8/1/2016 F ARMLAND L EASING Read about Kevin & Lisa Martin (Farmers) and Susie Williams & Sam Williams (Landowners). We’ll discuss their viewpoints later today. A RRANGEMENTS AND L AND V ALUES Melissa O’Rourke B.S., M.A., J.D. F ARM & A GRIBUSINESS M ANAGEMENT S PECIALIST Housed at ISU Extension — Winneshiek County in Decorah www.extension.iastate.edu/agdm morourke@iastate.edu 563-382-2949 ISU ISU Extension Extension Far arm m Mana Management gement Key Topics Today: Team eam ► Trends in . . . – Farm land values – Cash rental rates ► Costs of crop production -- resources ► Negotiating a fair cash lease rate ► 2017 Farm Leasing Considerations: – Communications – Legal issues – . . . And much more! www.exte tensi sion.iasta state te.edu/a /agdm The Goal? • You leave here today with increased knowledge and confidence to assist you to - - – Review current leasing Get familiar with Ag Decision Maker!! arrangements . . . – Take steps to plan for the future . . . and – Know where to go for resources and assistance. 1
8/1/2016 Example: xample: Calcula Calculating ting Cas Cash h Rent ent Tax ax Cr Credit edit • 160 acres cash rented • $300 per acre • $48,000 gross lease income • $48,000 x 7% = $3360 Iowa income tax credit • Can be used for flexible & crop-share leases too. For or Mor More Inf e Infor orma mation ion and and to o Appl pply: y: • See 3-page application at: • IowaFinanceAuthority.gov • Beginning farmer’s financial statement • Beginning farmer’s background letter • Fees = start at $300 and depend on the length of the lease 2
8/1/2016 You Answered — We Listened: Which Apply for the Intended Changes Beginning of the following would you consider to Lease Farmer Tax File and to be your PRIMARY occupation? Arrangements: Credit or perfect a Custom landlord's lien Farming Tax 3% Increase rent Credit 3% 4% Answer Response % Move from an Non-farming landowner 144 44% oral lease to a Active farmer 97 29% written lease Decrease rent agreement 30% Ag lender 24 7% 9% Attorney or Accountant 8 2% Professional farm manager 3 1% Other Change type of Other (please specify) 53 16% 9% lease Total 329 100% No changes 9% will be made 24% N=382 excludes Not Lessors/Not Lessees You answered, we listened: You answered, we listened: What topics would you want Why do you participate in covered at the 2016 Farmland farmland leasing meetings? Leasing Meeting? 1. Gain knowledge on farmland 1. Setting rates and leasing, rental market and determining what is fair trends 2. Costs of production, 2. Improve knowledge for profitability communicating with other 3. Taking care of the land parties involved 4. Types of leases 3. Gain knowledge on leasing 5. Legal updates – practices negotiations, terminations Thinking About Farmland Leasing Different Perspectives from Two Different Perspectives • What additional questions do you have now as -Meet Kevin & Lisa Martin -and- the Martins, or the Williams siblings? Susie Williams & Sam Williams • Consider how each party in the farmland leasing • Take 5 minutes to read through the cases. arrangement thinks differently about how the other party interprets and uses information. • Take another 5-10 minutes to visit about the • What if Sue & Sam decided they wanted to cases with others. consider a new tenant for 2017 – what questions • These folks will be with us for the rest of the should they ask of the potential tenant(s)? program. Susie – and – Sam Williams Kevin & Lisa Martin 3
8/1/2016 Why is it important for Kevin & Lisa Martin and Susie Williams and Sam Williams to think about farmland values? What are some sources of Iowa Farmland Value Data? County Assessors’ Offices Most county assessor offices in Iowa offer a search tool to find information about real estate ownership, values and sales within the county. • Some county assessors maintain a public (pdf) document of ag land sales – for example: • http://siouxcounty.org/wp-content/uploads/2016/05/agsales.pdf Federal Reserve Bank — Chicago Realty & Auction Websites • www.chicagofed.org – Quarterly survey of ag lenders by state – Annual Land Values Conference – AgLetter: Quarterly Newsletter re: ag land values & credit – Go to chicagofed.org and click on publications 4
