Land Values
History and Overview
Murray R. Wise
C.E.O.
Westchester Group, Inc.
Three main forces are
supporting farmland values now:
1. Government policies, especially the farm
program, encourage rural land ownership
2. America’s back-to-the-country migration
stimulates demand for homes, small farms,
and “preservation” land
3. Larger farmers see efficiency by expanding
acres
FACTORS
• Inflation
• Interest rates
• Government
• Who are the land buyers?
- Competition
• Landowners’ age
FACTORS
• Land debt
• Land market outside Iowa
• Other factors
- Income
- Landlord’s income
- Capitalization rates
- Land values vs. U.S. ag exports
INFLATION
• In 1980, inflation was 13.5%
• In 2003, inflation was 2.2%
INTEREST 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 longterm 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.
GOVERNMENT
Iowa direct payments:
1970
$236,000,000
1981
$50,000,000
2001
$1,970,000,000
Cropland values in the Corn Belt get 65%
of farm program’s land price enhancement
As a farmland broker, I
want to thank
taxpayers for helping
support our farmland
values!
WHO’S BUYING?
Farmer
Investor
1990
81%
16%
2003
60%
34%
Source: Professor Mike Duffy, Iowa State University
AGE OF IOWA LANDOWNERS
1982
2002
People Over 65
29%
48%
People Over 74
12%
24%
Source: Professor Mike Duffy, Iowa State University
IOWA LAND DEBT
No Debt
1982
62%
2002
76%
Source: Professor Mike Duffy, Iowa State University
CONTRACT FOR DEED
1982
18%
2002
4%
Source: Professor Mike Duffy, Iowa State University
ESTIMATED SOURCES OF TODAY’S
FARMLAND BUYING CASH
(Billions of dollars expended per year)
Preservation and conservation
Non-farm financial investors
Investors want
to own
farmland for
long-term
security
Farmers and ranchers
In 2000, 300 state
and local ballot
initiatives raised $8
billion to buy “open
space”
$1.5
$2.0
$8.0
$2.5
Non-farm residential,
recreational
Rural home
buyers, hunters,
all want a “place
in the heart”
Expanding
farmers and
exchanging
farmers are 60%
of the market
$$$
$$$
America’s back-to-the-country
migration stimulates demand for
homes, small farms, and
“preservation” land
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
Conservancy
Is 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.
Million
Acres
15
12
The Conservancy has
doubled its acreage in
the U.S. since the mid1990s, to 15 million
9
6
3
0
1950s
1960s
1970s
1980s
1990s
• 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
2004
Farmers are willing to hold farmland for lower rates of
annual cash return
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.
IMPLIED IOWA
CAPITALIZATION RATE
2002
Source: Professor Mike Duffy, Iowa State University
4.7%
DEKALB COUNTY, ILLINOIS
Martin, Goodrich & Waddell, Inc.
1st qtr.
2002
2003 2004
Sales
29
54
7
Avg. Value/Acre $4,760 $6,626 $6,086
Over $5,000/Acre
20
34
7
Over $6,000/Acre
5
14
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 acres
totaling almost $30 million
in DeKalb County
during 2003
Excluding
government
payments
Source: USDA
As operating efficiency rises and rental
competition intensifies, a larger share of net
farm income is flowing to farmland
Source: USDA
U.S. Farmland Values & Ag Exports
$ Billions
$ per Acre
$1,300
$1,200
$80
Forecast
Ag Exports
$1,100
$1,000
$70
Farmland Values
$60
$900
$800
$50
$700
$600
$40
$500
$400
$30
$300
$20
$200
$100
$10
Source:USDA
USDA
Source:
2012
2000
2002
1995
1990
1985
1980
1975
1970
1965
$0
1960
$0
Three main forces are
supporting farmland values now:
1. Government policies, especially the farm
program, encourage rural land ownership
2. America’s back-to-the-country migration
stimulates demand for homes, small farms,
and “preservation” land
3. Larger farmers see efficiency by expanding
acres
Larger farmers are seeking efficiency against
global competitors like Brazil by renting and
buying more acres per farm
Just how big will farms get? This
competitor in Mato Grosso fields
31 combines, followed by 12 notill planters for a second crop
WHAT COULD CHANGE
THE GAME PLAN
• Government
• Interest rates
- Borrower
- Depositor
• Inflation
• Commodity prices
• Alternative investments