2014 Outlook for Farmland Values & Cash Rent

2014 Outlook for Farmland Values & Cash Rent

2013 Purdue Land Value SurveyState-wide

Land Quality

Yield (Bu/a)

Value per acre%

Change2012 2013

Top 193 7,704 9,177 19.1%Average 160 6,359 7,446 17.1%

Poor 127 5,013 5,750 14.7%

2013 Purdue Land Value SurveyState-Wide Cash Rent

Land Quality

Yield (Bu/a)

Cash rent per acre%

Change2012 2013

Top 192 265 294 10.9%Average 159 208 229 10.1%

Poor 126 159 174 9.4%

Value of Indiana Farm Real Estate, 1913- 2013, USDA

1913

1916

1919

1922

1925

1928

1931

1934

1937

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Nominal Real Estate Value Inflation Adjusted Value (Base 2013)

Year

$ pe

r acr

e

Percentage Change in Nominal Indiana Real Estate Values 1911-2013, USDA

1911

1914

1917

1920

1923

1926

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

-30%

-20%

-10%

0%

10%

20%

30%

40%

Year

% a

nnua

l cha

nge

Frequency of Change in Farmland Value

No. of Obs.

(20%) to

(16%)

(15%) to

(11%)

(10%) to

(6%)

(5%) to

(0%)

0% to 5%

6% to

10%

11% to

15%

16% to

20%

More than 20%

Land Value 102 3 4 4 14 26 31 9 6 5

Trend in Value of Indiana Farm Real Estate1910 – 2013

1910

1913

1916

1919

1922

1925

1928

1931

1934

1937

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

f(x) = 31.8225406782698 exp( 0.0463547239084368 x )R² = 0.907589279038948

Nominal Real Estate Value Exponential (Nominal Real Estate Value)

Year

$ pe

r acr

e

Indiana Cash Rent, 1967- 2013, USDA

19671969

19711973

19751977

19791981

19831985

19871989

19911993

19951997

19992001

20032005

20072009

20112013

0

50

100

150

200

250

300

350

400

Cropland Cash Rent Inflation Adjusted Rent (Base 2013)

Year

Cash

rent

per

acr

e

%Change in Real Estate Value + Cash rent / Value, 1967 – 2013, USDA

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Cropland Cash Rent / Value % Change Real Estate

Year

Chan

e in

Val

ue+C

ash

Rent

/Val

ue

Farmland Drivers

Current n

et inco

me

Expecte

d return growth

Crop price &

outlook

Lvstk

price &

outlook

Current &

expecte

d interest

Return competing in

vest.

U.S. ag exp

orts

U.S. in

flation/deflation

Current la

nd inve

ntory

Buyer c

ash liquidity

Current U

.S. ag polic

y

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

2012 2013 2002 2003

Long-term Interest Rates

1860 1880 1900 1920 1940 1960 1980 2000 20200.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Year

Inte

ret R

ate

Source: Shiller, R. , Irrational Exuberance, 2nd ED., http://www.irrationalexuberance.com/

Estimated ReturnsAugust 13, 2013

2013 2014 2015 2016

Corn Soybeans Corn Soybeans Corn Soybeans Corn SoybeansYield 163 54 164 55 165 55 166 56Price $4.86 $12.23 $4.70 $11.60 $4.57 $11.08 $4.49 $10.71

Gross Revenue $792 $660 $771 $638 $754 $609 $745 $600

Production cost $454 $247 $444 $259 $466 $272 $489 $286

Contribution margin $338 $413 $327 $379 $288 $337 $256 $314

Machinery & labor overhead $129 $129 $132 $132 $139 $139 $146 $146

Return to land & risk $209 $284 $195 $247 $149 $198 $110 $168

Cash rent $233 $233 $233 $233 $233 $233 $233 $233

Economic profit -$24 $51 -$38 $14 -$84 -$35 -$123 -$65

Rotation economic profit $14 ($12) ($60) ($94)

2014

• Cash rents will be pretty much unchanged– Tenants will be cautious because of tightened margins– Landowners will be happy with a rent that is more than

they ever thought they would get• Tight margins and tight cash flows will dampen

farmers farmland buying– Land values will slow their increase – But we could find ourselves in an a 2009 like event and see

downward adjust in farmland

The Future Not To Long From Now

• 2014 was the first of a series of good crop years• Corn and soybean demand grows but slowly• The investments in production capacity made around

the world provide even more corn and soybeans• Long-term interest rates rise but stay in a 4% - 6% range • After dipping below $4.00, corn prices settle in at a new

plateau around $4.50 and beans at $10.70. The return to land is $196 per acre.

• After a period of adjustment the return to land grows at close to 2%

Future

• After a turbulent period of adjustment, farmland values have – Stabilized at $6,500 (a decline of 15%) and resumed their

steady upward rise • because we need to feed 9 billion people and everyone knows

they aren’t making any more of it.

Questions, Comments