Are cash rent auctions in our future?

Are cash rent auctions in our future?

In 20 years, many cash rental agreements may be decided with an auction

Last week I attended my first cash rent auction. I have read about these auctions but never experienced one in person. To my knowledge, last week's event was the first cash rent auction in the immediate area. The farm location is out of our farming range but I went to see what is probably a glimpse into my row crop farming future. I was reluctant to attend, but quickly agreed to go with my friend Robert after he offered to pay for supper afterwards.

"'Ladies and gentlemen, I hope this becomes a trend,' he began. 'If you have a farm you want to rent we can auction it off for a good price.' At this point, Robert looked at me and said my face was beet red. I was really nervous and I wasn't even bidding!" (Thinkstock)

The auction started at 6:30 p.m. We arrived to an almost full parking lot at the American Legion in Jacksonville, Ill., just after 6 p.m. Auction packets were available to all, but serious bidders were required to sign some paperwork. I saw a few familiar faces among mostly strangers. We got a packet and took a seat in the back row. People were beating down the doors to get inside the building. Over 150 people were packed in the room by the auction start. Farmers, lenders, and onlookers quieted down and the auctioneer started the event.

"Ladies and gentlemen, I hope this becomes a trend," he began. "If you have a farm you want to rent we can auction it off for a good price." At this point, Robert looked at me and said my face was beet red. I was really nervous and I wasn't even bidding!

Minutes before the auction, one bidder approached the landowners and gave them a price for the 270 acres for a three-year lease. The auctioneer started the bidding at that price. The bidding took several minutes. Three 'in-person' bidders competed against one online bidder.

The winning bid was $390 per acre for three years.

Now, bear in mind: this ground is likely the best in Alexander, Ill., which is in highly productive west central Illinois. The selling bid per acre was probably $100 per acre less than in recent years, but still at least $75 higher than what I would consider my breakeven profitability.

Key cash rent auction takeaways
1. Some farmers are still paying too much for land purchases or rent. My conclusion is that the highest bidder is banking on commodity prices rebounding. What else could it be? Say the winning bidder counts his equipment cost at zero for three years; he's still losing money.

2. In 20 years, many cash rental agreements might be done this way. Auctioneers are pushing it, and it appears that landowners like it. These auctions are a way for farmers to compete for land, and also a way for landowners to test the market. Sadly, it takes away all of the personal relationship between tenants and landowners. On a positive note, it gives all farmers a chance to farm a tract of land.

3. Cash rent auctions are coming to a farm near you. The ultimate question: how do we position ourselves to compete for this auctioned land?

The opinions of Maria Cox are not necessarily those of Farm Futures or the Penton Farm Progress Group.

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