trends in agricultural values and the fundamental reasons why - kenton springer
TRANSCRIPT
Trends and Happenings
with Land Values
Kenton Springer, AFM A s s i s t a n t V i c e P r e s i d e n t
F a r m e r s N a t i o n a l C o m p a n y
Women Managing Farms
Speaker: Kenton Springer, AFM
About Me! Dairy farm boy from Elk
City, Kansas
KSU College of Agriculture BS Degree 1972
Kansas Cooperative Extension Ag-Agent 1972 to 1987
Bank IV Kansas Trust Department Farm Land Manager 1987 to 1995
Famers National Company 1995 to present
Who is Farmers National Company?
28 state service area
$450 Million in farm sales
Appraisal service
2,000,000+ Acres under management care
Oil and gas management in 40 states
FNC insurance agency
FNC commodity marketing
Forestry management
Hunting lease management
•Incorporated in 1929 •Land resource specialist to absentee landowners •Employee owned •100 property management specialists •250+ real estate agents
Agricultural Land Values
Historical trends
Factors affecting value
Who buys farms
Who sells farms
Sales across Kansas
Are farms a good investment?
Land Ownership Goals
Income Goals
Investment Plan
Tax Strategy
Family Wealth
Inheritance Plan
The Current Land Market
Generational transfer of wealth
Supply and demand in the land market
Farm and ranch incomes
Economic influences
Generational Transfer of Wealth
10% of 911 million acres of agricultural land will change hands in the next five years (2% per year)
Only 1% or less trades in the open market each year
Therefore, an estimated 21 million acres of farm and ranchland will be sold between non-related parties in the next five years or 4.25 million acres per year (USDA Total Survey)
Farmers National Company markets and sells 2.5% to 3.5% of the total land sold each year
Land Value Trend 1951-2015
Déjà Vue All Over Again?
Similar to the 1980s
Interest rates are increasing
Extremely high input costs
Over double the 2006 cost to grow an acre
A percentage of the producers are under capitalized
Banks are tightening credit
The 1980s about operating capital
Cautious land buyers
A wait-and-see attitude in some markets
Grains and livestock all now in break-even or negative territory
Different than the 1980s Extremely low interest rates
Significantly higher cost of living today
Fewer commercial farm operations
They are significantly larger and in
most cases less diversified
More part-time and specialty farm
operations
Lifestyle farms with off farm income
Organics, truck farms, etc.
Better crop insurance and farm program
More money chasing ag today
Multiple funds trying to buy land
A Changing Market Today
Global markets impact local agriculture Increasing global
grain inventories
Increasing dollar value limits our exports
Farm leases are under pressure
Income per acre is declining
Pressure on expenses from bankers as lending increases
Borrowing Trend Increasing!
$1.00
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2012/1
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2015/1
6
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/17
Avg
. Fa
rm P
rice
($/b
u)
Da
ys
of
Su
pp
ly
World Coarse Grains Ending Stocks Days of Supply
Ending Stocks
USDA Corn Price
$3.50
$5.00
$6.50
$8.00
$9.50
$11.00
$12.50
$14.00
$15.50
$17.00
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
110.0
1992/9
3
1993/9
4
1994/9
5
19
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Avg
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rice
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En
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g S
toc
ks
(D
ays
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Su
pp
ly)
World Soybeans Ending Stocks Days of Supply
Ending Stocks USDA Price
$2.00
$4.00
$6.00
$8.00
$10.00
60.0
80.0
100.0
120.0
140.0
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/92
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1995/9
6
19
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/00
20
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/01
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01
/02
20
02
/03
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2007/0
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2014/1
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rm P
rice
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u)
Da
ys
of
su
pp
ly
World Wheat Ending Stocks in Days of Supply
