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Michaela Paukner:

Welcome to the No-Till Farmer Podcast, brought to you by The Andersons. I'm Michaela Paukner, managing editor at No-Till Farmer. In today's episode of the podcast, Brian Schroeder with National Land Realty talks about 2023 land value trends and what needs to happen for no-till and other conservation practices to influence dollar value of land.

Ryan Schroeder:

Ryan Schroeder with National Land Realty. Been with National Land since our previous company, Land Pros, merged with national land back in 2014 or '15. I got my real estate license when I was a senior in college in '97, and then I got my broker's license in 2002. The past 20 years, basically what I've focused on is farm, ranch, and recreational real estate. That's my background. Plus my brother and my dad, they still farm in northeast Nebraska, so I get the pleasure of helping them when they get behind.

Michaela Paukner:

Always good to have an extra set of hands at the busy times of season, for sure.

Ryan Schroeder:

That it is. That's usually when I get called is harvest, especially. Have to run the grading cart for them and then planting. Sometimes if you have a wet spring, they get behind and they might have to rent an extra planter and then they usually call me up and say, hey, we need you to run this for a couple of days. I'm more than happy to because hey, you get back to the roots. That's always fun, playing with the big boy toys, it seems like.

Michaela Paukner:

Yeah, for sure. Today, we're talking about farmland values and I'm hoping you can set the stage for us by starting out by talking about what trends you're seeing in farmland values across the board in 2023.

Ryan Schroeder:

Yeah. The trends lately here in 2023, everything has been fairly stable. Even with the increase of the input cost, fertilizer, interest rates going up, there's still a lot of cash out there, as you know. As far as the land values themselves, they've hold, they've been stable and even slightly increase. Your higher quality soil farms, they will always retain their value.

Michaela Paukner:

Talking about that higher quality soil, how does the value of no-till farmland specifically compare to farmland as a whole in 2023?

Ryan Schroeder:

Well, I think with your higher quality soils, your no-till is just a common practice on those that will hold your nutrients in the ground, less soil compaction. They just hold their value better and there's less work that needs to be done to the higher quality soil. That's why a no-till practice is fairly common in those areas.

Michaela Paukner:

When you're valuing land, how do you factor no-till into that knowing that those no-till soils are higher quality and will produce better and will just keep improving?

Ryan Schroeder:

It's really going to depend on your region where you're at. When I am looking at a farm, I try not to get further than a further than a 10-mile radius from your subject property that you're trying to evaluate, because if you get out a little further than that, then there might be a different soil makeup on your sale that you're looking at versus your subject property. In a perfect world, you want to find that sale that has a same soil as your subject property, but that never happens. You just make a little adjustments here or there. Obviously, you want to compare apples to apples, dry land to dry land, irrigated to irrigated, hill ground to hill ground, bottom ground to bottom ground. Most of the time, you do have to go outside that 10-mile radius or you're going to have to pull some sales from the hills if you're doing something on the bottoms. I don't want to say there's an exact science to it, but there's also just sitting down and trying to compare apples to apples, not oranges to apples.

Michaela Paukner:

Sure, sure. When you're looking at, let's say it's a no-till field and then a conventional tillage field, both within that 10-mile radius, are you able to assign a certain dollar value to the no-till field above the conventional tillage one, knowing that it is no-till?

Ryan Schroeder:

You usually don't want to do that because for instance, just north of me, we have a lot of bottom ground. They have to till that because if they don't, their compaction is going to be really, really high when it comes to spring planting. It'll be almost impossible to get into that field. But that's that soil makeup. You have to do that on the bottoms. Where if you go up in the hills, it's no-till, and the soil is going to be different up in the hills, obviously, than in the bottoms. And then in my opinion, there's just really no comparison. You can look at it and within your analysis of the subject property, you may want to mention the two and the difference between the two and that, hey, there is a sale right here, but it's a different soil makeup, but this is the sale price of it. It'll have some weight, but it won't have a whole lot of weight when it comes to valuating the subject property.

Michaela Paukner:

Okay. Then as it stands right now, what factors into your valuation and can you walk me through what that process looks like for you?

Ryan Schroeder:

Well, as we discussed before, you have your subject property, you locate that one and you try to make a 10-mile radius ring around it. And then you go to the market of, okay, what has sold in that area? I usually don't like to go past 12 months. Any sales older than 12 months, I like to kick out. But if there is one right across the fence and let's say it's 18 months old, you want to make mention of it and maybe have a time adjustment on that older one because here, gosh, in the last 12 months, our market has changed and you might have to add a 10% increase in value just for a time adjustment.

Once we gather all that information, we have our subject property, we have, in a perfect world, five or six sales to compare it to, then we look at the soils, we look at the improvements, we look at the drainage, we look at if it has any tiling, and then we make positive and negative adjustments to the sales themselves to compare them to our subject property. That is roughly a 30-second version of how you want to evaluate a farm.

