2017 ISU Land Value Survey

Transcription

1 2017 ISU Land Value Survey Dr. Wendong Zhang Assistant Professor of Economics and Extension Economist ISU Alumni Center, Ames, Iowa December 12, 2017

2 A Quick Introduction: Dr. Wendong Zhang Grown up in a rural county (with only 1 million people) in Shandong Province, 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/ownership agriculture and the environment China Ag: quarterly Ag DM articles

3 My Hometown: Shenxian, Shandong Province

4 The Survey is also Online! 710 respondents 877 land value estimates 64% of the respondents participated online

5 ISU Land Value Survey How to Interpret It is an opinion survey It is an expert opinion survey: respondents - ag professionals The first of its sort in the nation started 1941 The only survey that offers county-level land value estimates since 1950 It is not designed to value individual parcels The percent change is more important than the actual dollar amount, and when comparing across surveys, compare their percent change To value individual parcels consult appraisers or comparable sales

6 Why Care About Farmland Market?

7 Number of Respondents and Responses by District and Mode, 2017 Responses Respondents Paper Online Total Paper Online Total PERCENT Number PERCENT Number Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

8 Survey Respondents by Occupation, 2017 Farm manager Appraiser Ag lender Broker/Realtor Farmer /Landowner Government Other PERCENT Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

9 Experience and Service Area by Occupation Crop reporting district Years of experience Number of counties served Occupation Years of experience Number of Counties Served Northwest 27 8 Farm manager North Central 28 7 Appraiser Northeast 21 6 Ag lender 22 5 West Central 24 8 Brokers/Realtor Central Farmer/Landowner 37 4 East Central 24 5 Government 22 2 Southwest 24 6 Other South Central Southeast 27 8 STATE 25 9 STATE 25 9

10 STATEWIDE AVERAGE $7,326 Nov 2017 up 2.0% up $143

11 HIGH QUALITY LAND $8,933 Nov 2017 up 2.0% up $175

12 MEDIUM QUALITY LAND $6,849 Nov 2017 up 2.2% up $143

13 LOW QUALITY LAND $4,689 Nov 2017 up 0.5% up $24

14 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $- AVERAGE VALUES all farmland Nominal land values Inflation adjusted land values

15 Annual Percentage Change (%) % Change in Nominal Iowa Farmland Values % 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0%

16 The temporary break in continued declines results from limited land supply Source: Ag Decision Maker

17 More Less Same Iowa Farmland Sale Activity Since November 2016 PERCENT Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

18 Percent Iowa Farmland Sale Activity Relative to A Year Ago More Less Same

19 Land owners more likely to hold onto their land during down years Sale Activity Index = % Reported More Sales - % Reported Less Sales Percent_Change Index Benchmark 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0%

20 ISU Survey Results Echo Other Surveys

21 USDA NASS June Area Survey November 2016 to November 2017 Ag Real Estate Values: + 2.3% Cropland Values: No change Pasture Values: +1.5% USDA June Area Survey, August 2017

22 ISU Survey Results Echo Other Surveys Federal Reserve Bank of Chicago November 2017 Ag Letter

23 However, don t rush to conclude a turn of the farmland market Federal Reserve Bank of Kansas City kcfed Ag Credit Survey

24 40.0% % Change in Inflation-adjusted Iowa Farmland Values (decrease 0.2%) 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0%

25 Indiana and Illinois both show declines Purdue University Illinois Chapter of American Society of Farm Managers and Rural Appraisers

26 US Farm Income Source: USDA OCE 2016 Long-term Ag Outlook to 2026

27 2018/19 Crop Actual Yields and Basis Source: Chad Hart

28 September 2017 Long-term interest rate expectations What the Fed Reserve thinks the interest rate should be Source: Fed Reserve September 2017 dot plot

29 Land Values by District and Quality, Nov 2017 District Average Value % Change High Quality % Change Medium Quality % Change Low Quality % Change Northwest $9, % $10, % $8, % $6, % North Central $7, % $8, % $7, % $5, % Northeast $7, % $9, % $7, % $4, % West Central $7, % $8, % $6, % $4, % Central $8, % $9, % $7, % $4, % East Central $8, % $9, % $7, % $5, % Southwest $6, % $7, % $5, % $3, % South Central $4, % $5, % $4, % $2, % Southeast $6, % $9, % $6, % $3, % Iowa Avg. $7, % $8, % $6, % $4, %

30 Livestock and Crop Inventory by Crop Reporting District Livestock Inventory Acres 2012 Harvested Acres 2017 District Chickens, Layers Hogs Milk Cows Cattle Pasture Timber Corn Soybean Northwest 30% 26% 29% 22% 7% 2% 15% 16% North Central 64% 16% 4% 6% 4% 4% 14% 13% Northeast 1% 12% 51% 16% 11% 23% 12% 8% West Central 0% 13% 1% 13% 10% 7% 15% 16% Central 3% 13% 1% 7% 8% 8% 15% 14% East Central 1% 5% 10% 11% 11% 14% 11% 10% Southwest 0% 2% 0% 9% 12% 5% 8% 10% South Central 0% 2% 1% 9% 25% 19% 4% 6% Southeast 1% 11% 3% 6% 12% 19% 7% 8% Iowa Total 52.2 million 20.4 million 0.17 million 3.8 million 2.5 million 1.2 million 12.9 million 10.0 million Federal Reserve Bank of Chicago November 2016 Ag Letter

