totaled $1.944 trillion in 2009 -- with land accounting for $1.634 trillion.

"Farmland in a general sense has been a good investment since about 1986," Farrell said. "A 4-1/2 to 5 percent return is achievable if you buy a farm today at least on a year to year basis. For a lot of folks that's a pretty good return."

But Farmers National, whose services include appraising and selling properties, has seen a notable drop in the number of farms up for sale throughout the Midwest and Mid-South.

Typically, the company sells 550 to 650 farms a year. But sales are off about 20-25 percent from 18 months ago.

"That is part of the reason why land prices are up. People are trying to buy and there are not as many sellers," Farrell said, adding that financing for purchases was not a problem.

"The money is available. What is going on is a change in the requirement to borrow money -- more strenuous than they were. Most lenders today won't lend over 50 percent of the value of a property. Some will even lend less," he said.

But individual investors are definitely staking claims.

"There are people out there trying to form LLCs with $25-$75 million to buy some land," Farrell said. "It is still a small part of the market but certainly a viable part of the market -- anywhere from 8 to 10 percent of the new investors.

"It's not that there weren't nonfarm investors buying in the past. There were pension funds and others purchasing farmland. But we are finding more individuals today that are putting together a group of two or three people, interested in ag because they think long term. We are seeing more of that than we've ever seen. Folks buying land because they are bullish on agriculture," Farrell said.

(Editing by Claudia Parsons)

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