Land Values History and Overview Murray R. Wise C.E.O. Westchester Group, Inc.

Land ValuesLand ValuesHistory and OverviewHistory and Overview

Murray R. WiseMurray R. WiseC.E.O.C.E.O.

Westchester Group, Inc.Westchester Group, Inc.

Three main forces areThree main forces aresupporting farmland values now: supporting farmland values now:

1.1. Government policies, especially the farm Government policies, especially the farm program, encourage rural land ownershipprogram, encourage rural land ownership

2. America’s back-to-the-country migration 2. America’s back-to-the-country migration stimulates demand for homes, small farms, stimulates demand for homes, small farms, and “preservation” landand “preservation” land

3. Larger farmers see efficiency by expanding 3. Larger farmers see efficiency by expanding acres acres

• Inflation• Interest rates• Government• Who are the land buyers?

- Competition• Landowners’ age

FACTORSFACTORS

• Land debt• Land market outside Iowa• Other factors

- Income - Landlord’s income - Capitalization rates - Land values vs. U.S. ag exports

FACTORSFACTORS

INFLATIONINFLATION

• In 1980, inflation was 13.5%

• In 2003, inflation was 2.2%

INTEREST RATESINTEREST RATES

• In 1980, the U.S. prime interest rate was 21.5%• In 2004, the U.S. prime interest rate is 4.0%• Long-term farm mortgage rates are 5.5% - 6.2%

As you know, bond prices rise when bond rates fall. The long-term interest rate downtrend, and Fed’s current policy of rapid growth in supply of easy-debt dollars, has also tended to lift the values of other “real” assets such as homes and farmland.

GOVERNMENTGOVERNMENT

1970 $236,000,000

1981 $50,000,000

2001 $1,970,000,000

Iowa direct payments:Iowa direct payments:

As a farmland broker, I As a farmland broker, I want to thankwant to thank

taxpayers for helping taxpayers for helping support our farmland support our farmland

values!values!

Cropland values in the Corn Belt get 65%of farm program’s land price enhancement

WHO’S BUYING?WHO’S BUYING?

Farmer Investor

1990

2003

81%

60%

16%

34%

Source: Professor Mike Duffy, Iowa State University

AGE OF IOWA LANDOWNERSAGE OF IOWA LANDOWNERS

1982 2002

People Over 65

People Over 74

29% 48%

12% 24%

Source: Professor Mike Duffy, Iowa State University

IOWA LAND DEBTIOWA LAND DEBT

No Debt

1982

2002

62%

76%

Source: Professor Mike Duffy, Iowa State University

CONTRACT FOR DEEDCONTRACT FOR DEED

1982 18%

2002 4%

Source: Professor Mike Duffy, Iowa State University

ESTIMATED SOURCES OF TODAY’S ESTIMATED SOURCES OF TODAY’S FARMLAND BUYING CASHFARMLAND BUYING CASH

(Billions of dollars expended per year)(Billions of dollars expended per year)

$2.0$2.0

Non-farm financial investors

$2.5$2.5Non-farm residential,

recreational

$1.5$1.5

Preservation and conservation

$8.0$8.0

Farmers and ranchers

Expanding Expanding farmers and farmers and exchanging exchanging

farmers are 60% farmers are 60% of the marketof the market

Rural home Rural home buyers, hunters, buyers, hunters, all want a “place all want a “place

in the heart”in the heart”

Investors want Investors want to own to own

farmland for farmland for long-term long-term securitysecurity

In 2000, 300 state In 2000, 300 state and local ballot and local ballot

initiatives raised $8 initiatives raised $8 billion to buy “open billion to buy “open

space”space”

$ $ $$ $ $

$ $ $$ $ $

America’s back-to-the-country America’s back-to-the-country migration stimulates demand for migration stimulates demand for

homes, small farms, and homes, small farms, and “preservation” land “preservation” land

America’s back-to-the-country America’s back-to-the-country migration stimulates demand for migration stimulates demand for

homes, small farms, and homes, small farms, and “preservation” land “preservation” land

Public “Land preservation” intensifies farmland demand at taxpayer’s expense

Public “Land preservation” intensifies farmland demand at taxpayer’s expense

In 2003, voters approved 64 ballot measures in 16 states to create approximately $1.2 billion in new public money to protect (by purchase or easements) rural land for parks and open space.Source: Trust for Public Land.

