Kelvin Leibold
ISU Farm Management
Field Specialist
kleibold@iastate.edu
641-648-4850
Iowa Land Value Survey
2004
Dr. Michael Duffy, Extension Economist
Darnell Smith, Research Associate
Statewide Average
High Grade Land
Medium Grade Land
Low Grade Land
Northwest
North Central
Northeast
West Central
Central
East Central
Southwest
South Central
Southeast
2004 Average Values
Average Value - All Grades
(Nominal Dollars)
Average Value - All Grades
(1982-84 Dollars)
Percentage Changes
Percentage Change
(Nominal Dollars)
Percentage Change
(1982-84 Dollars)
2004 Land Buyers
Land Buyers - 1989 - 2004
2004 Sales Activity
Sales Activity - 1987-2004
Positive Factors
Negative Factors
Distribution of Iowa Farmland by Age of Owner and Year
25%
20%
15%
10%
5%
0%
< 25
25-34
35-44
1982
45-54
1992
55-64
2002
65-74
> 75
Conclusions
Iowa farmland owners are aging and the trend will
continue for the next several years.
There will be a considerable amount of Iowa’s
farmland change hands over the next few years.
More than likely this land will be passed on to the
next generation and not even enter the market.
There will continue to be an increase in the
amount of land owned by people outside the state.
Conclusions
Land ownership patterns will change with fewer
sole owners and more multiple owners
More land will be rented and cash rents will
become more prevalent
Second generation may have different views
towards land
Conclusions
Less debt against the land
Different category of purchasers
Fewer land sale contracts
Factors to watch:
Government programs
Interest rates
Exchange rates
Deficit
Farmland Leasing Overview
Presentation Components
Farmland Leasing Trends and Emerging Issues
Rental rates
Calculating rental rates
Impact of risk management tools
Summary of ISU Extension Resources
Leasing Trends
Increase in cash rent vs. crop share leases
40% of Iowa farmland is cash rented
versus 21% in 1982
18% of Iowa farmland is crop share
versus 21% in 1982
41 % of Iowa farmland is owner operated
versus 55% in 1982
Trends for Farmland Ownership and
Leasing
Landowners not living on farmland are more likely to lease
their land.
Individuals 65 years and older account for 62% of the
ownership of leased farmland.
Females own over half of leased farmland.
Non-residents of Iowa own about 20% of all farmland.
Professional farm managers assist on 9% of leased farmland
(over ½ is cash rented).
How is farmland operated?
Percentage of Iowa Farmland by Type of Tenure
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Owner operated
Cash Rent
Crop Share Rent
Other Rent
Percent of Iowa Farmland Acres
by Tenure and Year
Percent of Iowa Farmland Acres by Tenure and Year
60%
50%
40%
30%
20%
10%
0%
1982
1992
Owner operated
1997
Cash
Crop share
2002
Other
Returns to Owner for Crop-Share and
Returns to Owner for Crop-share and Cash Leases
Cash LeasesCorn,
– Corn,
Average
Iowa Values
Average Iowa
Values
$140
$136
$139
$130
$127
$123
$117
$119
$122
$120
$120
$124
$108
$110
$101
$109
$98
$108
$110
$101
$105
$96
$119
$107
$104
$100
$100
$90
$119
$105
$93
$84
$80
$80
$70
Crop-share
$60
Cash
$54
$50
19 8 9
19 9 0
19 9 1
19 9 2
19 9 3
19 9 4
19 9 5
19 9 6
19 9 7
19 9 8
19 9 9
2000
2001
2002
Determining A “Fair”
Cash Rent
Value
Supporting Information on this
80 Acre Farm
Location:
Tillable Acres:
Corn Yield:
Soybean Yield:
Corn Suitability Rating:
Boone County
75 Acres
160 bu/Acre
45 bu/A
80 CSR
Calculating Cash Rent Values
Cash Rent Market Approach
ISU Extension Publication FM 1851 – Cash Rental
Rates for Iowa 2005 Survey (released in May)
Three Methods for Determining Cash Rent Values
Typical Cash Rent
Average Rent for Production
Average Rent for Corn Suitability Rating (CSR)
Calculating Cash Rent
1.Typical Cash Rent
Select the Area of the State/County
Area
7
County Boone
Determine Overall average
$ 140
/A
High Quality Third =
$ 156 /A
Middle Quality Third = $ 141 /A
Low Quality Third =
$ 122 /A
Calculating Cash Rent
2 a. Average Rents Per Unit – Corn Yield
Select the Area of the State/County
Determine Average Rent for Corn
Farm’s Average Corn Yield (bu/A)
161
Times rent per bushel of Corn yield .88
Equals the Average Rent for Corn Acres
$
142/A
Calculating Cash Rent
2 b. Average Rents Per Unit – Soybean Yield
Select the Area of the State/County
Determine Average Rent for Soybeans
Farm’s Average Soybean Yield (bu/A) 45
Times rent per bushel of Soybean yield 3.16
Equals the Average Rent for Soybean Acres
$142/A
Calculating Cash Rent
