8/1/2016 1 F ARMLAND LEASING ARRANGEMENTS AND LAND V ALUES Melissa O’Rourke B.S., M.A., J.D. FARM & AGRIBUSINESS MANAGEMENT SPECIALIST Housed at ISU Extension— Winneshiek County in Decorah www.extension.iastate.edu/agdm [email protected]563-382-2949 Read about Kevin & Lisa Martin (Farmers) and Susie Williams & Sam Williams (Landowners). We’ll discuss their viewpoints later today.
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FARMLAND LEASING ARRANGEMENTS AND LAND VALUES · 8/1/2016 1 FARMLAND LEASING ARRANGEMENTS AND LAND VALUES Melissa O’Rourke B.S., M.A., J.D. FARM & AGRIBUSINESS MANAGEMENT SPECIALIST
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“The Iowa farmland market is showing weakness following
significant increases in value over the past decade. Based on
the Iowa State University Farmland Value Survey, 2015 Iowa
land values have decreased two years in a row since 2000.
However, despite these decreases, current Iowa farmland
values are still more than double what they were 10 years
ago, 75 percent higher than the 2009 values and 14 percent
higher than the 2011 values.”
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16
Value in each year of $1,000 invested in 1950 in Iowa farmland or the S&P
Iowa State University
Farmland Value Survey – Conducted annually since 1941
– Mailed to 1100 licensed real estate brokers; 500-600 responses
– Released annually in mid-December
– November 1 to November 1
– Latest and historical surveys found on Ag Decision Maker website
– www.extension.iastate.edu/agdm
SEE YOUR BOOK – page 27
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17
Iowa Farmland Value Portal
http://card.iastate.edu/farmland
Farmland Value per Acre 1950-2015
0
2000
4000
6000
8000
Land v
alu
e p
er
acre
($/a
cre
)
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18
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$11,000
$12,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ p
er
acre
High Medium Low
Farmland Values for Crop
Reporting District 3 by Year
↓$1,300
↓14%
Iowa Farmland Purchases by Farmers and
Investors and Land Values 2006-2015
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%A
ve
rag
e L
an
d V
alu
e p
er A
cre
Pe
rce
nt o
f S
ale
s
Farmers Investors Average Land Value
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19
Northeast counties – 2014 &
2015 farmland values
Percent Change – 2014 to 2015
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20
Crop
Reporting
District 3
Crop Reporting
District 2
Farmland Values Predictions
in Five Years
District
Increase
5% or
more
Increase
0-5%
Stay the
same
Decrease
0-5%
Decrease
5-10%
Decrease
10% or
more
PERCENT
Northwest 16 18 20 16 16 14
North Central 16 12 10 17 22 22
Northeast 7 22 15 10 22 24
West Central 20 20 16 14 16 12
Central 22 21 19 8 19 11
East Central 9 19 17 19 19 19
Southwest 18 15 21 10 13 23
South Central 12 12 15 12 32 18
Southeast 6 14 26 14 17 23
STATE 14 17 17 14 19 18
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21
SUMMARY: Land Value Survey
• Farmland values hit a historic peak of $8,716 per acre in 2013, but declined 8.9% to $7,943 the following year.
• Drop in value in 2015 is smaller than 2014; but marks the third time values have fallen since 2009.
• The 3.9% percent decline may seem less than what many people speculated, but this is not out of line due to a mix of factors, including a lot of cash in hand for many farmers, market expectation of this decline early on, robust livestock returns, and strong recreational demand.
• Despite decreasing again, farmland values are still more than 2X the reported values from 10 years ago, and almost 14 % higher than 2011 values.
• Farm income & interest rates are key to watch
• For more info visit www.card.iastate.edu
• Impacts for Kevin & Lisa Martin?
• For Susie Williams and Sam Williams?
Landlord-Tenant
Communication:
It’s a 2-way street
• Farmland owners need to be
open to learning about current
farming challenges, conditions,
costs of productions
• Producers need to listen to the interests and goals
of farmland owners; and be willing to share
information about inputs, yields, and crop plans
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Communication
Methods:
• Newsletter
• E-mail
• Facebook, Twitter, blog
• Phone calls
• Stop by for a cup of coffee
• Annual or periodic meetings
• KEY: Don’t limit
communication to annual
rent payment and rent
negotiations.