The Land Trust Alliance warns: “More than eight square miles of agricultural and natural lands are lost to development every day - a total of two million acres every year. At this rate, we have about 20 years to protect our most cherished landscapes before they’re lost forever.”

The Nature ConservancyIs the largest single organization controlling land “preservation:” About $3.2 billion in assets, current income of $1 billion -- with intent of raising $1 billion in a special land-buying effort.

• Acres protected by the Conservancy in the United States by 2004: nearly 15 million• Number of Conservancy preserves: about 1,400 • Conservancy members: 1 million

The Conservancy has doubled its acreage in the U.S. since the mid-1990s, to 15 million

0

3

6

9

12

15

1950s 1960s 1970s 1980s 1990s 2004

MillionAcres

Americans are assuming more of a “European” attitude toward farmland ownership: Current rate of return on investment is less important than long-term security of the investment.

Farmers are willing to hold farmland for lower rates of annual cash return

IMPLIED IOWA IMPLIED IOWA CAPITALIZATION RATECAPITALIZATION RATE

2002 4.7%

Source: Professor Mike Duffy, Iowa State University

DEKALB COUNTY, ILLINOISDEKALB COUNTY, ILLINOISMartin, Goodrich & Waddell, Inc.Martin, Goodrich & Waddell, Inc.

1st qtr. 2002 2003 2004SalesAvg. Value/AcreOver $5,000/AcreOver $6,000/Acre

29$4,760 20 5

54$6,626 34 14

7$6,086 7 4

The result of those five-figure per acre sales in DeKalb County in last-half 2003: Average land sale price leaped to $6,939 per acre

This includes sales of 4,274 acrestotaling almost $30 millionin DeKalb Countyduring 2003

Excluding Excluding government government paymentspayments

Source: USDA

As operating efficiency rises and rental As operating efficiency rises and rental competition intensifies, a larger share of net competition intensifies, a larger share of net

farm income is flowing to farmlandfarm income is flowing to farmland

Source: USDA

U.S. Farmland Values & Ag Exports

Source: USDA

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,30019

60

1965

1970

1975

1980

1985

1990

1995

2000

2002

2012

$0

$10

$20

$30

$40

$50

$60

$70

$80

Ag Exports

Farmland Values

$ Billions$ per Acre

Forecast

Source: USDA

Three main forces areThree main forces aresupporting farmland values now: supporting farmland values now:

1.1. Government policies, especially the farm Government policies, especially the farm program, encourage rural land ownershipprogram, encourage rural land ownership

2. America’s back-to-the-country migration 2. America’s back-to-the-country migration stimulates demand for homes, small farms, stimulates demand for homes, small farms, and “preservation” landand “preservation” land

3. Larger farmers see efficiency by expanding 3. Larger farmers see efficiency by expanding acres acres

Larger farmers are seeking efficiency against Larger farmers are seeking efficiency against global competitors like Brazil by global competitors like Brazil by renting and renting and

buying more acres per farmbuying more acres per farm

Just how big will farms get? This Just how big will farms get? This competitor in Mato Grosso fields competitor in Mato Grosso fields 31 combines, followed by 12 no-31 combines, followed by 12 no-

till planters for a second croptill planters for a second crop

WHAT COULD CHANGEWHAT COULD CHANGETHE GAME PLANTHE GAME PLAN

• Government• Interest rates

- Borrower - Depositor

• Inflation• Commodity prices• Alternative investments