Farmland Market Update

Transcription

1 Farmland Market Update Wendong Zhang Assistant Professor of Economics and Extension Economist 2016 Midwest, Great Plains and Western Outlook Conference, August 16 th, 2016

2 The new Mike Duffy 30 29

3 A Quick Introduction: Dr. Wendong Zhang Grown up in a rural county in NE China Attended college in Shanghai and Hong Kong Ph.D. in Ag Econ in 2015 from Ohio State 2012 summer intern at USDA-ERS on farm economy and farmland values Research and extension interests: land value, land ownership, agriculture and the environment, China Ag

4 3, ,000.0 Why Care About Farmland Market? Distribution of U.S. Farm Assets 2,500.0 Billion $ 2, , , F Real estate Livestock and poultry Machinery and motor vehicles Crops stored Purchased inputs Financial assets Source: USDA ERS

5 Current Situation of Iowa Farmland Market and Beyond

6 Iowa Farmland Values all farmland Nominal vs. Inflation Adjusted Iowa Farmland Values $7,633 As of Nov % Land values ($/acre) 8000 Nominal Real Year

7 % Change in Iowa Farmland Values % 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0%

8 Beyond Iowa farm real estate values Source: USDA-NASS June Area Survey

9 Beyond Iowa cropland values Source: USDA-NASS June Area Survey

10 Beyond Iowa pasture values Source: USDA-NASS June Area Survey

11 Chicago Fed Ag Letter August 2016 Kansas City Fed Ag Credit Survey August Q2 to 2016 Q2

12 Purdue Land Value Survey Iowa Source: Purdue PAER Kyle Hansen, RLI

13 Farmland Market Outlook Consensus: Going down Divergence: Magnitude & Speed of the Decline

14 Looking Across States and Looking Ahead

15 Farmland Values Predictions in the Next Year District Increase 5% or more Increase 0-5% Stay the same Decrease 0-5% Decrease 5-10% Decrease 10% or more PERCENT Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

16 2016/17 Crop Margins Source: Chad Hart

17 2017/18 Crop Margins Source: Chad Hart

18 Farmland Values Predictions in Five Years District Increase 5% or more Increase 0-5% Stay the same Decrease 0-5% Decrease 5-10% Decrease 10% or more PERCENT Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

19 US Farm Income Source: USDA OCE

20 Crop Prices for the Next Decade Source: USDA-OCE

21 Corn and Land Price Forecasts for Dec 16, 17

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23 A Bust of Farmland Market Bubble? A Replay of 1980s Farm Crisis?

24 Iowa Ag Real Estate Values Source: USDA-NASS; Ag Census

25 A replay of 1920s or 1980s farm crisis? Source: USDA-ERS, Ag DM C2-70

26 Key Indicators to Watch V = I/D USDA Farm Income Forecast Price Outlook Ag Exports / Exchange Rate China Ethanol, E-85, RFS Fed s move on Interest Rate Ag Loan Delinquency; Vendor Credit

27 Fed s June 16 dot plot Source: Bloomberg

28 Farmland Values vs. Capitalized Land Values

29 Feb Farm Income Forecast Source: USDA ERS

30 Feb Government Pmts Forecast Source: USDA ERS

31 Avg Corn Return Changes vs. Land Price Changes Annual percentage change in Iowa farmland value (%) 35 Model 2: % change in Iowa land price = % corn change R² = Model 1: % change in Iowa land price = %corn change % corn change R² = Annual percentage change in 7-year average corn net revenue (%)

32 Rising agricultural debt

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34 Strength of the U.S. Dollar Source: Federal Reserve Chad Hart

35 Chinese economy

36 A New, Interactive Iowa Farmland Value Portal

37 Iowa Farmland Value Portal

38 Iowa Farmland Value Portal

39 Iowa Farmland Value Portal ww.card.iastate.edu/ farmland

40 Similar portal for Iowa cash rents and crop insurance payments

41 Industry datasets for farmland values Farmland Auction Results: Hertz; Farmers National; Peoples Company Industry Land Value Predictions: Acre Value, What's My Farm Worth, Peak Soil Land Index Popular Ag Magazines: Wallaces Farmer, Landowner Newsletter U of Missouri Ag Site Assessment Tool

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43 Thank You! Wendong Zhang Assistant Professor and Extension Economist 478C Heady Hall Iowa State University

44 China s corn subsidy reform August 2016: 4.5 billion US $ direct payments paid to producers in 4 provinces in NE China Subsidy level: US $ 150/acre (27% of corn cost of production) New policy: marketized purchase Old policy ended: support price policies

45 % of Farmland by Age and Life Stage of Owners 100% 90% 80% 70% Percent of Farmland 60% 50% 40% 30% 20% 10% 0% Year < > 74 Source: Ag DM PM1980

46 Putting Aging Farming Population into Perspective Source: Carl Zulauf, Census of Ag., BLS

47 Iowa Farmland Purchases by Buyer Types % 80% 70% 60% 50% 40% 30% 20% 10% 0% Existing Farmers Investors New Farmers Other

48 Not Every Iowa District Are Created Equal

49 Land Values by District and Land Quality, 2015 District Average Value % Change High Quality % Change Medium Quality % Change Low Quality % Change Northwest $9, % $11, % $8, % $6, % North Central $7, % $8, % $7, % $5, % Northeast $7, % $9, % $7, % $5, % West Central $8, % $9, % $7, % $5, % Central $8, % $10, % $7, % $5, % East Central $8, % $10, % $7, % $5, % Southwest $6, % $8, % $6, % $4, % South Central $4, % $6, % $4, % $2, % Southeast $6, % $9, % $6, % $3, % Iowa Avg. $7, % $9, % $7, % $4, %

50 Livestock and Crop Inventory by District Chickens, Layers Inventory 2012 Harvested Acres 2015 Hogs Milk Cows Cattle Corn Soybean Northwest 30% 26% 29% 22% 15% 16% North Central 64% 16% 4% 6% 14% 13% Northeast 1% 12% 51% 16% 12% 8% West Central 0% 13% 1% 13% 15% 16% Central 3% 13% 1% 7% 15% 14% East Central 1% 5% 10% 11% 10% 10% Southwest 0% 2% 0% 9% 7% 9% South Central 0% 2% 1% 9% 4% 5% Southeast 1% 11% 3% 6% 7% 8% State Inventory 20.4 million 20.4 million 0.17 million 2.34 million 13.2 million 9.8 million

51 Iowa Corn Prices vs. Costs Source: Chad Hart, Mike Duffy

52 Iowa Soybean Prices vs. Costs Source: Chad Hart, Mike Duffy

53 The Performance of Farmland Investment vs. S&P 500

54 S&P 500 vs. Farmland Values: A Question of Timing 1960 Source: Mike Duffy Ag DM Newsletter June 2014

55 S&P 500 vs. Farmland Values: A Question of Timing 1980 Source: Zhang and Duffy Ag DM Newsletter April 2016

56 S&P 500 vs. Farmland Values: A Question of Timing Return to S & P Investment Relative to Iowa Farmland Investment Source: Zhang and Duffy Ag DM Newsletter April 2016

57 &P 500 vs. Farmland Values: A Question of Timing