• More farmland owners
require written annual report
as a lease condition.
• Owner agrees: Information
provided by the Tenant
(such as yields,
management practices) is
kept confidential.
• Proprietary business
information needs to be
shared to negotiate lease
terms – but it is not to be
shared in the “coffee shop.”
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Winning Communication
Strategies:
• Communicate regularly, not just once a year
• Producers: Take time to share and educate Owners about current trends in agriculture, farm costs
• Provide regular crop reports during growing season
• Maintain farm appearance
• Treat landowners like family – with respect and kindness.
Communication-Negotiation
Process Tips:
• Start early, use data –
• Base conversations on facts
• Producers: Know your costs, • overhead, breakeven points
• Producers: Understand challenges landowners face with declining revenues
• Producers: Share information on yields, prices, records, satellite photos, fertility records, government payments, crop insurance
• Landowners: Know your costs, know what you need
• Landowners: Learn about production costs
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Communication Setbacks?
• Ask for more time
• Be aware of your non-verbal communication
• Focus on what the other person is saying and what they really mean
• Request more information to clarify points.
• Ask if other party has areas of compromise or negotiation.
• Stick to building trust, use tact and logic
• Try to understand the other party’s perspective – “new truck”
• Use a third-party to help mediate, guide discussion
Farm Lease Basics:
A Few Pointers
• Strong preference for
written leases – See
your book – page 94
(short form)
• Legal issues, including
lease termination
• Communication
fundamentals
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25
Why should a farm lease be written?
• Provides more assurance
that the parties understand
one another.
• Lease of more than 1 year
must be in writing to be
enforceable.
• Lease of 5 years or more
must be in writing and
recorded at the county
recorder’s office.
Shouldn’t a handshake be
good enough? • Don’t rely on selective
memory.
• Be sure that you cover all
the provisions that you
intend to cover.
• Define meaning of terms.
• Put things in writing
because you value the
relationship . . . and
because you don’t want
there to be later
misunderstandings!
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26
A Few Examples . . . .
• Fencing
• Hunting rights
• Crop residue
(stover)
Assuring the Rent is Paid
• How can parties
assure one
another that the
rent will be paid?
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27
First Step? -- Use a written lease.
And, be sure that:
(1) The legal description
and parcel number in
the lease is accurate.
(2) The parties to the lease
are properly identified.
(3) The lease terms are
clear.
Additional tools to assure rent
payment may include:
• Require all rent paid on March 1. (Reduction for interest paid by the borrower may be a consideration.)
• Require irrevocable letter of credit from the Producer/Tenant’s lender.
• Require Landlord’s name be included as Payee on checks for crops.
• File and perfect a Landlord Lien – this includes recording the lease – seek professional legal assistance for this.
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Farm Lease Termination: Does lease
termination mean the end of the
Owner–Tenant relationship?
• Not necessarily – but it means either the Owner (or the Tenant) want to make some changes for the next year.
• See your book – page 97
Without written notice of termination, lease
automatically renews under the same terms and
conditions for the following crop year.
Farm Lease
Termination: • Iowa Code 562.6: Amended in 2016 to clarify that whether
the lease is oral or written, the termination notice must be in writing!
• Notice cannot be contained within the lease – it must be a separate written notice.
• Serve written notice on or before September 1 (this terminates the current least on the following March 1).
• Serve in person (have them sign the notice and keep a copy); or by Certified US Mail (keep copy of receipt, return receipt optional); or by publication if neither in-person or mail can be accomplished.
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Turn to page 37
in your book
We’ll look at the 2016
Cash Rental Rate survey
– and walk through
some calculations and
ways to think about how
to arrive at a number
that is fair to both the
Owner and the Producer.
When you have time,
read through this page
that explains the survey
methodology and
information.
