It all started with a cartoon. A political poke at trade wars and the plight of distressed farmers, depicting an auctioneer as someone profiting from the suffering of others. Members of the National Auctioneers Association (NAA) set down their collective gavel and threw up the red flag saying, “Wait a minute … that’s not us.”
The antiquated caricature that auctioneers are, as a matter of course, donning cowboy hats and strutting into a farm auction to allay distressed assets only to ride off into the sunset with fistfuls of cash does a disservice to the auction industry.
At the NAA, 34 percent of members have identified farm, livestock and ranch sales as part of their business.
“There’s not an auctioneer I know that is trying to capitalize on a downturn in the farming market to make money,” said David Whitaker, CAI, owner of Whitaker Marketing Group, Auctions and Real Estate in Iowa. “It’s an auctioneer’s fiduciary responsibility to make the most money for others, in whatever scenario that is.”
It’s no secret that the scenario for farmers in 2019 hasn’t been pretty. The United States Department of Agriculture (USDA) July Crop Production report forecast corn down four percent and soybeans down 19 percent from 2018. Corn production overall has been slowly declining since 2016, and while soybeans had been rising steadily, the crop took a sharp downturn from last year.
There are many reasons for these shifts from tariffs to torrential downpours. Most major news outlets are talking about political relations with China and how it is affecting farmers. China is, after all, the United States’ biggest exporter of soybeans. Mother Nature did not play nice this year, either. Massive amounts of rain fell in April through July of 2019, bringing corn and soybean planting in the Midwest to a record-setting slow start, according to USDA reports.
Despite the weather, farmers rallied, and corn production is still forecast to be the fifth highest production on record for the United States. The question now is whether or not it has a place to go.
“With inflation and everything factored in, these guys have a real hard time making money when corn gets below $3-$3.50 a bushel,” said Doak Lambert, CAS, owner of Lambert Auction Co. in Texas. “And that’s what the future indicates is going to happen. They could be sitting there with silos full of corn that they harvested off of $15,000/acre land and the CPAs and mathematicians will eventually say, ‘Wait, this does not work.’”
According to Whitaker, it’s the farmers who are still counting on banks for operating money who could be hurting the most. Banks managing balance sheets keep a tight watch on the market value of crops, livestock and land, meaning a farmer’s actual equity can change from year to year.
“Let’s say a farmer borrowed a million dollars to bring in a crop and he does everything right, but then the weather or the trade situation with China or whatever comes into play,” Lambert said. “Now all of a sudden, that crop that he hoped was going to be worth $1.5 million is now worth $700,000 and he’s $300,000 in the red. If he doesn’t have income or capital from somewhere else, he’s in trouble. And when this happens en masse, then you have this panic.”
But contrary to some news outlets, not all farmers are struggling. Large family farms working 3,000 to 12,000 acres, are weathering the changes well, according to Whitaker. This is in part due to diversification.
“They might sell seed, help move equipment, broker grain, have hog or turkey buildings,” he said. “And so, they have more of a marginal way to make money.”
Dairy in distress?
Conducting business at the mercy of the weather—and the markets—is nothing new to farmers. But dairy farmers in particular have seen a steady decline over the past few years. While milk production has increased 15 percent over a 10-year period according to the USDA (it leveled out between 2018 and 2019), gross income from milk has dropped more than $5 billion since 2013.
“Farmers are used to swings. They’re used to good years and bad years, but the market for milk has been too low for too long,” said Jim Gavin of Gavin Bros. Auctioneers in Wisconsin. “There’s certainly been some bankruptcies. A lot of longtime established farmers are losing their equity in their farm.”
Plant-based milk products have had a noticeable effect on the dairy industry, and dairy farming is notoriously very hard work. With decreasing profit margins, it’s no wonder many dairy farmers are getting out of the business. But that doesn’t necessarily mean they’re leaving farming altogether.
“When all these variables are hitting, I can see why farmers would just throw up their hands and go, ‘Ah, we’ve got some land and we’ve got some resources, let’s just do something else with it that’s higher margin,’” Lambert said. “We’ve seen declines, especially with the small family farmer who can’t really compete with the big corporate farmer who has the capital and the economies of scale to make it work on a pretty low margin product.”
Changes and consolidation in dairy farming have certainly been felt in the auction industry.
“There used to be a lot more farms around, and you’d have an auction and all the neighbors would come. Everybody would buy; maybe one farmer would buy two or three cows,” Gavin said. “Now, you see smaller crowds and people buying bigger farms. You’re selling a hundred-plus cows to one guy.”
This increase in activity doesn’t necessarily equate to bigger profits for auction professionals.
“We’ve had more dairy sales this year than we’ve had in the last several years,” Gavin said. “But prices aren’t what they were years ago either.”
Change in the landscape
While crop and dairy markets have seen declines, auctioneers report that land values in rural areas have been fairly steady. And that’s likely due to a shift in who is buying the land.
“Iowa State University says that 82 percent of farms in Iowa are paid for free and clear,” Whitaker said. “And that’s the number one reason I think prices are still staying strong. There’s a lot of money out there and buyers waiting for the opportunity to expand their operation.”
