Thursday, January 31, 2008

Interest of some interest...

At a [great and packed!] meeting in Rockford, IL for Syngenta, heard some scuttlebutt that dropped my jaw.

Apparently life insurance [Hartford, MetLife, etc.] companies are back into ag lending big time, sometimes undercutting FCS by as much as 2%. In fact, consider this deal:

5 yr.lock, 15 yr. amortization, no recourse, no principal (!), for less than 4.5%. Do the math. That's a payment well below going cash rents for my area. To be sure this is for gold-plated borrowers, but many producers fall into this category.

It takes a while for cuts in the short term-rates to have affect (if any) on long term, but rates could be going even lower.

There is much advice going 'round about paying off debt as a first priority during our grain boom. The market seems to be saying otherwise. Money looks like the last form of wealth for me to pile into. Especially when inflation fires up - as I think likely.

When serious money people are diving into farmland investments and financing, I think it safe to consider they are not idiots. In fairness, I am sure I am looking for data to confirm my inclinations, so take it FWIW.


On another note, this whisper from a friend close to the situation.
FYI on U of IL on cash rents. There were 16 farms put up for cash rent auction this year. 194 bidders for the farms.
3 of the orginal tenant were the high bidder on the first round. The U of IL gave all tenants on the 16 farms an opportunity to match the high bid after all the bids were opened. 9 additional tenants agreed to match the high bid.
So 12 of the orginal tenants will be farming the ground for this coming year.

This all off the record but it came from a good source. No report of the cash rent amount paid per acre - yet.
I think this is a good outcome for all on a subject that riles many folks up. Locals stepped up and defended their turf. Trustees maximized their income.

Looks like a free market solution to me.


Anonymous said...

It would be something if every landlord did this to the tenants. U of I is setting an example? Lets hope not. Talk about capitalism and the returns to the most limiting resource kicking the crap out of the farmers. Reminds me of stories of Ireland in the 1850's.

John Phipps said...


Many producers agree with you. I've noticed most of them are in share rent agreements.

The Irish situation has few points of analogy, I think. Virtually all the land was owned by the absentee Anglo-Irish aristocracy, whereas most farmland in the US still farmer-owned.

Plus it's hard to talk about the Irish agony without comparing the boom we're having and the Great Potato Famine.

My feeling was allowing the sitting tenant to match competitive bids at least attempts to balance the interests of farmers who farm now and those who want a chance to farm as well as the rights of the owner.

It also sends a very clear signal to producers that land ownership is the only true form of long term security.

Thanks for you comments.