Average/Typical Cash Rents for
Corn & Soybean Acres – p 38
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We’re focusing on counties in
Crop Reporting Districts 2 or 3
State and Crop Reporting
District Average Rent by Year
$144 $157
$190 $186 $192
$223
$266 $281 $277 $273
$100
$150
$200
$250
$300
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
StateDistrict 3
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Projected 2016 ARC-CO Payments
Corn
*Payments based on yield and price projections as of 7/13/2016
Marshall
Benton
Clay
Shelby
Clayton
Jackson
Hamilton
Taylor
Muscatine
Wright
Clinton
Iowa
Buena Vista
Woodbury
Kossuth Worth
Washington
Sac
HumboldtCherokee
WinnebagoLyon
Marion Keokuk
Johnson
Monroe
O'Brien
Dubuque
Van Buren
Franklin
Guthrie
Jefferson
Floyd
Appanoose Davis
Clarke
Black Hawk
Scott
Plymouth
Mitchell
Dallas
Palo Alto
Fremont Ringgold
Butler
Montgomery
Warren
Decatur
Webster
Calhoun
Mahaska
Boone
Linn
Jasper
Page
Ida
Crawford
Adams
Cedar
Carroll
Audubon
Delaware
Hardin
Sioux
Adair
UnionMills
Wayne
Monona
Harrison
Lucas
Polk
Buchanan
Chickasaw
Des Moines
Cass
Allamakee
Madison
Cerro Gordo
Fayette
Bremer
Tama
Osceola
Henry
Poweshiek
Hancock
Winneshiek
Jones
Pocahontas
Greene
Louisa
Wapello
Lee
Story
Grundy
Pottawattamie
HowardDickinson Emmet
$70$67
$61
$73
$72
$53
$13
$63
$27
$74
$32
$41
$12
$62
$36
$0
$25
$27$46
$35$72
$1 $0
$70
$76
$71
$0
$46
$14
$0
$54
$0 $15
$0
$49
$40
$72
$35
$37
$64
$25 $0
$73
$30
$0
$0
$37$30
$13
$48$72
$11
$57
$72
$55
$49
$73
$35
$52
$72$57
$64
$26
$0
$67
$42
$0
$20
$60
$37
$45
$29
$67
$16
$36
$71$34
$60
$60
$0
$23
$52
$72
$71
$34
$42
$48
$6
$32
$48
$75
$0
$39$25 $21
2016 Corn ARC-CO Payment
$50 - $76
$25 - $50
$1 - $25
$0 - $1
No Data
Projected 2016 ARC-CO Payments
Soybeans
*Payments based on yield and price projections as of 7/11/2016
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Projected 2016 ARC-CO Payments
Crop Reporting District 3
$/Base Acre Corn Payment
Soybeans Payment
*Payments based on yield and price projections as of 7/13/2016
Rate – see page 65 • We’ll walk through calculations
for 4 different bases for cash
rent calculations:
1. What others are charging
2. Average rent for production
(yields)
3. Average rent for CSR
4. Return on Value
– Other flexible methods
Do Your Farmland Fact Finding 1. Land value estimate for tillable acres ($/acre)
2. Number of Tillable Acres (If you don’t know, check
county USDA FSA Office: Form 578 completed
annually)
3. Corn Suitability Rating? (CSR/CSR2) (See
County Assessor's Office or NRCS Soil Survey)
4. Special features? Drainage issues, irregular
field shapes (See tile, terrace maps, aerial
photos)
5. Most recent 5-Year Actual/Average Yields on
that farm (Corn & Soybeans).
Source: Johnson, ISU Extension, May 2011
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Method #1:
What’s the “going” rate?
• Rumors often inaccurate.
• Compare to many others,
not just one
• Remember, seemingly
small differences in land
quality can make a big
difference in appropriate
rents.
Location: Winneshiek County Tillable Acres in parcel: 75 Acres Corn Yield: 167 bu/Acre Soybean Yield: 45 bu/Acre These are the yields on that farm/parcel – ideally, a 5-year rolling average. Corn Suitability Rating: 82 CSR2