8/1/2016 AgLetter Federal Reserve Bank of Chicago Agricultura ral land values in the Seventh Federal Reserve District fell 4 percent nt from a year ago in the first quarter of 2016 — their largest year-over-year decline since the third quarter of 2009. There was a decrease of 1 percent in “good” farmland values in the first quarter of 2016 relative to the fourth quarter of 2015, based on the survey responses of 200 District agricultural bankers. Cash rental rates for r Distri rict farmland nd experienc nced a s signi nificant nt drop of 10 percent for r 2016 compare red with 2015 — even n larger r than the decrease of last year relative to 2014. Demand to purchase agricultural land was markedly lower in the three- to six-month period ending with March 2016 compared with the same period ending with March 2015. Moreover, the amount of farmland for sale, the number of farms sold, and the amount of acreage sold were all down during the winter and early spring of 2016 compared with a year ago. Nearly two-thirds of the responding bankers expected farmland values to decrease during the second quarter of 2016, with the rest expecting farmland values to remain stable. Realtors Land Institute – See your book – at page 35 – Semi-annual survey (March and September) – Compares land classification by corn production – Most recent survey always available on Ag Decision Maker – www.extension.iastate.edu/agdm - Dollars per acre and percent change from 2014 “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 http://usda.mannlib.cornell.edu/usda/current/AgriLandVa/AgriLandVa-08-05-2015.p 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 .” 5
8/1/2016 Value in each year of $1,000 invested in 1950 in Iowa Iowa State University farmland or the S&P Farmland Value Survey – Conducted annually since 1941 – Mailed to 1100 licensed real estate brokers; 500-600 responses – Released annually in mid-December – November 1 to November 1 – Latest and historical surveys found on Ag Decision Maker website – www.extension.iastate.edu/agdm SEE YOUR BOOK – page 27 Iowa Farmland Value Portal Farmland Value per Acre 1950-2015 http://card.iastate.edu/farmland Land value per acre ($/acre) 8000 6000 4000 2000 0 Farmland Values for Crop Iowa Farmland Purchases by Farmers and Investors and Land Values 2006-2015 Reporting District 3 by Year Farmers Investors Average Land Value 90% $10,000 $12,000 High Medium Low $9,000 $11,000 80% Average Land Value per Acre $10,000 $8,000 70% $9,000 Percent of Sales $7,000 60% $8,000 $ per acre $6,000 $7,000 50% $5,000 $6,000 40% $4,000 $5,000 30% $4,000 $3,000 $3,000 20% $2,000 ↓ $1,300 $2,000 10% $1,000 ↓ 14% $1,000 0% $0 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6
8/1/2016 Northeast counties – 2014 & Percent Change – 2014 to 2015 2015 farmland values Farmland Values Predictions in Five Years Crop Reporting Increase Decrease 5% or Increase Stay the Decrease Decrease 10% or District 3 District more 0-5% same 0-5% 5-10% more PERCENT 16 18 20 16 16 14 Northwest 16 12 10 17 22 22 North Central 7 22 15 10 22 24 Northeast 20 20 16 14 16 12 West Central Crop Reporting 22 21 19 8 19 11 Central East Central 9 19 17 19 19 19 District 2 18 15 21 10 13 23 Southwest South Central 12 12 15 12 32 18 6 14 26 14 17 23 Southeast 14 17 17 14 19 18 STATE SUMMARY: Land Value Survey Landlord-Tenant Communication: • Farmland values hit a historic peak of $8,716 per acre in 2013, but declined 8.9% to $7,943 the following year. It’s a 2 -way street • 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 • Farmland owners need to be 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 open to learning about current expectation of this decline early on, robust livestock returns, farming challenges, conditions, and strong recreational demand. • Despite decreasing again, farmland values are still more than 2X the costs of productions reported values from 10 years ago, and almost 14 % higher than 2011 values. • Producers need to listen to the interests and goals • Farm income & interest rates are key to watch of farmland owners; and be willing to share • For more info visit www.card.iastate.edu information about inputs, yields, and crop plans • Impacts for Kevin & Lisa Martin? • For Susie Williams and Sam Williams? 7
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