2. Average Rents Per Unit – Corn & Soybeans
Add the Average Rent for Both
Corn Average Rent
$ 142/A
Soybean Average Rent
$ 142/A
= Total Rent
$ 284
Divided by 2
Average Rent Corn & Soybeans
$ 142 /A
Using Corn Suitability Rating (CSR)
3. Average Rents Per CSR Index Point
Select the Area of the State/County
Determine the Average Cash Rent using CSR
Farm’s Average Corn Suitability Rating
80
Times rent per CSR index point
$1.75
Equals the Average Rent for all Row Crop
Acres
$ 140 / A
Source: ISU Extension Publication FM- 1851
Overall Average
Average all 3 Methods
Method 1: Typical Cash Rent
$140 /A
Method 2: Average Rents per Unit $142 /A
Method 3: Average Rents per
CSR Index Point
$140
/A
Total all Methods and divide by 3
$140 /A X 75 Tillable Acres =
$140 /A
$10,500
Split Payments of $5,250 and $5,250
Source: ISU Extension Publication FM- 1851
Crop Lease Comparison
Gross Income Method
Tenant Residual Method
Market Productivity Method
Crop Share Method
Return on Investment Method
(a) Assumptions: 75 crop acres, 160 bushel corn yield, 45 bushel Soybean
yield,
(b) Corn Market Price $2.20 / bu, Soybean Market Price $5.25 / bu,
(c) Direct Government Payments average $22.00 / acre
Gross Income Method (a)
CORN:
160 bu X $2.20 + $30.00 = $382.00
SOYBEANS: 45 bu X $5.25 + $15.00 = $251.00
Iowa cash rents typically are equal to about 30 to 40 percent of the gross
income from producing corn, and 35 to 45 percent of the gross income
from producing soybeans.
Cash Rental Rate
CORN:
$382.00/ac X 35% = $134
SOYBEANS:
$251.00/ac x 45% = $113
(a) Assumptions: 75 crop acres, 160 bushel corn yield, 45 bushel soybean yield,
Corn Market Price $2.20 / bu, Soybean Market Price $5.25 / bu,
Corn DP = $30, Soybean DP = $15, lower prices are offset by CCP & LDP
Tenant Residual Method (1)
GROSS INCOME / acre
CORN:
SOYBEAN:
(1)
$382 – $250(1) = $132/ac
$251 - $137(1) = $114/ac
Production Cost:
Corn: $228 Soybeans: $150 not including labor or rent
Source: FM-1712, “Estimated Crop Cost of Production2005” 1/03.
Market and Productivity Method (1)
CORN:
SOYBEANS:
160 bu X $0.88 = $142 / ac
45 bu X $3.16 = $142 / ac
(1) Cropland
in central Iowa is renting at about $ .93 per
bushel of expected corn yield and about $ 3.15 per bushel of
expected soybean yield.
Adjustments for productivity can be made based on the estimated
cash rent value per bushel of corn or soybeans expected, or per corn
suitability rating (CSR) point.
Corn suitability rating is an index of the suitability of different soils in
Iowa for row crop corn production. The most productive soils have a
CSR index of 100.
Crop Share Method (1) 50-50 Share
Income:
Corn: 50 % x (160 bu. x $ 2.20 + $ 30) = $ 191 per acre
Soybeans: 50 % x (45 bu. x $ 5.25 + $ 15) = $ 126 per acre
Expense:
Corn: 50 % x $170 = $85 Soybeans: 50 % x $96 = $48
Equivalent Rent:
Corn:
$191 / acre - $85 / acre = $106 / acre
Soybean:
$126 / acre - $48 / acre = $78 / acre
(1) The owner is assumed to pay 50 percent of the costs for seed, fertilizer, lime,
pesticides, crop insurance, interest and miscellaneous, and drying and storage.
Return on Investment Method
Rent as a Percent of Value for Iowa Farm Land
12%
10%
8%
6%
4%
2%
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
0%
Central Iowa farm estimated to have a market value of $3,101 per acre.
Expected Rent: 0.047 (4.7%) X $3,101 / acre = $146 / acre gross
income
Summary Comparison
Corn
Soybeans
Gross Income
$134
$113
Tenant Residual
$132
$114
Market Productivity
$142
$142
Crop Share
$106
$ 78
Return on Investment
$146
$146
Average
$132
$119
All Average: $125.00
Based on this information:
Most likely agreed upon cash rent: ?????
$
Cash Rental Rate Estimator
Crop Share 50-50 Lease
Landlord
Tenant
Labor
Land
½ inputs
½ inputs
Machinery
Management
½ income
½ income
Crop Share 50-50 Lease
Landlord
Tenant
Land
$140
Labor
$30
½ inputs
$85
½ inputs
$85
Machinery
$65
Management
$25
½ income $225
½ income $195
Crop Share 50-50 Modified Lease
Landlord
Tenant
Land
$140
Labor
$30
½ inputs
$70
½ inputs
$100
Machinery
$65
Management
$25
½ income $210
½ income $210
Shift the tech fee or chemicals to tenant to balance up the ratio
Cash Rent
Expenses
Land
Labor
Inputs
Machinery
Management
Total
Income
$140
$ 30
$150
$ 65
$ 20
$405
150 bu corn
or
50 bu SB
Ave
$400
$300
$350
Cash Rent
Expenses
Land
Labor
Inputs
Machinery
Management
Total
Income
$140
$ 30
$150
$ 65
$ 20
$405
150 bu corn
or
50 bu SB
Ave
Either find economies of scale or
Play take away !!