Michaela Paukner:

Another thing I wanted to ask about, too, was a lot of our no tillers are considering participating in carbon markets and getting payments for sequestering carbon. Is that something that would potentially factor into a land valuation?

Ryan Schroeder:

It can in the future. That carbon market is slowly developing. From my understanding in the past is it seemed like the no-till farmers were not getting credit of what they have been doing in the past. Now that carbon market is slowly seeing that and catching on and saying, hey, these farmers here, they've been doing this the whole time, so let's give them the credit and not change their practice. That is coming in the future. They don't quite have it all figured out. But yes, when and if that does become a common practice and then there there's more and more no-till farmers that are on board in getting carbon credits, then yes, that will change the valuation, probably for the good.

Michaela Paukner:

Yeah. One would think so. I know that's the concern that we hear a lot from those long-term no tillers. It's like, why am I not being rewarded for decades of doing this when somebody could switch for a year and then go back to tilling or something like that?

Ryan Schroeder:

Hundred percent. I hope they do change that and make it for the better for the farmers, because that will be a good asset for them.

Michaela Paukner:

Yeah, for sure. This relates to that, but what needs to happen so that appraisers are considering conservation ag practices in appraisals going forward?

Ryan Schroeder:

Well, going forward, as we just discussed with the carbon credits, that has to be a common practice within the culture or the region that you are doing your appraisal in. As soon as that that becomes a common practice, then they can incorporate that. For instance, let's say I'm appraising a farm and one of my sales is right on the edge of town and it was sold a thousand dollars per acre higher than all my other sales. Well, it was sold as transitional ground or development ground. I'm going to kick that sale out because it really doesn't compare to something that is outside of the utility area and is not going to be developed within the next 20 years.

With that being said, it's going to be the same thing with a carbon. Let's say only one of my sales have got a carbon credit on it and that increased the value on it, but all the other five sales that I'm looking at do not. That sale is going to be kicked out because it's an outlier and I'm going to focus on the other ones. In the appraisal industry, you don't dare use the word average because that's really a four letter word in the appraisal industry, but if that is an outlier that's higher, it's going to probably get kicked out. You're probably going to make a mention to it, but yet you're not going to put a whole lot of weight on that valuation, on that one sale that only has the carbon credit on it.

Michaela Paukner:

Okay, that makes sense. Does it have to be a certain percentage? Let's say with the carbon credit thing, a certain percentage of sales in that area are that that you would be able to use it as a benchmark?

Ryan Schroeder:

I can't sit here and say, well, 75% of your sales have got to have a carbon credit on it. If your subject property that you are appraising has a carbon credit on it, well then, guess what? All your sales or majority of your sales that you're comparing against your subject property, they better have a carbon credit on it, too. In reverse, that would be a hard appraisal assignment. If you're appraising a farm that does have a carbon credit and it's one of the first ones in the area and there's no other sales there that have them, that's going to be a very tough appraisal. Once again, back to my previous statement, it's got to be pretty common in that area to really affect the values. Usually, the first one to the table, those are going to be the tough ones to appraise.

Michaela Paukner:

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Let's say that we get to a point where it's common practice, people are no-tilling. What would, in your opinion, a benchmark or standard look like, or would there be a benchmark or standard to value no-till higher than conservational tillage?

Ryan Schroeder:

That's going to be tough to abstract that from the marketplace because just like the previous example that I give, your bottom ground that's a lower soil quality than the hill ground is going to be a higher soil. Those two are going to have different values and it's just because in the hills, it's going to be common practice for no-till. In the bottoms, you're going to have that tillage, but you just have to do that because that's the way the soils are. To sit there and say, can I abstract a value no-till versus tillage? That's going to be tough to do. That's going to be honestly tough to do.

Michaela Paukner:

Okay. We had a researcher at the National No-Tillage Conference. He spoke about a study that he did that found that simply having no-till acres in the same county increased all of the land values of the county regardless of tillage or no-tillage. Just curious of if that's something that you've seen in your experience in where you're working.

Ryan Schroeder:

I'd agree with him because I think that raises the standards on everything. The other part of it, too, that I was thinking of, too, as far as no-till and values for no-till, that is one less pass that a farmer has to do. Less time, less wear and tear on the equipment, less diesel to use. In that aspect of things, your bottom line on your farm should go up. Yeah, I'd agree with his statement.

Michaela Paukner:

Okay. Talking about the general trends that you're seeing for 2023, going back to that, what do those trends mean for a no-tiller who's renting land? How is that going to affect?

Ryan Schroeder:

Well, I think your cost with everything is going up and that includes probably rent. As long as the commodity market stays strong as it is right now, the rent is going to go up. Dollar per acre is going up. Gosh, even the taxes are going up and your input. I think just like everything else, everything is going up. God, I hate to say that for the renters, but if you're reading between the lines, that's what I see.

