Q: What are the typical lease terms for the farmer?
A: The lease can either be a cash lease or a crop share lease. With a cash lease a sum certain is established for the crop year. This cash rent can be due in advance, due at the completion of the crop year, or a combination (one-half at beginning of the year and one-half at completion of the crop). Cash rent for irrigated Mississippi farmland normally ranges from $100 to $130 per acre with $125 per acre being a good cash rent amount. On a crop share the owner receives 20 to 28% of the crop produced and harvested. The owner can choose to have the farmer sell the owner’s crop share together with the farmer’s or the owner can choose to sell his own share of the crop. With the strong commodity prices, a crop share rent could produce a stronger rate of return than the typical 5%. However, the owner does have more risk with the crop share arrangement. The majority of our investors have opted for the crop share arrangement.

 

Q: Is financing available for agricultural investments and what are typical terms?
A: There are large institutional investors who will make purchase money loans for Mississippi Delta farm purchases to qualified buyers on favorable terms. Generally, they will loan fifty to sixty percent of the purchase price with the farm pledged as security. For a higher percent loan to value ratio the lender would ordinarily require additional security.

 

Q: How long will the term of the lease be?
A: Mississippi farmers generally like to lease the farm for three to five year periods. However, the farms can be leased for longer or shorter periods of time. Some considerations are. If the farmer leases for short periods at a time (i.e. one year term), he is usually reluctant to spend as much money on upkeep of roads, ditches, irrigation equipment, and soil preparation. This can lead to reduced production and a farm that is not as well maintained. With a long term lease (i.e. over five years), this can hinder the marketability of the farm. Some potential purchasers may want to farm the land themselves or may want to negotiate a different type of lease. A good provision is the right of the owner to terminate the lease upon the sale or transfer of the property after the second year of the lease term. This gives the farmer the assurance of two crops along with the assurance of the additional crop(s) if the owner does not sell the farm.

 

Q: What are some out of pocket expenses that the owner will incur?
A: The Mississippi Delta farm owner will be responsible for the annual ad valorem property taxes which are generally $10 to $12 per acre. In addition, the owner will want to maintain hazard insurance on the improvements such as grain storage facilities, storage and equipment sheds, houses, and center pivot irrigation systems.

 

Q: What structures are normally found on a farm?
A: Most medium to large Mississippi Delta farms have a shop and equipment shed for the farm headquarters. In addition, most grain farms also have grain storage and drying bins located at the headquarters. Some farms have a manager’s house and larger Mississippi plantations often have one to two tenant or farm laborer’s houses.

 

Q: What rate of return should you expect on a Mississippi Delta Agricultural Investment?
A: The rate of return on investment will be 5% +/-. This does not include appreciation which is where the substantial profit will arise from the investment in Mississippi Delta agricultural real estate.

 

Q: Are there currently solid farmland investments available?
A: Yes. There are some excellent investment opportunities. Currently available Mississippi Delta farms range in size from 200 +/- acres to 4,000 +/- acres.

 

Q: What are some factors to consider when assessing a potential agricultural investment?
A: Soil types are very important. In addition irrigation, improvements, precision leveled land and good drainage all contribute to value of Mississippi Delta farmland. Production history is also a vital variable to consider.

 

Q: Is now a good time to invest in agricultural real estate in this region?
A: There has never been a better time to invest in Mississippi farmland. The upward cycle in values is driven in part by strong commodity prices and corresponding solid returns on investment.

 

Q: Do you feel that agricultural real estate will appreciate in value over the next few years?
A: The financial experts that we trust feel as we do that Mississippi Delta farmland properties are in a cycle of upward adjustment in values. For the last several years properties have sold from $2,500 to $3,100 per acre. We feel that this will move to $5,000 per acre in the next four to five years. Of course the value of individual properties will be influenced by soil types, irrigation, location and other factors.

 