Ending Stocks USDA Price
Grain Yield and Price Trends Impact Income
Balancing on the Edge
Ag markets peaked first quarter of 2013
Grain prices, rents, land prices
Now, the fourth year in a row of declining incomes at the farm level
Livestock in general had a short-lived window of good profits in 2014/2015
Many cattle producers had very tough year in 2016
Today, a mixed bag of who is or is not profitable
Record crops in 2016
Last time wheat, corn, and soybeans produced record bushels per acre yields in the same year was 1979
Pushed grain prices to the bottom post-harvest 2016
Balance Sheet Stress
Farmer borrowing is on the increase
Land values are slowly retracing
85% of ag equity is in land
Machinery values have fallen
Used machinery values hit hardest
John Deere indicates that new row crop machinery sales are down 50% to 75% since 2013
As borrowing ratchets up, some banks are suggesting asset sales
Land and/or excess machinery
Commodity Market Influencers
Strong US dollar
Crude oil collapse
Equities (stocks) more in favor
Record large fall crop production
Record “Short” positions
Local demand = strong basis
Wall Street Money
Chicago Money
A Changing Market Today
Land values are also under pressure
A slow ride down so far
Some markets have
dropped 15% to 25% from
the 2013 peak land price
History shows that for every 2% drop in gross farm income, land values drop by 1% (Mike Duffy, ISU)
Remember the Three-leg Stool
Biofuels hit the market
Ethanol started taking corn acres after 2006
China found its appetite
Soybean exports increased dramatically after 2006
Monetary policy became more accommodative
Interest rate of 0% in 2009 fueled the ag markets
Sprinkle in some short crop years and you have a bull market!
The Basis for “The Golden Years of Ag”
A Stronger Dollar is Creating Headwinds
Impacts our ability to export
China imports 23 million soybean acres from the US
The equivalent of the entire Nebraska crop every 36 days!
Pork and beef exports are also a key to
market health
Increases costs as borrowing is
increasing at the farm level
Operating loan rates float
Creates competition for money
Eventually will impact land values
Could stifle demand and even bring more land on the market
Upcoming Farm Ownership Changes
70% of the nation’s farmland will change hands over the next 20 years (Kohl)
Up to 25% of farmers and ranchers will retire
Average age of US farmers is 58 (increasing)
40% of US landowners are over 70 years old
30% of Kansas landowners are over 75 years old
In Iowa, non-resident ownership of land increased from 6% to 21% during the period 1982-2007 (Duffy)
The Farm LASTS Project
Who is Selling Farms?
Who Purchased Farmland
0%
10%
20%
30%
40%
50%
60%
70%
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90%
1989 1992 1995 1998 2001 2004 2007 2010 2013
Farmers Investors New Farmers Other
Duffy, ISU
Interest in Land as an Investment
From 2005 to 2016, institutional funds with farmland investments grew ten fold from 32 to 312 (Valoral Advisors)
1% of $2.4 trillion ag real estate or $24 billion
Mostly in the US (Bruce Sherrick)
Individuals bought land for various economic reasons
Water scarcity and environmental factors
Low Supply of Good Land for Sale
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
0
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Ac
re
s (
tho
us
an
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Figure 1: Farmland Turnover by Year
Acres Sold Turnover Est. Arm's Length Turnover
Source: University of Illinois
Tu
rn
ov
er
b
y
Ye
ar
Net Return over the last 60 years averages 12.5%
FarmersNational.com/Real_Estate
Land Values in Kansas
Looking Ahead!
Demand Saves the Day
Despite great crop years back to back, good demand continues to support prices
Nice post-harvest price bounce
Wheat producers will cut acres for 2017 Most lost money in 2016
More soybeans acres or more corn?
Herd expansion in livestock is a major factor in demand
Grains
Demand Saves the Day
The Livestock Story Dairy is more positive about the year
Pork prices are near break even
Steady demand
Poultry consumption is increasing
Egg consumption is strong
Up 50% from 20 years ago
Every person in the U S consumes on average 240 to 260 eggs per year!
Beef consumption is stable
But it has been falling
From 65# per person in 1996 to 52# per person in 2016
Keep Focused
on the…
POSITIVE!
Thank You!
www.FarmersNational.com