Michaela Paukner:

Mm-hmm. On the flip side of that, what about for those no tillers who are no-tilling lands that they own? What do these trends mean for them?

Ryan Schroeder:

Same thing with everything else. The valuation has gone up. Land is in demand. The prices have been going up steadily. If he's an owner, you should look at what the average is because the average over statewide, I think in comparison to Nebraska, statewide, I think it went up 14% in the whole year of 2022.

Michaela Paukner:

Wow. Those are all my questions. Was there anything else you wanted to mention that we haven't talked about?

Ryan Schroeder:

March 1st, so University of Nebraska and Realtors Land Institute for Iowa, they will release it the first part of March, typically in 2023, but it is a survey and everything compiled together from the previous year of 2022. Here, I'll show you. Right here is what I had popped up. This is part of the University of Nebraska and then this, it covers it by a region here, like northeast. I'm located right here in the east, but our family farm is right here. You can see the change of irrigated in the northeast and dry land and all this other stuff. And then once you get, there's even a cash rent survey on here, too, land values. The other thing, too, is you can look at, like I always have these custom rates. If you wanted to disc something per acre, it's anywhere from $17 to $20.

If I had to hire somebody $20 an acre to have them come in there and disc it up. You can also reference that if you wanted to, because like when I was saying that's less wear and tear, that's less pass, that could save someone $20 an acre. But if you want to get into the return on the farm, is $20 an acre really going to move the needle on the valuation and the return on your investment? Not really. Not when the taxes may be 50, $70 an acre. Here's a picture of my dad. I think this is my dad running this combine.

Michaela Paukner:

That's a nice shot.

Ryan Schroeder:

I got some good drone shots over the years.

Michaela Paukner:

Oh, cool. Do you guys have a drone?

Ryan Schroeder:

Yeah, I do. I use it for work.

Michaela Paukner:

Okay. Oh, I imagine that's a very useful tool for you.

Ryan Schroeder:

Well, and the one thing is if you go to nationalland.com and you look at our listings, we have this tool. It's called Land Tour 360. Imagine the property, you have the drone up about 300 feet, and you can move it around and zoom in and zoom out. It's a very useful tool in our industry. It's like we say, you can get boots on the ground without getting your boots dirty. Drone work in this industry is big.

Michaela Paukner:

Are your buyers mostly local or are you getting a lot of people who just see the drone stuff and are like, yes, I want to invest in that?

Ryan Schroeder:

When you mean local, do you mean within that county or do you mean within that state? Within the state, yes. Once you get outside of the county, there may be some investors from Lincoln and Omaha coming in and buying stuff. But within the county, I would say, oh yeah, within the state, yes. 90% of it is probably local, but within the county, then you might even go almost 50/50.

Because we've got guys that are looking for land for just an investment, land that maybe they can hunt on or just have it for recreational, and they're just looking to place, because now as you're seeing the stock market dip a little bit, that's when I'll see a lot of the investors. They'll pull their money out and they're like, hey, I'm going to go buy a million dollar farm. I just want to put my money there because I'm losing money now. Sometimes it is a shift.

Michaela Paukner:

Interesting. Just hearing some of the concerns about the Silicon Valley Bank failing and how that's impacting us, are you seeing more outside investors who are just trying to put their money into something physical?

Ryan Schroeder:

That happens every year. We'll do that. But we had a little dip in the market and that increased a little bit of value, but now the market is stabilizing and maybe going up after that bank failure. There wasn't a big rush after that Silicon Bank failure, but gosh, when was that? In '09 and '10, when a lot of the residential stuff was going down, all those banks were going down, there was a lot of people pulling their money out because the stock market was going down. There was a lot of people money pulling their money out and buying land.

Michaela Paukner:

Oh, it's very interesting.

Ryan Schroeder:

It is. It's a very fun industry to be in, to be totally honest with you. That's the thing, too. I started with real estate and I always had plan B. I could always go back to the family farm if need be, but I was one of the lucky ones and real estate paid off.

Michaela Paukner:

Yeah, for sure. You get to still do some farming stuff, so that's pretty cool, too.

Ryan Schroeder:

Yeah, that's fun. That really does help me with my industry, too. It gives me some credibility. I'm just not some city boy that's trying to be out here and sell land. It's like, hey, I do have some ties back to the land.

Michaela Paukner:

Thanks to Ryan Schroeder for today's conversation. A full transcript and video of this episode are available at notillfarmer.com/podcasts. In the video version, you can see maps from the University of Nebraska and the Iowa Chapter of Realtors Land Institute that were referenced in this episode and that great combine drone shot that Brian showed me. Many thanks to The Andersons for helping to make this no-till podcast series possible. From all of us here at No-Till Farmer, I'm Michaela Pockner. Thanks for listening.