31 Crop and livestock prices September 2017 Chicago Fed Ag Conditions Survey Source: Chicago Fed Ag Letter 2017

32 Stronger than expected crop yields Corn Yield: November 1, 2017 Bushels per Acre Soybean Yield: November 1, 2017 Bushels per Acre State Average: bu/acre State Average: 56.0 bu/acre USDA NASS QuickStats

33 Below: % Reduction in CRP Rental Rate 2017 vs Above: Acres enrolled in CRP, 2017 Source: USDA NRCS; USDA FSA

34 Land Values by County, 2017

35 CSR2 Corn Suitability Rating Source: ISU Agronomy

36 Percent Changes in Land Values from Nov 2016

37 Iowa Major Soil Association Source: USDA NRCS

38 Major Positive Factors Affecting Iowa Farmland Market, Positive Factors, 2017 (Percent) Favorable Interest Rates Strong Yields Land Availability (Limited Supply) Investor Demand Cash/Credit Availability Strong Demand (Many Buyers)

39 Major Negative Factors Affecting Iowa Farmland Market, 2017 Negative Factors, 2017 (Percent) Commodity Prices (Lower) Cash/Credit Availability Input Costs (Higher) Cash Rent Rates (Weak) Uncertain Ag Future Strong Alternatives - Stock Market, Economy

40 Iowa Farmland Purchases by Buyer Types, 2017 Existing Local Farmers Existing Relocating Farmers New Farmers Investors Other PERCENT Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

41 Percent Iowa Farmland Purchases 90 by Buyer Types Existing Farmers Investors New Farmers Other

42 Iowa Farmland Purchases by Seller Types, 2017 Active Farmers Retired Farmers Estate Sales Investors Other PERCENT Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

43 High land Quality has a local meaning! Reported Average CSR2 Percent of Land Area High Quality Medium Medium Low Quality High Quality Quality Quality Low Quality Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

44 One and Five Year Cash Crop Price Predictions Cash Corn Prices Cash Soybean Prices A Year Later Five Years Later A Year Later Five Years Later Northwest $3.26 $3.87 $9.19 $10.33 North Central $3.35 $4.00 $9.05 $10.01 Northeast $3.35 $3.90 $9.30 $10.21 West Central $3.30 $3.97 $9.25 $10.28 Central $3.28 $3.98 $9.17 $10.08 East Central $3.40 $4.12 $9.32 $10.55 Southwest $3.31 $4.08 $9.22 $10.44 South Central $3.34 $4.04 $9.29 $10.29 Southeast $3.30 $3.95 $9.14 $10.21 STATE $3.32 $3.98 $9.21 $10.25

45 One Year Farmland Values Predictions (Percent) decrease decrease decrease decrease increase 5 increase 10 percent less than 3 percent or increase 5- more than or more percent percent percent no change less 10 percent 10 percent Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

46 Five Year Farmland Values Predictions (Percent) decrease 10 percent or more decrease 5-10 percent decrease less than 5 percent no change increase 5 percent or less increase 5-10 percent increase percent increase more than 20 percent Northwest North Central Northeast West Central Central East Central Southwest South Central Southeast STATE

47 Source: Purdue Ag Barometer

48 Inflationadjusted Iowa Ag Real Estate Values Farm Crises and this downturn Source: USDA-NASS; Ag Census, Iowa Farmland Value Portal

49 Positive 1: Real Income Growth Source: USDA-ERS, Ag DM C2-70 Zhang and Tidgren 2017

50 Iowa Landowners tend to hold the farmland; and many don t have debt Years Owned <10 years 24% Years 21% Years 19% Years 15% > 40 Years 20% % of Iowa Farmland Source: Ag DM PM Iowa Farmland Ownership and Tenure Survey

51 Positive 2: Historically low interest rates Source: 10-year-treasury-rate

52 Positive 3: Prudence in Ag Lenders/Regulators Shifts from individuals to more regulated institutional lenders Banking Regulations More stringent, frequent stress-test (Ron Hansen Iowa Division of Banking Superintendent) walk into this with eyes wide open Changes in Loan Practices (FCS, Iowa) Before 1987: loan to value ratio is 85% : loan to value ratio is 65% After 2008: use cash-flow method for collateral ($4 corn, $10 bean) and 50% of cash flow value Source: Zhang and Tidgren, 2017 Jim Knuth, FCS America

53 Cash Rent or Mortgage Payments ($/acre) Annual Mortgage Payments vs. Cash Rents for Iowa Farmland Loan Cash Rent 20-yr PMT 30-yr PMT 15-yr PMT Source: Zhang and Tidgren 2017

54 Iowa Farmland Value Portal #ISUlandvalue

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