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Kelvin Leibold ISU Farm Management Field Specialist [email protected] 641-648-4850. Iowa Land Value Survey. 2004 Dr. Michael Duffy, Extension Economist Darnell Smith, Research Associate. Statewide Average. High Grade Land. Medium Grade Land. Low Grade Land. Northwest.

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Presentation Transcript

Kelvin Leibold

ISU Farm Management

Field Specialist

[email protected]

641-648-4850


Iowa Land Value Survey

2004

Dr. Michael Duffy, Extension Economist

Darnell Smith, Research Associate
















Average Value - All Grades(Nominal Dollars)


Average Value - All Grades(1982-84 Dollars)



Percentage Change(Nominal Dollars)


Percentage Change(1982-84 Dollars)








Conclusions

Iowa farmland owners are aging and the trend will continue for the next several years.

There will be a considerable amount of Iowa’s farmland change hands over the next few years.

More than likely this land will be passed on to the next generation and not even enter the market.

There will continue to be an increase in the amount of land owned by people outside the state.


Conclusions

Land ownership patterns will change with fewer sole owners and more multiple owners

More land will be rented and cash rents will become more prevalent

Second generation may have different views towards land


Conclusions

  • Less debt against the land

  • Different category of purchasers

  • Fewer land sale contracts

  • Factors to watch:

    • Government programs

    • Interest rates

    • Exchange rates

    • Deficit



Presentation Components

Farmland Leasing Trends and Emerging Issues

Rental rates

Calculating rental rates

Impact of risk management tools

Summary of ISU Extension Resources


Leasing Trends

  • Increase in cash rent vs. crop share leases

    • 40% of Iowa farmland is cash rented

      • versus 21% in 1982

    • 18% of Iowa farmland is crop share

      • versus 21% in 1982

    • 41 % of Iowa farmland is owner operated

      • versus 55% in 1982


Trends for Farmland Ownership and

Leasing

Landowners not living on farmland are more likely to lease their land.

Individuals 65 years and older account for 62% of the ownership of leased farmland.

Females own over half of leased farmland.

Non-residents of Iowa own about 20% of all farmland.

Professional farm managers assist on 9% of leased farmland (over ½ is cash rented).




Returns to Owner for Crop-Share and

Cash Leases – Corn, Average Iowa Values



Supporting Information on this

80 Acre Farm

Location: Boone County

Tillable Acres: 75 Acres

Corn Yield: 160 bu/Acre

Soybean Yield: 45 bu/A

Corn Suitability Rating: 80 CSR


Calculating Cash Rent Values

  • Cash Rent Market Approach

    • ISU Extension Publication FM 1851 – Cash Rental Rates for Iowa 2005 Survey (released in May)

  • Three Methods for Determining Cash Rent Values

    • Typical Cash Rent

    • Average Rent for Production

    • Average Rent for Corn Suitability Rating (CSR)


Calculating Cash Rent

  • Typical Cash Rent

    • Select the Area of the State/County

      • Area 7 County Boone

    • Determine Overall average $ 140 /A

      • High Quality Third = $ 156 /A

      • Middle Quality Third = $ 141 /A

      • Low Quality Third = $ 122 /A


Calculating Cash Rent

  • 2 a. Average Rents Per Unit – Corn Yield

    • Select the Area of the State/County

    • Determine Average Rent for Corn

      • Farm’s Average Corn Yield (bu/A) 161

      • Times rent per bushel of Corn yield .88

      • Equals the Average Rent for Corn Acres $ 142/A


Calculating Cash Rent

  • 2 b. Average Rents Per Unit – Soybean Yield

    • Select the Area of the State/County

    • Determine Average Rent for Soybeans

      • Farm’s Average Soybean Yield (bu/A) 45

      • Times rent per bushel of Soybean yield 3.16

      • Equals the Average Rent for Soybean Acres $142/A


Calculating Cash Rent

  • Average Rents Per Unit – Corn & Soybeans

    • Add the Average Rent for Both

      • Corn Average Rent $ 142/A

      • Soybean Average Rent $ 142/A

      • = Total Rent $ 284

        • Divided by 2

    • Average Rent Corn & Soybeans

    • $ 142 /A


Using Corn Suitability Rating (CSR)

