Farmland Market UpdateWendong Zhang

Assistant Professor of Economics and Extension Economistwdzhang@iastate.edu

2016 Midwest, Great Plains and Western Outlook Conference, August 16th, 2016

The new Mike Duffy

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A Quick Introduction:Dr. Wendong Zhang

– Grown up in a rural county in NE China– Attended college in Shanghai and Hong Kong– Ph.D. in Ag Econ in 2015 from Ohio State– 2012 summer intern at USDA-ERS on farm

economy and farmland values– Research and extension interests: land value, land

ownership, agriculture and the environment, China Ag

Why Care About Farmland Market?

Source: USDA ERS

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

2011 2012 2013 2014 2015F

Billi

on $

Distribution of U.S. Farm Assets

Real estate Livestock and poultry Machinery and motor vehicles

Crops stored Purchased inputs Financial assets

Current Situation of Iowa Farmland Market and

Beyond

Iowa Farmland Valuesall farmland 1950−2015

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

Land

val

ues (

$/ac

re)

Year

Nominal vs. Inflation Adjusted Iowa Farmland Values

Nominal Real

$7,633As of Nov 15

-3.9%

% Change in Iowa Farmland Values 1951-2015

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

Source: USDA-NASS June Area Survey

Beyond Iowa – farm real estate values

Source: USDA-NASS June Area Survey

Beyond Iowa – cropland values

Source: USDA-NASS June Area Survey

Beyond Iowa – pasture values

Chicago Fed Ag LetterAugust 2016

Kansas City Fed Ag Credit Survey August 2016

2015 Q2 to 2016 Q2

Purdue Land Value Survey

Iowa

Source: Purdue PAER

Kyle Hansen, RLI

Farmland Market Outlook

Consensus: Going downDivergence: Magnitude &

Speed of the Decline

Looking Across States and Looking Ahead

Farmland Values Predictions in the Next Year

District

Increase 5% or more

Increase 0-5%

Stay the same

Decrease 0-5%

Decrease 5-10%

Decrease 10% or more

PERCENT

Northwest 3 9 28 36 19 6North Central 0 2 16 38 44 2Northeast 0 2 20 38 36 5West Central 2 2 22 44 26 4Central 0 0 13 48 33 6East Central 2 2 18 30 40 9Southwest 2 2 21 40 24 10South Central 0 3 10 33 41 13Southeast 0 0 17 47 33 3

STATE 1 3 19 39 32 6

Source: Chad Hart

2016/17 Crop Margins

Source: Chad Hart

2017/18 Crop Margins

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 14North Central 16 12 10 17 22 22Northeast 7 22 15 10 22 24West Central 20 20 16 14 16 12Central 22 21 19 8 19 11East Central 9 19 17 19 19 19Southwest 18 15 21 10 13 23South Central 12 12 15 12 32 18Southeast 6 14 26 14 17 23

STATE 14 17 17 14 19 18

US Farm Income 1990-2025

Source: USDA OCE

Crop Prices for the Next Decade

Source: USDA-OCE

Corn and Land Price Forecasts for Dec 16, 17

A Bust of Farmland Market Bubble?

A Replay of 1980s Farm Crisis?

Source: USDA-NASS;Ag Census

Iowa Ag Real Estate Values 1850-2015

A replay of 1920s or 1980s farm crisis?

Source: USDA-ERS, Ag DM C2-70

Key Indicators to WatchV = I/D

– USDA Farm Income Forecast• Price Outlook• Ag Exports / Exchange Rate• China• Ethanol, E-85, RFS

– Fed’s move on Interest Rate– Ag Loan Delinquency; Vendor Credit

Fed’s June 16 dot plot

Source: Bloomberg

Farmland Values vs. Capitalized Land Values

2016 Farm Income Forecast

Source: USDA ERS

Feb 2016

2016 Government Pmts Forecast

Source: USDA ERS

Feb 2016

Avg Corn Return Changes vs. Land Price Changes

Model 1: % change in Iowa land price = -0.001 %corn change2 + 0.2835 % corn change + 5.0049

R² = 0.703

Model 2: % change in Iowa land price = 0.1207 % corn change + 5.0606R² = 0.4805

-15

-10

-5

0

5

10

15

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25

30

35

-50 0 50 100 150 200 250

Annu

al p

erce

ntag

e ch

ange

in Io

wa

farm

land

va

lue

(%)

Annual percentage change in 7-year average corn net revenue (%)

