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Trends in Agricultural Values and the Fundamental Reasons Why - Kenton Springer

Kenton Springer, Farmers National

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Trends in Agricultural Values and the Fundamental Reasons Why - Kenton Springer

  1. 1. Trends and Happenings with Land Values Kenton Springer, AFM Assistant Vice President Farmers National Company Women Managing Farms
  2. 2. 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
  3. 3. 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
  4. 4. Agricultural Land Values  Historical trends  Factors affecting value  Who buys farms  Who sells farms  Sales across Kansas  Are farms a good investment?
  5. 5. Land Ownership Goals Income Goals Investment Plan Tax Strategy Family Wealth Inheritance Plan
  6. 6. The Current Land Market  Generational transfer of wealth  Supply and demand in the land market  Farm and ranch incomes  Economic influences
  7. 7. 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
  8. 8. Land Value Trend 1951-2015
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. Borrowing Trend Increasing!
  13. 13. $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Avg.FarmPrice($/bu) DaysofSupply World Coarse Grains Ending Stocks Days of Supply Ending Stocks USDA Corn Price
  14. 14. $3.50 $5.00 $6.50 $8.00 $9.50 $11.00 $12.50 $14.00 $15.50 $17.00 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 110.0 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Avg.FarmPrice($/bu) EndingStocks(DaysofSupply) World Soybeans Ending Stocks Days of Supply Ending Stocks USDA Price
  15. 15. $2.00 $4.00 $6.00 $8.00 $10.00 60.0 80.0 100.0 120.0 140.0 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Avg.FarmPrice($/bu) Daysofsupply World Wheat Ending Stocks in Days of Supply Ending Stocks USDA Price
  16. 16. Grain Yield and Price Trends Impact Income
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. Wall Street Money Chicago Money
  21. 21. 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)
  22. 22. 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”
  23. 23. 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
  24. 24. 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
  25. 25. Who is Selling Farms?
  26. 26. Who Purchased Farmland 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 1989 1992 1995 1998 2001 2004 2007 2010 2013 Farmers Investors New Farmers Other Duffy, ISU
  27. 27. 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
  28. 28. Low Supply of Good Land for Sale 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 0 100 200 300 400 500 600 700 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Acres(thousands) Figure 1: Farmland Turnover by Year Acres Sold Turnover Est. Arm's Length Turnover Source: University of Illinois TurnoverbyYear
  29. 29. Net Return over the last 60 years averages 12.5%
  30. 30. FarmersNational.com/Real_Estate
  31. 31. Land Values in Kansas
  32. 32. Looking Ahead!
  33. 33. 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
  34. 34. 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
  35. 35. Keep Focused on the… POSITIVE!
  36. 36. Thank You! www.FarmersNational.com

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