Outlook for Land

2008 ABA National Agricultural Bankers

Conference

Michael Duffy, DirectorIowa State University

Beginning Farmer CenterNovember 18, 2008

Outline

• Background• Current situation• Observations• Outlook• Discussion

Background• Land values appear to have reached a

plateau; property is not bringing what it might have brought a few months ago

• There does not appear to be a drop in actual values

• Land values are still at record level• Commodity prices have dropped

considerably from their highs this summer• Costs of production are increasing rapidly

Background• Land continues to change from one

generation to the next and trend will likely accelerate

• Equal division of land assets among family members will increase non-resident owners, cash rent, and may put more land on the market

• Trusts are being more widely used• Many of the purchases are equity

financed and farmers continue to be major drivers but if incomes drop so will their interest

Monthly US Average Prices, 2006 - 2008

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

J06

F M A M J J A S O N D J07

F M A M J J A S O N D J08

F M A M J J A S O

Corn Soybeans Wheat

U.S. Net Farm Income

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Bill

ion

Do

llars

U. S. Direct Government Payments

$0

$5

$10

$15

$20

$25

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Bill

ion

Do

llars

Net Farm Income per Dollar of Expense

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

19

49

19

51

19

53

19

55

19

57

19

59

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

Costs of Production

Returns to Management for Farms in the Iowa Farm Business Association

-$70,000

-$20,000

$30,000

$80,000

$130,000

$180,000

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

*

High Third Low Third Average

Corn Total Economic Cost Per Bushel, 2007Iowa Farm Business Association

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

< 100 100 - 400 401 - 800 801 - 1200 1201-1500 > 1500

Number of Row Crop Acres

Do

llars

Pe

r B

ush

el

Total Economic Cost per Bushel by Cost Group, 2007 Iowa Farm Business Association

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

High Third Middle Third Low Third Total Group

Estimated Total Cost per Bushel

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

1999

2000

2001

2002

2003

*

2004

*

2005

**

2006

***

2007

***20

08

2009

****

Corn after Corn Corn after Beans Soybeans

Corn Seed Costs per Acre

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Estimated Cost Actual Costs FBA

Fertilizer and Lime Costs per Acre

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

$200.00

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Estimated costs Actual costs FBA

Soybean Seed Costs per Acre

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

ISU FBA

Land and Cash Rents

U.S. Average Land Values

$0

$500

$1,000

$1,500

$2,000

$2,500

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Percent Increase in Land Values by Region, 2007 to 2008

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

North

east:

Lake

Sta

tes:

Corn

Belt:

North

ern

Plains

:

Appala

chian

:

South

east:

Delta

State

s:

South

ern

Plains

:

Mou

ntain

:

Pacific

:

48 S

tate

s 4/

US and Iowa Average Land Values

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

US Iowa

Current Percentage Changes in Land Values, 7th Federal Reserve District

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

IL IN IA MI WI 7th District

3rd Q, 08 Oct to Oct

Percentage Increase in Iowa Land Values from March 2008 to September 2008, RLI

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

C EC NC NE NW SC SE SW WC State

U.S. Average Cash Rent

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Percent Change in Rents from 2007 to 2008, by Region

0%

5%

10%

15%

20%

25%

North

east:

Lake

Sta

tes:

Corn

Belt:

North

ern

Plains

:

Appal

achia

n:

South

east

:

Delta

Sta

tes:

South

ern

Plains

:

Mou

ntai

n:

Pacific

:

48 S

tate

s

Percent Change in Rents from 2000 to 2008

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

North

east:

Lake

Sta

tes:

Corn

Belt:

North

ern

Plains

:

Appal

achia

n:

South

east

:

Delta

Sta

tes:

South

ern

Plains

:

Mou

ntai

n:

Pacific

:

48 S

tate

s

Average Rent to Value by Region

0%

1%

2%

3%

4%

5%

6%

7%

North

east:

Lake

Sta

tes:

Corn

Belt:

North

ern

Plains

:

Appala

chian

:

South

east:

Delta

State

s:

South

ern

Plains

:

Mou

ntain

:

Pacific

:

48 S

tate

s 4/

2004 2005 2006 2007 2008

Average Rent to Value in Iowa

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

Debt Situation

U.S. Farm Assets

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

F

Mill

ion

do

llars

U.S. Farm Debt

$0

$50,000

$100,000

$150,000

$200,000

$250,000

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

F

Mill

ion

do

llars

Real Estate Assets as Percent of Total Farm Assets

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%1

96

0

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

F

U.S. Farm Real Estate Debt

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

F

Mill

ion

do

llars

Real Estate Debt as Percent of Total Farm Debt

0%

10%

20%

30%

40%

50%

60%

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

F

Percent of Real Estate Debt by Institution

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Farm Credit Farm Service Agency Commercial Banks Life insurance Individuals CCC

Distribution of Iowa Farmland by Financing Method and Year

0%

10%

20%

30%

40%

50%

60%

70%

80%

Free of debt Under contract Mortgaged

1982 1992 2002 2007

Percent of Sales by Percent of Debt Used, 2008

0%

5%

10%

15%

20%

25%

30%

35%

0 1 to 10% 11 to 25% 26 to 50% > 50%

Land Owner Demographics

Distribution of Iowa Farmland by Age of Owner and Year

0%

5%

10%

15%

20%

25%

30%

< 25 25-34 35-44 45-54 55-64 65-74 > 75

1982 1992 2002 2007

Percent of Iowa Farmland by Residence of Owner

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Iowa Resident Non-Iowa Resident

1982 1992 2002 2007

Percent of Farmland Based on Primary Reason for Owning Land

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Income Investment Family Home, hunting, etc

Percentage of Farmland by Anticipated Transfer Method

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Will Family Will Others GiveFamily

GiveOthers

Sell Family Sell Others Trust Do Else

Percent of Farmland by Impact of Recent Land Value Increases on Plans for Use of Land

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

More likely to sell land More likely to maintainownership

No affect on plans

Percent of Farmland by Impact of Recent Land Value Incresases on Buying Land

0%

10%

20%

30%

40%

50%

60%

More likely to buy Less likely to buy No change in plans

Observations

Observations

• Conditions can change very quickly• This ‘boom’ period appears to have

ended much sooner than anyone thought

• Most people are kind of numb right now; just waiting for the other shoe to drop

• Farmers appear to be moving back from purchases and taking a wait and see attitude

Observations

• Great deal of uncertainty• Concentration in input industry leads to

sticky prices on the down side• Farmers are making decisions to cut

costs; Successful Farming survey showed 33% will cutback over 50% and 16% between 26 and 50%

• Only 12 percent of the leased land in Iowa uses a flexible lease

Outlook

• The economy is the biggest factor to watch

• Commodity prices and input costs determine income and income determines land values

• Energy prices and the impact will be important

Factors to Watch

• Public sentiment including environmental concerns

• World situation• Impact on food costs• Energy prices• Farmer profitability; costs, especially

seed, fertilizers and rents rapidly increasing

• Alternative energy

Outlook

• Values will remain relatively flat depending on how deep recession goes

• Energy crisis and renewed strength in biofuel efforts will determine strength

• Very uncertain

Discussion