  • Average Rents Per CSR Index Point

    • Select the Area of the State/County

    • Determine the Average Cash Rent using CSR

      • Farm’s Average Corn Suitability Rating 80

      • Times rent per CSR index point $1.75

      • Equals the Average Rent for all Row Crop Acres $ 140 / A

Source: ISU Extension Publication FM- 1851


Overall Average

  • Average all 3 Methods

    • Method 1: Typical Cash Rent $140 /A

    • Method 2: Average Rents per Unit $142 /A

    • Method 3: Average Rents per

      • CSR Index Point $140 /A

  • Total all Methods and divide by 3 $140 /A

  • $140 /A X 75 Tillable Acres = $10,500

  • Split Payments of $5,250 and $5,250

Source: ISU Extension Publication FM- 1851


Crop Lease Comparison

Gross Income Method

Tenant Residual Method

Market Productivity Method

Crop Share Method

Return on Investment Method

  • Assumptions:75 crop acres, 160 bushel corn yield, 45 bushel Soybean yield,

  • Corn Market Price $2.20 / bu, Soybean Market Price $5.25 / bu,

  • Direct Government Payments average $22.00 / acre


Gross Income Method (a)

CORN: 160 bu X $2.20 + $30.00 = $382.00

SOYBEANS: 45 bu X $5.25 + $15.00 = $251.00

Iowa cash rents typically are equal to about 30 to 40 percent of the gross

income from producing corn, and 35 to 45 percent of the gross income

from producing soybeans.

Cash Rental Rate

CORN: $382.00/ac X 35% = $134

SOYBEANS: $251.00/ac x 45% = $113

  • Assumptions:75 crop acres, 160 bushel corn yield, 45 bushel soybean yield,

  • Corn Market Price $2.20 / bu, Soybean Market Price $5.25 / bu,

  • Corn DP = $30, Soybean DP = $15, lower prices are offset by CCP & LDP


Tenant Residual Method (1)

GROSS INCOME / acre

CORN: $382 – $250(1) = $132/ac

SOYBEAN: $251 - $137(1) = $114/ac

(1) Production Cost:

Corn: $228 Soybeans: $150 not including labor or rent

Source: FM-1712, “Estimated Crop Cost of Production-2005” 1/03.


Market and Productivity Method (1)

CORN: 160 bu X $0.88 = $142 / ac

SOYBEANS: 45 bu X $3.16 = $142 / ac

(1) Cropland in central Iowa is renting at about $ .93 per bushel of expected corn yield and about $ 3.15 per bushel of expected soybean yield.

Adjustments for productivity can be made based on the estimated cash rent value per bushel of corn or soybeans expected, or per corn suitability rating (CSR) point.

Corn suitability rating is an index of the suitability of different soils in Iowa for row crop corn production. The most productive soils have a CSR index of 100.


Crop Share Method (1) 50-50 Share

Income:

Corn: 50 % x (160 bu. x $ 2.20 + $ 30) = $ 191 per acre

Soybeans: 50 % x (45 bu. x $ 5.25 + $ 15) = $ 126 per acre

Expense:

Corn: 50 % x $170 = $85 Soybeans: 50 % x $96 = $48

Equivalent Rent:

Corn: $191 / acre - $85 / acre = $106 / acre

Soybean: $126 / acre - $48 / acre = $78 / acre

  • The owner is assumed to pay 50 percent of the costs for seed, fertilizer, lime,

  • pesticides, crop insurance, interest and miscellaneous, and drying and storage.


Return on Investment Method

Central Iowa farm estimated to have a market value of $3,101 per acre.

Expected Rent: 0.047 (4.7%) X $3,101 / acre = $146 / acre gross income


Summary Comparison

Corn Soybeans

Gross Income

Tenant Residual

Market Productivity

Crop Share

Return on Investment

Average

$134 $113

$132 $114

$142 $142

$106 $ 78

$146 $146

$132 $119

All Average: $125.00

Based on this information:

Most likely agreed upon cash rent: ?????