In Iowa, where a property’s Corn Suitability Rating (CSR) determines its value—and also in Wisconsin—there are some trends in land sales. On the high end, the best normally tillable, cash crop land, is selling at auction to well-established neighbors growing their portfolio, or to investors looking for a rate of return.
“Mark Twain said, ‘Buy land, they ain’t making any more of it,’ and farmers will buy land because then they have assets they can always sell,” Whitaker said.
In the medium grade ground, buyers are harder to come by, but the ones who are out there tend to live close to the properties and often understand that even though it has a lower rating, it still produces very good crops. Values on medium ground in Iowa have seen a slight decline in the past 12 months.
It’s a similar story in Wisconsin. “Prime farmland is still selling very well,” Gavin said. “Getting good prices for the mediocre or poor farmland is difficult. And when it does sell, it’s at a discounted price.”
When it comes to determining the right price and method of sale for a property, auctioneers are experts.
“If you know the price you want, you list it, because money is your motivator. And you wait for somebody to come up with that amount of money,” Whitaker said. “If you’re ready to see what the market will bear and what somebody is willing to give, then you take it to auction. I see a lot more people at the middle range listing properties and not taking them to auction.”
Low-end land is a deceptive title to non-farmers who might view pasture, timber or recreational land as actually very valuable. But when your cash is made literally in the ground, low-end land is not going to return the same investment. Buyers in this market are investors using retirement funds or cash, hunters or people buying land to build a house.
“The stock market has done so well recently that people have said, ‘Maybe I should diversify a little bit and put money in real property—something I can see and walk out on versus buying a stock that has a paper value, and could be worth more tomorrow or nothing tomorrow,’” said Scott Shuman, CAI, partner and auctioneer for Hall and Hall Auctions in Colorado.
The future
Small family farms—which is an entirely relative term, but typically in the hundreds of acres range—are not likely to continue in the future as they have in the past. As an older generation moves on and a younger generation disconnects from rural America, more farm land will be consolidated to larger and larger operations.
“If family farms are going to stay, then it has to be profitable for the kids to stay at home,” Whitaker said. “Well, 200 acres is not enough to be a farm anymore. I can’t make enough money to support my whole family with 200 acres. So, you either have to get bigger and grow, or you’re going to sell out and somebody bigger is going to take over.”
In Wisconsin, Gavin feels the same: “Hopefully, the markets will turn around here and these guys will get a fair share to make it again. We need to see more young farmers, but the cost of entry is so high, and that’s a real barrier to entry for young guys who maybe didn’t have that family farm growing up.”
Those potential farmers may have a difficult time at auction in bidding wars against the buying power of bigger operations. It’s just one part of a constant adaptation to the changes in the way business is done.
“We’ve been talking about this in the office and at the auctioneers convention for a while now…” Gavin said, “…what we’re going to do when all these family farms are gone. We’ve seen change, but I don’t know what the future is going to hold. It’s changed our clientele; it’s just a totally different ballgame.”
Common ground
If auctioneers are sailing on a ship of public misperception in their cowboy hats, farmers are hoisting the main sail right along with them in their overalls. They both suffer from the fact that the general public knows little about what they actually do.
“Farmers are very, very educated individuals,” Whitaker said. “They have to be stock brokers, mechanics, carpenters, tech guys scouting crops with drones and thermal imaging, accountants and welders. They wear a lot of hats, and it’s the same for auctioneers. We’re entrepreneurs, entertainers, marketers and salesmen, and we have to keep up with technology.”
Auctioneers and farmers have deeply rooted relationships built over more than a century. If anyone has a front-row seat to the plight of the farm community, it’s probably an auctioneer, and he or she is poised and ready to offer professional assistance when needed.
There’s a lot of trust that goes into it,” Gavin said. “They value our opinion and what we think they can do to get them out of a tough situation. Or, if they do decide to sell, we know the best time to do it and the best way to do it. It’s a trusting relationship that you earn over time.”
Does an auctioneer profit from some of these transactions? Of course. But it’s not without a massive level of respect for the job and people before them, as well as a watchful eye on the future.
“We preach that the auction method of marketing is the quickest, fastest way to turn your assets into cash. And so yeah, we do benefit,” Lambert said, “but many auctioneers are in the ag production business ourselves. I’ve got cattle, so I’m experiencing the same pains that my customers are. I just happen to offer a service, that yes it may profit in the short term, but we don’t want to delete our long-term prospects. If we disperse all our customers this year and next year, we don’t have any customers in year three or four or five, and then we’re on the bottom of the cycle.”
Building a bridge of understanding between rural communities and the general public will take work. The National Auctioneers Association is committed to promoting the message that its members are educated, ethical and professional. And they’re big fans of farmers.
“Farmers are the lifeblood of every community,” Shuman said. “I think there has to be some real education as to the importance of agriculture and the importance of farmers to our societies. For us, strictly in the auction business they are the lifeblood, they are entrepreneurial, and they will get out and they’ll come bid on properties. And we need those bidders. They also become our sellers. We need those sellers. They’re what makes our economy happen.”
Despite the difficult year some farmers are having, they’re not alone. Auctioneers and farmers share two big things in common: resiliency and resourcefulness. Regardless of what the future holds, they will operate hand-in-hand. Because the auction method works in the good times and in the bad. Cowboy hat or not.