Where do we start ???
$400
$300
$350
Cash Rent
Expenses
Land
Labor
Inputs
Machinery
Management
Total
Income
$140
$ 10
$145
$ 35
$ 00
$330
150 bu corn
or
50 bu SB
Ave
$400
$300
$350
I can still make it work and I can spend
$10 on crop insurance to lock it in !!!
Well maybe !!!
Cash flow guarantees
65%
CRC or RA HO
$
2.00
$
2.50
$
3.00
($53.48) ($17.40)
$31.35
($58.48) ($15.65)
$34.35
$34.35 $109.35 $184.35
75%
$
2.00
$
2.50
$
3.00
With yield of 75, 100 & 150
($24.39)
$17.24
$73.49
bushels per acre
($29.39)
$12.24
$68.49
$28.49 $103.49 $178.49
Cash flow needs of $261
$1.88 loan rate and 2005
insurance prices
85%
$
2.00
$
2.50
$
3.00
($5.55)
$41.63 $105.38
($10.55)
$36.63 $100.38
$12.38
$87.38 $162.38
$
Revenue shift due to risk management
Probability
LDP + insurance + fwd. pricing
50%
No risk protection
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
($250)
($200)
($150)
($100)
($50)
$0
$50
$100
$150
$200
Net Revenue per Acre
$250
$300
$350
$400
$450
Lower prices in February of
2005 resulted in huge shifts in
risks from the insurance
industry to producers!
Corn:
Price for APH: $2.20
Base price for CRC, IP, and RA: $2.32
Expected price for GRIP: $2.38
Soybeans:
Price for APH: $5.00
Base price for CRC, IP, and RA: $5.53
Expected price for GRIP: $5.99
Machinery costs
Fixed costs
Variable costs
Depreciation
Repairs
Interest
Labor
Storage
Fuel
Insurance
$100 per hour
IFBA 2004 Machinery Costs
Average
Corn
Soybeans
Low Third
$33.30
$32.52
Mid Third
$54.53
$53.50
High Third
$86.77
$84.60
Total and variable returns with average
yields and prices.
Total $
Variable $
Total $
Variable $
corn
corn
CCSB
corn
corn
CCSB
-$22.52
-$76.39
-$31.50
-$22.52
-$76.39
-$31.50
$15.42
-$35.74
-$2.48
$15.42
-$35.74
-$2.48
corn
SB
Corn
SB
corn
SB
-$22.52
-$31.50
-$22.52
-$31.50
-$22.52
-$31.50
$15.42
-$6.87
$15.42
-$6.87
$15.42
-$6.87
Annual revenue
C/C/SB
Total
-$43.47
Variable -$7.60
Annual revenue
C/SB
Total
-$27.01
Variable $4.27
Other Issues
Global Ag is here to stay
WTO will start to set farm policy !
Sugar
Ethanol
Cotton
Farm program payments will change
EU will lead with de-coupled payments
Hazards for 2006
1. Lower crop insurance prices
2. Higher input costs
Fuel, fertilizer, machinery, drying
3. Yields - average
4. Price - average
5. Government program cuts
Other Resources
•
Online Courses – Ag Management e-School
–
•
Workshops, meetings, conferences
–
•
http://www.extension.iastate.edu/pubs/
Articles and spreadsheets
–
•
http://dbs.extension.iastate.edu/calendar/
Publications – rental survey, land value survey, etc.
–
•
http://www.extension.iastate.edu/ames
http://www.extension.iastate.edu/agdm/
Private Consultation
–
http://www.extension.iastate.edu/feci/fae.html
Farm Lease Arrangements
Land Leasing Confidence
A.M.E.S.
Agricultural
Management
e-school
An ISU
Extension
Outreach
Institute
•
•
•
•
•
•
•
•
•
•
Introduction to Farm Leases
Cash Rent Leases
Crop Share Leases
Custom Farming
Renting Buildings
Renting Hay and Pasture Land
Legal and Tax Considerations
Conservation and Environmental Considerations
USDA Agencies and Programs
Owner and Operator Relations
Farmland Ownership
Purchase Plan
A.M.E.S.
Agricultural
Management
e-school
An ISU
Extension
Outreach
Institute
•
•
•
•
•
Land Value Trends
Using Soils Information
Appraisal Techniques
Financing Considerations
Feasibility of a Land Purchase
Thank You!
Kelvin Leibold
Farm & Ag Business Management
Field Specialist
ISU Hardin County Extension
524 Lawler
Iowa Falls, IA 50126
(641) 648-4850
kleibold@iastate.edu
www.extension.iastate.edu/feci
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