Rising agricultural debt

Strength of the U.S. Dollar

Source: Federal ReserveChad Hart

Chinese economy

A New, Interactive Iowa Farmland Value Portal

http://card.iastate.edu/farmland/

Iowa Farmland Value Portalhttp://card.iastate.edu/farmland

Iowa Farmland Value Portal

http://card.iastate.edu/farmland

Iowa Farmland Value Portalww.card.iastate.edu/farmland

Similar portal for Iowa cash rents and crop insurance payments

Industry datasets for farmland values• Farmland Auction Results: Hertz; Farmers

National; Peoples Company• Industry Land Value Predictions: Acre

Value, What's My Farm Worth, Peak Soil Land Index

• Popular Ag Magazines: WallacesFarmer, Landowner Newsletter

• U of Missouri Ag Site Assessment Tool

Thank You!Wendong Zhang

Assistant Professor and Extension Economist478C Heady Hall

Iowa State University515-294-2536

wdzhang@iastate.eduhttp://www2.econ.iastate.edu/faculty/zhang

China’s corn subsidy reform

August 2016: 4.5 billion US $ direct payments paid to producers in 4 provinces in NE China

Subsidy level: US $ 150/acre (27% of corn cost of production)

New policy: marketized purchaseOld policy ended: support price policies

% of Farmland by Age and Life Stage of Owners

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1982 1992 2002 2007 2012

Perc

ent o

f Far

mla

nd

Year

< 25 25 - 34 35 - 44 45 - 54 55 - 64 65 - 74 > 74

Source: Ag DM PM1980

Source: Carl Zulauf,Census of Ag., BLS

Putting Aging Farming Population into Perspective

Iowa Farmland Purchases by Buyer Types 1986-2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Existing Farmers Investors New Farmers Other

Not Every Iowa District Are Created Equal

Land Values by District and Land Quality, 2015

District AverageValue

% Change

HighQuality

% Change

Medium Quality

% Change

Low Quality % Change

Northwest $9,685 0.7% $11,229 0.3% $8,834 1.6% $6,252 2.6%North Central $7,962 -6.7% $8,976 -6.8% $7,352 -6.6% $5,372 -1.0%

Northeast $7,861 -3.6% $9,575 -5.0% $7,460 -1.7% $5,242 -0.3%West Central $8,061 -4.3% $9,684 -5.8% $7,581 -3.2% $5,082 -1.8%

Central $8,505 -6.4% $10,087 -6.4% $7,758 -6.8% $5,292 -5.2%East Central $8,506 -5.6% $10,289 -6.8% $7,934 -5.4% $5,366 -2.1%Southwest $6,372 -2.2% $8,031 -5.3% $6,038 -1.2% $4,070 5.4%

South Central $4,397 -1.7% $6,445 -3.3% $4,282 -0.8% $2,750 -2.1%Southeast $6,892 -4.5% $9,536 -6.0% $6,525 -2.8% $3,797 -2.4%

Iowa Avg. $7,633 -3.9% $9,364 -5.0% $7,127 -3.2% $4,834 -0.9%

Livestock and Crop Inventory by District

Inventory 2012 Harvested Acres 2015Chickens,

Layers Hogs Milk Cows Cattle Corn Soybean

Northwest 30% 26% 29% 22% 15% 16%

North Central 64% 16% 4% 6% 14% 13%Northeast 1% 12% 51% 16% 12% 8%

West Central 0% 13% 1% 13% 15% 16%Central 3% 13% 1% 7% 15% 14%

East Central 1% 5% 10% 11% 10% 10%

Southwest 0% 2% 0% 9% 7% 9%

South Central 0% 2% 1% 9% 4% 5%Southeast 1% 11% 3% 6% 7% 8%

State Inventory 20.4 million 20.4 million 0.17 million 2.34 million 13.2 million 9.8 million

Source: Chad Hart, Mike Duffy

Iowa Corn Prices vs. Costs

Iowa Soybean Prices vs. Costs

Source: Chad Hart, Mike Duffy

The Performance of Farmland Investment vs. S&P 500

S&P 500 vs. Farmland Values: A Question of Timing

Source: Mike DuffyAg DM Newsletter June 2014

1960

S&P 500 vs. Farmland Values: A Question of Timing

Source: Zhang and DuffyAg DM Newsletter April 2016

1980

S&P 500 vs. Farmland Values: A Question of Timing 1950-2015

Return to S & P Investment Relative

to Iowa Farmland Investment

Source: Zhang and DuffyAg DM Newsletter April 2016

S&P 500 vs. Farmland Values:

A Question of Timing 1950-2015