Q: How have the values of Mississippi Delta farmland investments grown over the past 20 to 30 years and how does this reflect on current value trends?
A: Over the last 20-30 years farmland properties in this region have gone through periods of stable values followed by periods of upward price adjustments. We are currently in an upward adjustment period. In the 1970's we were attempting to purchase several farms for $500.00 per acre. The owners were seeking $550.00 per acre. While the negotiations were underway, a highly publicized sale occurred. A large plantation was sold through a bidding process. It brought $1,000.00 per acre and overnight, farmland prices for properties of similar quality in the Mississippi Delta adjusted to the $1,000.00 per acre price (never to fall below this mark again). During the 1980's our company was heavily involved in investing for international investors (primarily Swiss and German). These investors were attracted by the return on investment of the properties along with the growth potential. They were especially attracted to the historical stability of our agricultural farmland market. Of course, the strength of the U.S. Dollar against other foreign exchanges always factored into their purchase decisions. These investors invested extensively in the Mississippi Delta at prices ranging from $1,250.00 to $1,550.00 per acre. After purchasing the property, the typical international investor would then improve the farm by adding modern shops, equipment sheds, and grain storage facilities. Also, irrigating the property was a priority. The farmland was either landformed for efficient furrow irrigation or center pivot irrigation systems were added. Together with a sister company we managed these properties for the investors (who owned the properties through Mississippi corporations set up by us). While investing for the international groups, we were able to purchase some farms that simply had never been available. They had been owned by the same families for over 100 years and never sold on the open market. In previous years, it was not possible to establish an accurate market value for farmland in these areas because of a lack of sales (no property available for purchase). These properties are silty loam soils located in the Tallahatchie River Basin. They are highly productive farms used historically to raise cotton but now diversified into wheat, soybean and corn production as well as cotton. To summarize the 1980's, this was a period that brought a $250.00 to $550.00 per acre increase in value and ushered in the era of large modern plantations which are highly improved with an emphasis on efficiency. In the early 80's, prices took an upward adjustment from the $1,000.00 per acre range to the $1,250.00 to $1,550.00 per acre range, leveled off and remained stable. Investors were primarily non- farmers who leased out the property for a rental return on investment. The 1990's was a period of stability in farmland prices. The prices held steady with a sustained appreciation in value. During this time, some of the international investors chose to take advantage of favorable exchange rates and move their investments into the now open Eastern European market. We were able, in each case, to sell their properties to domestic investors at a reasonable profit margin. The domestic investors consisted of pension funds and other financial interests. To a large degree these were still absentee landlords who leased the acquired property to local agricultural operators. Most of these properties are still currently held by the same investors and have not been offered for resale. The 2000's have attracted a different type of investor. The purchasers tend to be farming families who are expanding existing operations or transferring their holdings from other states. There have been a number of Section 1031 tax exchanges involving investors who have sold agricultural properties in other areas of the country and used the proceeds in a qualified exchange to purchase more acreage for the same price in the Mississippi Delta. In 2004, we were involved in the purchase of a 2,000 +/- acre property for $1,800.00 per acre. This expanded an existing operation, and the purchaser/farmer has since spent approximately $1,200.00 additional per acre in improvements. In 2005-06 our investors purchased a 1,700 +/- acre farm for $2,600.00 per acre and a 1,000 +/- acre property for $2,700.00 per acre. In 2007, we were involved in the purchase of a 2,000 +/- acre farm for $2,800.00 per acre and another 2,000+/- acre property for $2,850.00 per acre. All of these purchases were by long time agricultural producers (very informed buyers). Currently, the investments that we are recommending are available at $3,000.00 per acre. Predictions (with which we are in agreement) are that the price trend will continue upward to as high as $5,000.00 per acre. We feel that Mississippi Delta farmland is currently a wise investment. As the dollar weakens the value of farmland is increasing to offset the loss in the dollar's purchasing power. Further, in periods of economic slow down residential housing sales slow as well, leading to a decrease in value. Commercial properties often experience higher than predicted vacancies during slow economic periods. Also, commercial properties are subject to significant declines in value when the property's location suddenly becomes less desirable from an economic stand point. In contrast, the rich soils and ample water resources in this area make the value of location remain constant for our farmland. As purchasers bypass luxuries, food remains in demand. Also, the utilization of bio fuel promises to continue - expanding the demand for grain production. We spend each day immersed in this agricultural market. Our sources, friends and contacts are involved in all aspects of the agricultural economy. The lenders are loosening credit on existing farmland loans at a time of national tightening of credit. There are virtually no loans secured by farmland in this region which are currently in default or subject to foreclosure. This is a strong indicator of the stability of the investment when you consider the default rate of other types of real estate loans at this time. Commodity prices remain strong and crop variety continues to expand. Seed technology is rapidly growing reducing the need for chemicals and other expensive factors of production. The demand for rental agricultural property is very high at this time. Almost all of the area producers would like to expand their acreage. We see a bright future for Mississippi Delta farmland investments in the coming years.

 

Q: Would management services be available from your company for farmland purchased?
A: Our company could manage any farm that you purchased. We would procure a farm tenant on lease terms favorable to you and, throughout the year, inspect the farming operations to be certain that good and acceptable agricultural practices are being employed. In addition, we would collect the property tax receipts at the end of the year and direct you as to the amounts of taxes due from you. If an improvement to the property would increase your value or return on investment then we would recommend this for your consideration as well. The yearly management fee is 6% of the rental revenue generated for the owner. We have many years experience managing large farming operations for our investors and would provide you with first rate services.