John Deering Agriculture and Business Management Specialist Colorado State University Extension 2012 Crop Insurance Workshop October 30 th, 2012

Land Values/Rents

John DeeringAgriculture and Business Management Specialist

Colorado State University Extension

2012 Crop Insurance WorkshopOctober 30th, 2012

Agriculture & Business Management

Average Farm Real Estate Values

Source: USDA, National Agricultural Statistics ServiceInflation adjusted using GDP Chain-type deflator, 2005 = 100

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

0

500

1,000

1,500

2,000

2,500

Nominal

Inflation ad-justed

Dollars

per

Acre


Why are outside investors interested?

Source: USDA, National Agricultural Statistics Service, St. Louis Federal ReserveAAA = Moody’s Seasoned AA Corporate Bond Yield, 10-Year Treasury Constant Maturity

0 2 4 6 8 10 12 14 16 18 200

2

4

6

8

10

AAA

Treasury

Farmland

Dow JonesS&P 500

1970 - 2011

Standard Deviation Return (%)

Me

an

Retu

rn (

%)

0 5 10 15 200

2

4

6

8

10

AAA

Treasury

Farmland

Dow Jones

S&P 500

2000 - 2011

Standard Deviation Return (%)

Me

an

Re

turn

(%

)


Other influences on land values

Recent high net returns from farming

Low interest rates

1031 Exchanges

Pension funds

Neighbors


Farm real estate and net cash income, 1990-2011

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0

500

1,000

1,500

2,000

2,500

0

20

40

60

80

100

120

140Real EstateNet Cash Income

$/A

cre

(20

05

)

$/A

cre

(20

05

)

Real estate values are inflation adjusted to 2005 by the GDP Chain-type deflatorSource: USDA, National Agricultural Statistics Service, Economic Research Service


Farm real estate and net cash income, 1990-2011

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0

500

1,000

1,500

2,000

2,500

0

20

40

60

80

100

120

140

Real Estate

Linear (Real Estate)

$/A

cre

(20

05

)

$/A

cre

(20

05

)

Real estate values are inflation adjusted to 2005 by the GDP Chain-type deflatorSource: USDA, National Agricultural Statistics Service, Economic Research Service


Farm real estate & 3 month Treasury

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

0

500

1,000

1,500

2,000

2,500

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00Real Estate

Interest Rate

$/A

cre

(20

05

)

Pe

rce

nt

Real estate values are inflation adjusted to 2005 by the GDP Chain-type deflatorSource: USDA, Economic Research Service, St. Louis Federal Reserve


Value of Non-Irrigated CroplandSecond Quarter 2012


Farmland Values - Annual % Changes

Source: Federal Reserve Bank of Kansas CityTenth Federal Reserve District (Quarterly Agricultural Credit Survey)

CO, KS, NE, OK, WY (NM, MO)

2nd Quarter percentage changes from 1 year prior

2007 12.5%2008 18.3%2009 0.4%2010 4.8%2011 21.3%2012 26.4%


Farmland Values - Annual % Changes

Source: Federal Reserve Bank of Kansas CityTenth Federal Reserve District (Quarterly Agricultural Credit Survey)

CO, KS, NE, OK, WY (NM, MO)

2nd Quarter percentage changes from 1 year prior$1,000 in 2006

2007 12.5%2008 18.3%2009 0.4%2010 4.8%2011 21.3%2012 26.4% $2,147 in 2012


Alternative Investments

Source: Woulda coulda shoulda

Year Farmland S&P 500 Apple Inc.(Adjusted)

2006 $1,000 $1,000 $1,000

2012 $2,147 $1,237 $9,898


Rent-to-value ratio

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

0.5

1.0

1.5

2.0

Cropland

Pastureland

Source: USDA, National Agricultural Statistics Service


Rent-to-value % in nearby states

Source: Kansas State University Department of Agricultural Economics (Publication: AM-KCD-2011.18)

