john deering agriculture and business management specialist colorado state university extension 2012...
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Land Values/Rents
John DeeringAgriculture and Business Management Specialist
Colorado State University Extension
2012 Crop Insurance WorkshopOctober 30th, 2012
Agriculture & Business Management
Average Farm Real Estate Values
Source: USDA, National Agricultural Statistics ServiceInflation adjusted using GDP Chain-type deflator, 2005 = 100
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
0
500
1,000
1,500
2,000
2,500
Nominal
Inflation ad-justed
Dollars
per
Acre
Agriculture & Business Management
Why are outside investors interested?
Source: USDA, National Agricultural Statistics Service, St. Louis Federal ReserveAAA = Moody’s Seasoned AA Corporate Bond Yield, 10-Year Treasury Constant Maturity
0 2 4 6 8 10 12 14 16 18 200
2
4
6
8
10
AAA
Treasury
Farmland
Dow JonesS&P 500
1970 - 2011
Standard Deviation Return (%)
Me
an
Retu
rn (
%)
0 5 10 15 200
2
4
6
8
10
AAA
Treasury
Farmland
Dow Jones
S&P 500
2000 - 2011
Standard Deviation Return (%)
Me
an
Re
turn
(%
)
Agriculture & Business Management
Other influences on land values
Recent high net returns from farming
Low interest rates
1031 Exchanges
Pension funds
Neighbors
Agriculture & Business Management
Farm real estate and net cash income, 1990-2011
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
500
1,000
1,500
2,000
2,500
0
20
40
60
80
100
120
140Real EstateNet Cash Income
$/A
cre
(20
05
)
$/A
cre
(20
05
)
Real estate values are inflation adjusted to 2005 by the GDP Chain-type deflatorSource: USDA, National Agricultural Statistics Service, Economic Research Service
Agriculture & Business Management
Farm real estate and net cash income, 1990-2011
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
500
1,000
1,500
2,000
2,500
0
20
40
60
80
100
120
140
Real Estate
Linear (Real Estate)
$/A
cre
(20
05
)
$/A
cre
(20
05
)
Real estate values are inflation adjusted to 2005 by the GDP Chain-type deflatorSource: USDA, National Agricultural Statistics Service, Economic Research Service
Agriculture & Business Management
Farm real estate & 3 month Treasury
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
500
1,000
1,500
2,000
2,500
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00Real Estate
Interest Rate
$/A
cre
(20
05
)
Pe
rce
nt
Real estate values are inflation adjusted to 2005 by the GDP Chain-type deflatorSource: USDA, Economic Research Service, St. Louis Federal Reserve
Agriculture & Business Management
Value of Non-Irrigated CroplandSecond Quarter 2012
Agriculture & Business Management
Farmland Values - Annual % Changes
Source: Federal Reserve Bank of Kansas CityTenth Federal Reserve District (Quarterly Agricultural Credit Survey)
CO, KS, NE, OK, WY (NM, MO)
2nd Quarter percentage changes from 1 year prior
2007 12.5%2008 18.3%2009 0.4%2010 4.8%2011 21.3%2012 26.4%
Agriculture & Business Management
Farmland Values - Annual % Changes
Source: Federal Reserve Bank of Kansas CityTenth Federal Reserve District (Quarterly Agricultural Credit Survey)
CO, KS, NE, OK, WY (NM, MO)
2nd Quarter percentage changes from 1 year prior$1,000 in 2006
2007 12.5%2008 18.3%2009 0.4%2010 4.8%2011 21.3%2012 26.4% $2,147 in 2012
Agriculture & Business Management
Alternative Investments
Source: Woulda coulda shoulda
Year Farmland S&P 500 Apple Inc.(Adjusted)
2006 $1,000 $1,000 $1,000
2012 $2,147 $1,237 $9,898
Agriculture & Business Management
Rent-to-value ratio
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.0
0.5
1.0
1.5
2.0
Cropland
Pastureland
Source: USDA, National Agricultural Statistics Service
Agriculture & Business Management
Rent-to-value % in nearby states
Source: Kansas State University Department of Agricultural Economics (Publication: AM-KCD-2011.18)
