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Sunday, 27 April 2014 22:00

Winery to sell excess land to fund production expansion

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The auction for land surrounding Douglas Valley Farm and Winery is scheduled to begin at 1 p.m. Thursday, May 15 at Little River Casino Resort in Manistee. Murray Wise Associates LLC is marketing the property and conducting the auction in cooperation with Sheridan Realty & Auction Co. The auction for land surrounding Douglas Valley Farm and Winery is scheduled to begin at 1 p.m. Thursday, May 15 at Little River Casino Resort in Manistee. Murray Wise Associates LLC is marketing the property and conducting the auction in cooperation with Sheridan Realty & Auction Co. COURTESY IMAGE

A Manistee-based farm and winery wants to cash in some of its prime real estate and use the proceeds to fund its expansion and help meet the growing demand for Michigan-made ciders and wines.

Rather than pursue individual buyers in a more traditional, drawn-out land sale process, Douglas Valley Farm and Winery has scheduled a May 15 auction to sell off 797 acres featuring a mix of farmland and home sites and put the transactions on a fast track.

Executives say the quicker they sell the land, the sooner the small operation can access funds it needs to invest in infrastructure that supports its core competency: producing wine and cider.

“We think it’s an opportune time to capture the value of these properties that are not core to our business,” said Cliff Boomer, founder of Douglas Valley. “Given our aggressive time frame for expansion, we’re anxious to invest in our winery. (The auction) will give us all the pieces to the puzzle.”

The farm currently produces cherries, apples, blueberries and wine grapes. The company sells its fruit at a farmers market during the harvest months and uses the grapes to produce three varieties of white wine.

In the last year, the company decided to focus on producing wine and hard cider and it viewed the auction as a quick way to access the necessary capital to bolster the farm’s existing production infrastructure, Boomer said.

Depending on how successful the auction is, the land sales could be a major boon for Douglas Valley. Current prices for quality farmland are strong, and that’s especially true for fruit growing land, according to a January 2014 farmland outlook by Michigan State University researchers Eric Wittenberg and Steve Hanson that was published in Michigan Farm News.

A separate 2013 MSU land value survey reported that, on average, agricultural land values in the state increased around 13 percent last year. In particular, values of land with fruit-bearing trees rose 18.1 percent to an average of $7,761 per acre, the report stated.

The Douglas Valley land is divided into 23 parcels that range from four acres to 124 acres each. The property includes approximately 675 acres suitable for growing a wide variety of crops, including grapes, cherries, apples, asparagus, Christmas trees, corn and hops.

Of this, approximately 300 acres are currently planted in sweet and tart cherries, apples and Christmas trees. Some of the land is also at an elevation that allows views of Lake Michigan.

The Land Values and Cash Rents 2013 Summary from the U.S. Department of Agriculture reported an average price per acre of $4,600 for cropland in the state. If all of the Douglas Valley land up for grabs sold at that rate, the proceeds could total more than $3.6 million. However, the auction is no guarantee of a big windfall, Boomer acknowledged.

“Land prices go all over the board,” he said. “What will come out of this is that buyers will eventually set the value, and we’re comfortable with that. If I had to put a number on it, I wouldn’t know where to start.”

Interest rates bolster sales

Despite last year’s gains in farmland values, those property types could see some softening in price in the year ahead, said MSU’s Wittenberg.

“Currently, we have weak and strong prices, but that depends on the area,” Wittenberg said. “The key question is where and what agricultural market has higher commodity prices now. Dairy prices are great, fruits had a good year in 2013 and cattle prices are high.

With leasing, the rental rates for good farmland have gone very high (and) there is no limit yet.”

As land rental rates continue to rise, that has many landowners looking to lease their farmland. Last year, 70 percent of the crop acreage was controlled through leasing arrangements compared to 48 percent a decade ago, the MSU outlook stated. Of the leased ag land in Michigan, 88 percent was leased on a cash rent basis.

Buyers interested in agricultural land deals also have the benefit of borrowing at interest rates for farm real estate loans that have continued to decline to historically low levels through last year, Wittenberg said.

The Federal Reserve Bank of Chicago recently reported third quarter 2013 real estate loan rates averaged 4.68 percent. GreenStone Farm Credit Services reports current agricultural real estate loan rates starting at 6.105 percent for 20-year fixed rate loans and at 4.25 percent for 1-year adjustable rate loans.  

While commercial and residential land values fell off during the economic downturn starting in 2008, agricultural land values in Michigan remained relatively strong because of their limited availability, sources said. Additionally, commodity prices remained solid and rose quickly out of the recession.

Land likely to remain in ag use

Although agricultural land has been a popular investment vehicle for some time, a lot of money remains on the sidelines, Boomer said. Land used for corn and bean production really is a different animal from what Douglas Valley is selling, and it seems buyers are shifting their focus to more high-value crops such as fruits, he added.

“For tree and vine crops, I don’t think that we’ve seen a peak yet, and there is a very healthy market for it around here,” he said.

While Boomer has divided some of the property into home sites, he doesn’t see much threat for the land that’s currently in agricultural use to be used for development. There’s a strong recognition of the value of keeping that land an active part of the state’s fruit belt, he said.

“When you talk about highest and best use, specifically knowing there aren’t any sites being created that are suited to good fruit growing anymore, to take (these sites) out of production is not smart,” he said.

Considering the property’s location and size and the quality of the land, Boomer said he hopes to see a big turnout from prospective buyers.

“I am expecting participation (in the auction) from a lot of folks from inside and outside of the area,” he said.

The farm and winery operation will retain roughly 160 acres in anticipation of expanding its own grape growing operations. The farm’s operators also hope to keep dialogue open with the land buyers after auction, Boomer said. Douglas Valley is open to providing farm management services to the new owners and would consider buying some of the fruit harvest for use in making the company’s wines and ciders, he said.

The company doesn’t plan to get out of the farming business altogether, but it does plan to focus its operations on the production of handcrafted beverages, Boomer added.

Setting sights on cider

Douglas Valley is expanding beyond just wine and plans to grow its cider-making capacity. The hard cider market has changed dramatically in the last few years, Boomer said. Local operations like Virtue Cider in Fennville, Sietsema Farms in Ada, Vander Mill Ciders in Spring Lake and The Peoples Cider Co. in Grand Rapids are just a few examples of craft cider makers expanding in the market.

“Four or five years ago when we first started making wine and hard cider, you couldn’t find a tap in any of the local bars or restaurants that had hard cider. Now, you can’t go into any taproom and not find those products,” Boomer said. “At the same time, the acceptance and popularity of Michigan-grown wines is off the charts.”

Currently, the farm produces roughly 1,000 cases of wine annually, as well as limited batches of its hard cider offerings that are mostly sold out of its tasting room. Douglas Valley plans to ramp up its production of hard cider and launch those offerings in the first two quarters of 2015, Boomer said.

The farm “has a relationship” with Grand Rapids-based beer and wine distributor Henry A. Fox Sales Co. and has already experimented with some limited distribution to retailers.

“We hope to expand our presence quickly,” Boomer said. “I see us moving into a handful of states around Michigan in the next couple of years. I fully expect that we’ll be able to triple our sales in the next five years.” 

Read 4762 times Last modified on Friday, 25 April 2014 11:44

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