After Property Tax Ag Rents as % of Value

1951-2010 2011CO 5.65% 2.37%KS 5.81% 3.24 %NE 6.42 % 4.20 %OK 4.46 % 2.21 %WY 6.16 % 1.49 %


Determining equitable lease rates

Percentage of land value• Lately a volatile proposition

Fixed cash rent• Shifts risk to tenant, easier for absentee landlords

Crop share rent• Increasingly hard on tenants with changes in technology &

higher input costs

Fixed cash rent floor with “bonus” tied to price & yield• Allows landlord to participate in some upside & lowers

downside risk for tenant


CSU ABM Lease Templates &Enterprise Budgets Crop Share Lease Agreements Fixed Cash Crop Lease Agreements Flexible Cash Crop Lease Agreements Leasing Arrangements for Cattle Pasture Leases Estimating Rental Rates of Crop Land for

Landowners & Tenants (Excel Workbook)

CSU Crop Enterprise Budgets (Corn, Alfalfa, Wheat, Sunflowers, Sugarbeets, Millet, Pinto Beans, etc.)http://www.coopext.colostate.edu/ABM/cropbudgets.htm


CSU ABM Excel Template

Estimating Rental Rates of Crop Landfor Landowners and Tenants

By:

Jeffrey E. TranelNorman Dalsted, PhD

Agriculture and Business Management Economists

Colorado State University

http://www.coopext.colostate.edu/ABM/

Email your questions to: [email protected]

This template is designed to help landowners and tenants of crop land compare the portions of production and expenses.

You may move to each tab (at the bottom of the screen).

Enter your data into any cell with a pale background and blue colored numbers.

Programs are available to all without discrimination.


Estimating Rental Rates

Total Tenant Landlord Total Tenant Landlord Total Tenant Landlord Share Arrangement 0.7000 0.3000

Production Gross Receipts @ $8.00 Net Returns60 bushels 60 42.00 18.00 $480 $336 $144 $331 $215 $11640 bushels 40 28.00 12.00 $320 $224 $96 $171 $103 $6830 bushels 30 21.00 9.00 $240 $168 $72 $91 $47 $4420 bushels 20 14.00 6.00 $160 $112 $48 $11 ($9) $20

Production Costs Split

Fertilizer & Chemicals 1 60.00 42.00 18.00 Breakeven Yield (costs / price)Crop Insurance 1 20.00 14.00 6.00 For Tenant 15.13 bushelsReal Estate Taxes 3 4.50 - 4.50 For Landlord 3.56 bushelsAll Other 2 65.00 65.00 - Total 149.50 121.00 28.50

81% 19%

Dryland Wheat

(Share=1, Tenant=2, Landlord=3)


Estimating Rental Rates

Wheat Corn Alfalfa

Projected Cash Rent (for all acres) $35 $200 $200

Current Price for Crop $8.00 $7.25 $200Base Price (5 year average) $6.00 $5.00 $140

Projected Yield 40 200 6.00 Base Yield (county average) 32 175 4.50

Rent Flexed for Price $47 $290 $286

Rent Flexed for Yield $44 $229 $267

Rent Flexed for Price & Yield $58 $331 $381

Cropland Rents Flexed for Price and Yield


Land value & rent data resources County assessor offices & webpages (Sale data)

◦ http://www.qpublic.net/co/ Alamosa, Cheyenne, Conejos, Crowley, Custer, Dolores,

Fremont, Gunnison, Kit Carson, Las Animas, Lincoln, Mineral, Saguache, San Juan, Sedgwick, Washington, Yuma

USDA/NASS Surveys (Rent survey, county level)

CSU ABM Custom Rates Survey (Rent survey, region)◦ http://www.coopext.colostate.edu/ABM/custrates.htm


Sources

Nickerson, C., M. Morehart, T. Kuethe, J. Beckman, J. Ifft, and R. Williams (2012) “Trends in U.S. Farmland Values and Ownership” EIB 92 Economic Research Service

Kansas State University Department of Agricultural Economics (Publication: AM-KCD-2011.18)

Federal Reserve Bank of Kansas City – Tenth Federal Reserve District (Quarterly Agricultural Credit Survey)


Questions?

John Deering970-345-2287

[email protected]

Lease Arrangement Resources:http://www.coopext.colostate.edu/ABM/investment.htm

Documents

John Deering Agriculture and Business Management Specialist Colorado State University Extension 2012 Crop Insurance Workshop October 30 th, 2012