St. Louis Agri-Business Club: Midwestern Land Values in 2007

Transcription

1 St. Louis Agri-Business Club: Midwestern Land Values in 2007 February 20, 2007 A Market in Transition? or call

2 A Quick Straw Poll How many farmland owners in the room? Purchased land in the last 5 years? Who here believes that land will be worth more in 5 years than it is today? 10 years? How about 30?

3 Q: What s happened/happening with land values? A: The easy answer for the past few years has been They have gone up, up, and further up!

4 Average Illinois Price Per Acre (So urce: Illino is Land Sales Bulletin) Jun-06 Dec-06 Nov-85 Dec-86 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Mar Date Dollars Per Acre

5 But more specifically, land values have increased because Tax Policy has encouraged reinvestment in land, Alternative Investments were not overly attractive for several years, Land is a Safe Haven in times of uncertainty, On-Farm Profitability has been reasonably solid during this period, and finally Low Interest Rates propelled moderate farmer buying and significant investor land buying!

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8 The market in 06, and to date in 07 Early 2006 was still a 1031-investor market But by late 06 that wasn t the case! Price increases in land more or less stopped last summer with fewer 1031 buyers! And in early fall sales, we witnessed some softness in areas e.g., What s a No-Sale?

9 The market in 06, and to date in 07 Late fall 06 saw commodities catch fire $4 corn!!! Ethanol, Ethanol, Ethanol!!! So now where s the Premium? Large vs. Small Tracts And who s the Buyer? Investor vs. Farmer Potential to get hot again?!?!

10 Based on what we saw in late 2006 and thus far in 2007, it seems that for the first time in years, the land value outlook is dependent on agriculture!! YES Grain markets and local production matter!!

11 Soil Quality or Land Type Size of Tract Typical Buyer Price Trend Key Drivers A Over 160 Acres Investor Steady A Under 160 Acres Farmer Steady to Higher B C Over 160 Acres Farmer Steady B C Under 160 Acres Farmer Steady to Higher Recreational All Sizes Investor Higher Development All Sizes Developer Steady to Weaker Sellers who want to sell single unit farms must have time. Investors are less available vs. year-ago, and many farmers may not be willing to bet the farm on a big purchase. Higher commodity prices and optimism have potential to spike demand. B C is too poor quality for many investors. More affordable than A quality for many farmers. Too small for many investors. More affordable than A quality for many farmers. Strong general economy creates hobby funds as does easy credit Higher interest rates are slowing many forms of development

12 In a nutshell the details matter and the local market is responding again. This means that it matters whether the neighbors are interested and it matters whether a local area has a good crop! And because each Township in each County is different, distinctly local conditions are again driving local values, e.g., if crops suffer in an area, land values in that area have more potential to soften, and vice-versa!

13 Factors currently with influence on the overall land market Interest Rates Crop Production Global Events US Farm Policy

14 Factors with influence on the value of individual tracts of land Location, Location, Location Size of Tract Local Crop Production/Weather Zoning/Acceptance of Growth

15 Q: So as it relates to land values, what should we closely watch the next 12 months?

16 These show it all or call

17 So do these or call

18 Longer term, there are also some major factors that you can watch or call

19 #1: PRODUCTION/WEATHER A Few Items of Note a) Isolated droughts can create weak pockets for land values b) However, if we have great weather across the Midwest, how would a bin-buster crop impact the grain markets? c) How about a significant drought?

20 #2: ETHANOL A Few Items of Note a) Will corn-based ethanol will be the primary source of ethanol (e.g., corn vs. cellulosic)? b) Can ethanol can remain profitable if/when oil again falls below $40? c) Will all of the corn-based ethanol hype translate into operating plants?

21 #3: INTEREST RATES Higher borrowing costs pinch everyone!!!

22 #4: FARM POLICY A Couple Items of Note a) Possible changes in how ag funds are distributed (e.g., CRP vs. Direct Payments)? b) Will participation in the farm program will be limited, based on some series of litmus tests, e.g., AGI?

23 Conclusion & Summary Land is a valuable asset always has been and always will be! Like any other asset, land values cannot increase on a straight line! We ve seen tremendous increases in value over time and especially over the past 5 years! Always keep in mind that not all land is created equal and every area is different! Watch the details, because the local drivers and market-wide influences are constantly changing!