Crop Share 50-50 Lease

Landlord

Tenant

Labor

½ inputs

Machinery

Management

Land

½ inputs

½ income

½ income


Crop Share 50-50 Lease

Landlord

Tenant

Land $140

½ inputs $85

Labor $30

½ inputs $85

Machinery $65

Management $25

½ income $225

½ income $195


Crop Share 50-50 Modified Lease

Landlord

Tenant

Land $140

½ inputs $70

Labor $30

½ inputs $100

Machinery $65

Management $25

½ income $210

½ income $210

Shift the tech fee or chemicals to tenant to balance up the ratio


Cash Rent

Expenses

Income

Land $140

Labor $ 30

Inputs $150

Machinery $ 65

Management $ 20

Total $405

150 bu corn $400

or

50 bu SB $300

Ave $350


Cash Rent

Expenses

Income

Land $140

Labor $ 30

Inputs $150

Machinery $ 65

Management $ 20

Total $405

150 bu corn $400

or

50 bu SB $300

Ave $350

Either find economies of scale or

Play take away !!

Where do we start ???


Cash Rent

Expenses

Income

Land $140

Labor $ 10

Inputs $145

Machinery $ 35

Management $ 00

Total $330

150 bu corn $400

or

50 bu SB $300

Ave $350

I can still make it work and I can spend $10 on crop insurance to lock it in !!!

Well maybe !!!


Cash flow guarantees

65%

CRC or RA HO

75%

With yield of 75, 100 & 150

bushels per acre

Cash flow needs of $261

$1.88 loan rate and 2005

insurance prices

85%


$

Revenue shift due to risk management


Lower prices in February of 2005 resulted in huge shifts in risks from the insurance industry to producers!

Corn:

Price for APH: $2.20

Base price for CRC, IP, and RA: $2.32

Expected price for GRIP: $2.38

Soybeans:

Price for APH: $5.00

Base price for CRC, IP, and RA: $5.53

Expected price for GRIP: $5.99


Machinery costs risks from the insurance industry to producers!

Fixed costs

Variable costs

Depreciation

Interest

Storage

Insurance

Repairs

Labor

Fuel

$100 per hour


IFBA 2004 Machinery Costs risks from the insurance industry to producers!

Average

Corn

Soybeans


Total and variable returns with average yields and prices. risks from the insurance industry to producers!

Annual revenue

C/C/SB

Total -$43.47

Variable -$7.60

Annual revenue

C/SB

Total -$27.01

Variable $4.27


Other Issues risks from the insurance industry to producers!

Global Ag is here to stay

WTO will start to set farm policy !

Sugar

Ethanol

Cotton

Farm program payments will change

EU will lead with de-coupled payments


Hazards for 2006 risks from the insurance industry to producers!

  • Lower crop insurance prices

  • Higher input costs

  • Fuel, fertilizer, machinery, drying

  • 3. Yields - average

  • 4. Price - average

  • 5. Government program cuts


Other Resources risks from the insurance industry to producers!

  • Online Courses – Ag Management e-School

    • http://www.extension.iastate.edu/ames

  • Workshops, meetings, conferences

    • http://dbs.extension.iastate.edu/calendar/

  • Publications – rental survey, land value survey, etc.

    • http://www.extension.iastate.edu/pubs/

  • Articles and spreadsheets

    • http://www.extension.iastate.edu/agdm/

  • Private Consultation

    • http://www.extension.iastate.edu/feci/fae.html


Land leasing confidence

Farm Lease Arrangements risks from the insurance industry to producers!

Land Leasing Confidence

  • Introduction to Farm Leases

  • Cash Rent Leases

  • Crop Share Leases

  • Custom Farming

  • Renting Buildings

  • Renting Hay and Pasture Land

  • Legal and Tax Considerations

  • Conservation and Environmental Considerations

  • USDA Agencies and Programs

  • Owner and Operator Relations

A.M.E.S.

Agricultural Management e-school

An ISU Extension Outreach Institute


Purchase plan

Farmland Ownership risks from the insurance industry to producers!

Purchase Plan

  • Land Value Trends

  • Using Soils Information

  • Appraisal Techniques

  • Financing Considerations

  • Feasibility of a Land Purchase

A.M.E.S.

Agricultural Management e-school

An ISU Extension Outreach Institute


Thank you
Thank You! risks from the insurance industry to producers!

Kelvin Leibold

Farm & Ag Business Management

Field Specialist

ISU Hardin County Extension

524 Lawler

Iowa Falls, IA 50126

(641) [email protected]

www.extension.iastate.edu/feci


Our risks from the insurance industry to producers!Mission

ISU Extension builds partnerships and provides research-based learning opportunities to improve quality of life in Iowa

  • We believe in . . .

  • Quality

  • Access

  • Diversity

  • Accountability


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