After Property Tax Ag Rents as % of Value
1951-2010 2011CO 5.65% 2.37%KS 5.81% 3.24 %NE 6.42 % 4.20 %OK 4.46 % 2.21 %WY 6.16 % 1.49 %
Agriculture & Business Management
Determining equitable lease rates
Percentage of land value• Lately a volatile proposition
Fixed cash rent• Shifts risk to tenant, easier for absentee landlords
Crop share rent• Increasingly hard on tenants with changes in technology &
higher input costs
Fixed cash rent floor with “bonus” tied to price & yield• Allows landlord to participate in some upside & lowers
downside risk for tenant
Agriculture & Business Management
CSU ABM Lease Templates &Enterprise Budgets Crop Share Lease Agreements Fixed Cash Crop Lease Agreements Flexible Cash Crop Lease Agreements Leasing Arrangements for Cattle Pasture Leases Estimating Rental Rates of Crop Land for
Landowners & Tenants (Excel Workbook)
CSU Crop Enterprise Budgets (Corn, Alfalfa, Wheat, Sunflowers, Sugarbeets, Millet, Pinto Beans, etc.)http://www.coopext.colostate.edu/ABM/cropbudgets.htm
Agriculture & Business Management
CSU ABM Excel Template
Estimating Rental Rates of Crop Landfor Landowners and Tenants
By:
Jeffrey E. TranelNorman Dalsted, PhD
Agriculture and Business Management Economists
Colorado State University
http://www.coopext.colostate.edu/ABM/
Email your questions to: [email protected]
This template is designed to help landowners and tenants of crop land compare the portions of production and expenses.
You may move to each tab (at the bottom of the screen).
Enter your data into any cell with a pale background and blue colored numbers.
Programs are available to all without discrimination.
Agriculture & Business Management
Estimating Rental Rates
Total Tenant Landlord Total Tenant Landlord Total Tenant Landlord Share Arrangement 0.7000 0.3000
Production Gross Receipts @ $8.00 Net Returns60 bushels 60 42.00 18.00 $480 $336 $144 $331 $215 $11640 bushels 40 28.00 12.00 $320 $224 $96 $171 $103 $6830 bushels 30 21.00 9.00 $240 $168 $72 $91 $47 $4420 bushels 20 14.00 6.00 $160 $112 $48 $11 ($9) $20
Production Costs Split
Fertilizer & Chemicals 1 60.00 42.00 18.00 Breakeven Yield (costs / price)Crop Insurance 1 20.00 14.00 6.00 For Tenant 15.13 bushelsReal Estate Taxes 3 4.50 - 4.50 For Landlord 3.56 bushelsAll Other 2 65.00 65.00 - Total 149.50 121.00 28.50
81% 19%
Dryland Wheat
(Share=1, Tenant=2, Landlord=3)
Agriculture & Business Management
Estimating Rental Rates
Wheat Corn Alfalfa
Projected Cash Rent (for all acres) $35 $200 $200
Current Price for Crop $8.00 $7.25 $200Base Price (5 year average) $6.00 $5.00 $140
Projected Yield 40 200 6.00 Base Yield (county average) 32 175 4.50
Rent Flexed for Price $47 $290 $286
Rent Flexed for Yield $44 $229 $267
Rent Flexed for Price & Yield $58 $331 $381
Cropland Rents Flexed for Price and Yield
Agriculture & Business Management
Land value & rent data resources County assessor offices & webpages (Sale data)
◦ http://www.qpublic.net/co/ Alamosa, Cheyenne, Conejos, Crowley, Custer, Dolores,
Fremont, Gunnison, Kit Carson, Las Animas, Lincoln, Mineral, Saguache, San Juan, Sedgwick, Washington, Yuma
USDA/NASS Surveys (Rent survey, county level)
CSU ABM Custom Rates Survey (Rent survey, region)◦ http://www.coopext.colostate.edu/ABM/custrates.htm
Agriculture & Business Management
Sources
Nickerson, C., M. Morehart, T. Kuethe, J. Beckman, J. Ifft, and R. Williams (2012) “Trends in U.S. Farmland Values and Ownership” EIB 92 Economic Research Service
Kansas State University Department of Agricultural Economics (Publication: AM-KCD-2011.18)
Federal Reserve Bank of Kansas City – Tenth Federal Reserve District (Quarterly Agricultural Credit Survey)
Agriculture & Business Management
Questions?
John Deering970-345-2287
Lease Arrangement Resources:http://www.coopext.colostate.edu/ABM/investment.htm