CARLINVILLE, Illinois Nov 12 (Reuters) - Buyers of U.S. farmland appear undaunted by falling grain prices, paying top dollar for prime parcels coming up at autumn auctions although showing a more cautious tone than in recent years, farmland auction participants said at a sale last week.
"It's more dependent on where a farm is located than the general land market. The person the farm is near matters more than the type of farm," said Bruce Huber, an Illinois real estate broker who handled a sale in central Illinois last week. "Last year, it was just up, up, up."
If the sale of the 535-acre (217-hectare) grain farm in Carlinville, Illinois, for $14.5 million is any indication, farmland values in the most productive areas of the grain belt will stay steady during harvest, the traditional season for farm land auctions.
The farm in question, which included grain storage facilities for more than 4 million bushels, was sold in seven tracts with the top parcel of 200 acres bringing in $13,600 an acre.
"We decided $13,000 was our top dollar. We exceeded our expectations. But I'm glad we did it," said David Fullington, a local CPA who organized a partnership of farmers to make the successful bid for that parcel, which will be farmed by one of the buyers' sons in the coming year.
The sale price was as strong as a year ago when corn was at $8 a bushel versus the $4 being paid today. Corn prices have been the catalyst for sky-high U.S. farmland values in recent years.
Why the strength? The usual reason: the neighbors wanted the farm.
"We wouldn't have bought this if we didn't own other land," said Fullington, who said top grade land four years ago had been selling for $4,000 an acre. "It would have been a poor investment for somebody to go out and buy land for the first time."
Huber said he had seen a common theme at this autumn's grain land auctions in Illinois, typically the nation's number 2 corn and soybean grower behind Iowa.
If the farm is in the right spot, and the land is good quality, farmers are paying top prices and quickly - the 200-acre parcel, a $2.72 million sale, was done in 15 minutes, Huber said.
But if those factors are not present, sales go slow and often disappoint sellers.
"There is more variability this year," he said. "If you want $13,000 or $14,000, you're going to sit on it for a while. A year ago, that wasn't the case."
There is a wide audience for farm land prices this season. Federal Reserve policy makers, farm bankers who use land as loan collateral, seed and fertilizer dealers and equipment makers like John Deere are closely watching land sales as an indicator of future farmer spending at a time grains prices - if not revenues, given higher yields - have fallen back.
Jason Henderson, a Purdue University agricultural economist, said the Illinois auction was in line with what many have expected.
"Farmland values are holding pretty flat from where they have been. Usually the big moves in land values come in the fourth quarter, so we're right in the middle of it," he said in an interview. "My scenario as to how I think it's going to play out: we'll get a little softness. Then those farmers will sit there and decide, 'Is this the top of the market or not?' Those who were on the fence thinking about selling, if they think this is the top, then they'll put it on the market."
Prime grain land in Illinois, Iowa and other Midwest states rose 20 to 30 percent in 2012 alone. Soaring demand for corn from ethanol makers, strong demand from China and other importers, and rock-bottom U.S. interest rates have all combined to feed the farm land boom.
But skyrocketing land values have stirred nightmare memories of the ruinous land bubble of the 1980s, when overleveraged farmers lost their farms as interest rates jumped. Farmers who lived through those times remember them well. Many were among the more than one hundred onlookers who sat in the old Macoupin County courthouse in Carlinville last week to watch the auction.
For some, the sale was a sober reminder of the bad old days and bitter lessons repeated.
The property had been owned by Rick Rosentreter, an ambitious young farmer who grew his grain operation from a few thousand acres to 30,000 acres in just a few years. But it was fueled by debt and the bankers who had lent to him foreclosed.
"The tone of the sale was great," said Huber. "The reason for the sale was not. There was stress."
Rosentreter was not present for the sale. Seth Baker, a broker with real estate company Schroeder Huber, said the young farmer's meteoric rise and fall drew some interest in the event. But he said that when the bidding opened, it was the productive value of the land, not seller distress, that made the day.
"There have been some sales that went well, others not so well over the past few months. We were on the high end of what we expected," Baker said. "Outside of tracts 5-6, which sold relatively low due to access issues, all of the other tillable ground brought exceptional market value for class B, B+ soil types."
Other big buyers were also neighbors of Rosentreter, including the Behme family, which bought a 40-acre tract for $11,500 an acre.
But the biggest buyer was a neighbor from 90 miles (145 miles) to the north in Decatur - Archer Daniels Midland, the biggest grain processor in the country. ADM bought a 30-acre parcel that included 20 grain storage bins for $9.1 million.