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What's Impacting Farmland Values
- 1. Factors Impacting Farmland Markets Market Overview and Q&A with Dr. Bruce Sherrick May 30, 2018
- 2. Factors impacting farmland markets Factors Impacting Farmland Markets 2 LeeAnn Moss, AcreValue โ Director of Industry Marketing โ Joined Granular in 2017 โ Former farm real estate broker, auctioneer and appraiser Featured Guest: Dr. Bruce Sherrick โ Fruin Professor of Land Economics, University of Illinois โ Director, TIAA Center for Farmland Research โ Board Member, Farmer Mac โ Partner, Integrated Financial Analytics & Research Our Speakers Today
- 3. 01 / Making Sense of Farmland Markets โ Past and Present 02 / Thoughts on the Future 03 / Impact of Data and Technology 04 / Q & A 3Factors Impacting Farmland Markets
- 4. 4 Historic Balance Sheet of Ag Sector: What Matters? Selected balance sheet characteristics of US Agricultural Sector. $3 trillion in assets 2017 โช Concentrated in real estate โช Very low relative debt Factors Impacting Farmland Markets
- 5. The Ag Sector Balance Sheet is Unique 5 โช Farmland = 83% of farm assets โช Farm real estate debt = 62% of total farm debt โช Low aggregate leverage Factors Impacting Farmland Markets
- 6. Some Major Factors Affecting Values 6 Income โช Short term income changes not translated fully to values โช Crop insurance and risk management โช Long-term expectations vs. current experience Cap rate - cost of capital to control farmland investment โช Opportunity costs โช Returns/multiple expansion โช Limited tradability of assets Long-term food demand prospects โช Positive macro outlook โช Positive world outlook Factors Impacting Farmland Markets
- 7. 7 Does the Farmland Market Make Sense? Factors Impacting Farmland Markets
- 8. 8 Yes, the Farmland Market Makes Sense Factors Impacting Farmland Markets
- 9. 9 Relative Return Across Investment Options Factors Impacting Farmland Markets
- 10. 10 No, We Are Not In The 1980s... Farm mortgage interest rates and funding relationships 1980s farm mortgages: โช 80% LTV โช 40-year amortization Present mortgage environment: โช Lower interest rates โช Lower leverage โช Crop insurance / risk management โช Different lending environment โช Beginning-stage financialization Factors Impacting Farmland Markets
- 11. 01 / Making Sense of Farmland Markets โ Past and Present 02 / Thoughts on the Future 03 / Impact of Data and Technology 04 / Q & A 11Factors Impacting Farmland Markets
- 12. Largest Risks to Farmland Markets? 12 โช Sudden change in policy or macro environment โช Change in crop insurance โช Global slowdown in income growth (e.g. China) โช Water usage/availability โช Major changes in trade โช Consumer relationship with food Factors Impacting Farmland Markets
- 13. Near Term Farmland Market Issues 13 โช Range of sales prices steady and rents steady to lower โช Low land turnover โช Continued movement toward cash and flex cash rents โช Debt levels could become more efficient โช Influence of big data and ag-technology Factors Impacting Farmland Markets
- 14. 01 / Making Sense of Farmland Markets โ Past and Present 02 / Thoughts on the Future 03 / Impact of Data and Technology 04 / Q & A 14Factors Impacting Farmland Markets
- 15. 15 Technology and Consumer Impacts Increasing Production Technologies Information Technologies Management Technologies Supply Chain Technologies Precision Ag-tech: โช Genetics, remote sensing, conservation, location-specific inputs, verified production practices, controlled environments Evolving Supply Chain: โช Consumer demands increasingly impacting production Factors Impacting Farmland Markets
- 16. 16 Ag Tech forces impacting all facets of a farm business Factors Impacting Farmland Markets
- 17. 17 โช Consolidation continuing โช Efficient financing - separability of ownership and operation โช Technology adoption โช Mooreโs law and Big Data in Ag - still early stage โช Local context still critical โช When technology allows more data and information at low cost, decision making is increasingly valuable Futurecasting โ Farmland Market Impacts Factors Impacting Farmland Markets
- 18. 18 Value Estimates and Soil Quality Factors Impacting Farmland Markets
- 19. 19 Comparing Four Nearby Fields Factors Impacting Farmland Markets
- 20. 20 Soil Map and Productivity Factors Impacting Farmland Markets
- 21. 21 Crop / Land Use History Factors Impacting Farmland Markets
- 22. 22 Comparable Sales Data Factors Impacting Farmland Markets
- 23. The Horizon Effect 23 โช Greater Efficiencies: Technology, Information, Research, Production Practices โช Farmland Markets: More Transparency โช Disruption: Appraisal, Lending, Investing, Brokerage, Management Factors Impacting Farmland Markets
- 24. 01 / Making Sense of Farmland Markets โ Past and Present 02 / Thoughts on the Future 03 / Impact of Data and Technology 04 / Q & A 24Factors Impacting Farmland Markets
- 25. Q&A
Editor's Notes
- Making sense of farmland markets Understanding the farmland market How to make sense of farmland markets
- Factors Affecting Values Making Sense of the Farmland Market Farmland Trends & Returns 1970 โ 2017 Illinois Farmland Analysis: Values, Comps, Soil, Crop Histories The Impact of Technology
- Large and growing sector topped $3 trillion in 2017, concentrated in real estate and very low relative debt - much lower than in 1980s - BJS
- โขFarmland represents about 83% of farm assets โขFarm real estate debt only 62% of total farm debt โขLow aggregate leverage (approx. 13% D/A) โขGrowth rates 1970-2017, continuous compounding, excluding income: โขAssets --5% โขReal Estate -- 5.3% โขDebt โ 5% โขEquity โ 5% โขAbsence of active equity market with โhedgeableโ indices โ key in future. โขAg Balance sheet compared to corporate sector vastly different, especially in financial structure (far less debt, non-uniform distribution) โขEarly stage โfinancializationโ critical to improving efficiency of farmland market.
- Income and expectations for future income and its growth Recent episodes influence expectations of future income in dampened fashion โReal Optionโ issues (once out of game, cannot re-enter) Stickiness of rental markets, ability to smooth through time Crop insurance, risk management options create floors to some degree Cost of capital, opportunity costs, willingness to pay/accept Economy-wide compression of returns/multiple expansion Relative advantage of long duration, inflation sensitive assets to institutions Limited tradeability of assets in agricultural sector Long-term world thesis around food production remains fairly strong.
- Factors Affecting Values Making Sense of the Farmland Market Farmland Trends & Returns 1970 โ 2017 Illinois Farmland Analysis: Values, Comps, Soil, Crop Histories The Impact of Technology
- Influence of big data and technology - information and decision systems that rely on high resolution or high frequency information will increasingly matter as an โinputโ
- Factors Affecting Values Making Sense of the Farmland Market Farmland Trends & Returns 1970 โ 2017 Illinois Farmland Analysis: Values, Comps, Soil, Crop Histories The Impact of Technology
- Consolidation is beginning in Ag-Tech space. Lots of Dry Powder on the sidelines, but lots of redundant IP in system. Connection of efficient financing sources is key Routinization of technology allows other services to be added Mooreโs law and Big Data in Ag โ not only in processing capacity but also in applications, especially land mgt. Local context โ when technology allows more data assembly at low cost, decisions making is increasingly valuable. Separates winners and Losers
- (and a comment about Values, thermometers, and RMSEs)
- (and a comment about PI and taxes..)
- (and a comment about crop insurance, and in-year rapid eval.)
- โFinancializationโ likely to continue for the sector. Equity & indexing vehicles very positive developments despite local concerns. GAIC. Financial regulation will not retreat significantly in Ag โ lenders key Relationship of consumers to food and food channel will cost more. Better use of data has always been the key to successful management. Technology is exploding and layering transactions with meta data Separation of accounting for ownership and operation is healthy Farmland markets are still in infancy compared to other real asset markets Improved efficiency will always capture economic rents
- Factors Affecting Values Making Sense of the Farmland Market Farmland Trends & Returns 1970 โ 2017 Illinois Farmland Analysis: Values, Comps, Soil, Crop Histories The Impact of Technology