Upload
anissa-parker
View
219
Download
1
Embed Size (px)
Citation preview
Land ValuesLand ValuesHistory and OverviewHistory and Overview
Murray R. WiseMurray R. WiseC.E.O.C.E.O.
Westchester Group, Inc.Westchester Group, Inc.
Three main forces areThree main forces aresupporting farmland values now: supporting farmland values now:
1.1. Government policies, especially the farm Government policies, especially the farm program, encourage rural land ownershipprogram, encourage rural land ownership
2. America’s back-to-the-country migration 2. America’s back-to-the-country migration stimulates demand for homes, small farms, stimulates demand for homes, small farms, and “preservation” landand “preservation” land
3. Larger farmers see efficiency by expanding 3. Larger farmers see efficiency by expanding acres acres
• Inflation• Interest rates• Government• Who are the land buyers?
- Competition• Landowners’ age
FACTORSFACTORS
• Land debt• Land market outside Iowa• Other factors
- Income - Landlord’s income - Capitalization rates - Land values vs. U.S. ag exports
FACTORSFACTORS
INFLATIONINFLATION
• In 1980, inflation was 13.5%
• In 2003, inflation was 2.2%
INTEREST RATESINTEREST 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 long-term 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.
GOVERNMENTGOVERNMENT
1970 $236,000,000
1981 $50,000,000
2001 $1,970,000,000
Iowa direct payments:Iowa direct payments:
As a farmland broker, I As a farmland broker, I want to thankwant to thank
taxpayers for helping taxpayers for helping support our farmland support our farmland
values!values!
Cropland values in the Corn Belt get 65%of farm program’s land price enhancement
WHO’S BUYING?WHO’S BUYING?
Farmer Investor
1990
2003
81%
60%
16%
34%
Source: Professor Mike Duffy, Iowa State University
AGE OF IOWA LANDOWNERSAGE OF IOWA LANDOWNERS
1982 2002
People Over 65
People Over 74
29% 48%
12% 24%
Source: Professor Mike Duffy, Iowa State University
IOWA LAND DEBTIOWA LAND DEBT
No Debt
1982
2002
62%
76%
Source: Professor Mike Duffy, Iowa State University
CONTRACT FOR DEEDCONTRACT FOR DEED
1982 18%
2002 4%
Source: Professor Mike Duffy, Iowa State University
ESTIMATED SOURCES OF TODAY’S ESTIMATED SOURCES OF TODAY’S FARMLAND BUYING CASHFARMLAND BUYING CASH
(Billions of dollars expended per year)(Billions of dollars expended per year)
$2.0$2.0
Non-farm financial investors
$2.5$2.5Non-farm residential,
recreational
$1.5$1.5
Preservation and conservation
$8.0$8.0
Farmers and ranchers
Expanding Expanding farmers and farmers and exchanging exchanging
farmers are 60% farmers are 60% of the marketof the market
Rural home Rural home buyers, hunters, buyers, hunters, all want a “place all want a “place
in the heart”in the heart”
Investors want Investors want to own to own
farmland for farmland for long-term long-term securitysecurity
In 2000, 300 state In 2000, 300 state and local ballot and local ballot
initiatives raised $8 initiatives raised $8 billion to buy “open billion to buy “open
space”space”
$ $ $$ $ $
$ $ $$ $ $
America’s back-to-the-country America’s back-to-the-country migration stimulates demand for migration stimulates demand for
homes, small farms, and homes, small farms, and “preservation” land “preservation” land
America’s back-to-the-country America’s back-to-the-country migration stimulates demand for migration stimulates demand for
homes, small farms, and homes, small farms, and “preservation” land “preservation” land
Public “Land preservation” intensifies farmland demand at taxpayer’s expense
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 ConservancyIs 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.
• 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
The Conservancy has doubled its acreage in the U.S. since the mid-1990s, to 15 million
0
3
6
9
12
15
1950s 1960s 1970s 1980s 1990s 2004
MillionAcres
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.
Farmers are willing to hold farmland for lower rates of annual cash return
IMPLIED IOWA IMPLIED IOWA CAPITALIZATION RATECAPITALIZATION RATE
2002 4.7%
Source: Professor Mike Duffy, Iowa State University
DEKALB COUNTY, ILLINOISDEKALB COUNTY, ILLINOISMartin, Goodrich & Waddell, Inc.Martin, Goodrich & Waddell, Inc.
1st qtr. 2002 2003 2004SalesAvg. Value/AcreOver $5,000/AcreOver $6,000/Acre
29$4,760 20 5
54$6,626 34 14
7$6,086 7 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 acrestotaling almost $30 millionin DeKalb Countyduring 2003
Excluding Excluding government government paymentspayments
Source: USDA
As operating efficiency rises and rental As operating efficiency rises and rental competition intensifies, a larger share of net competition intensifies, a larger share of net
farm income is flowing to farmlandfarm income is flowing to farmland
Source: USDA
U.S. Farmland Values & Ag Exports
Source: USDA
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,30019
60
1965
1970
1975
1980
1985
1990
1995
2000
2002
2012
$0
$10
$20
$30
$40
$50
$60
$70
$80
Ag Exports
Farmland Values
$ Billions$ per Acre
Forecast
Source: USDA
Three main forces areThree main forces aresupporting farmland values now: supporting farmland values now:
1.1. Government policies, especially the farm Government policies, especially the farm program, encourage rural land ownershipprogram, encourage rural land ownership
2. America’s back-to-the-country migration 2. America’s back-to-the-country migration stimulates demand for homes, small farms, stimulates demand for homes, small farms, and “preservation” landand “preservation” land
3. Larger farmers see efficiency by expanding 3. Larger farmers see efficiency by expanding acres acres
Larger farmers are seeking efficiency against Larger farmers are seeking efficiency against global competitors like Brazil by global competitors like Brazil by renting and renting and
buying more acres per farmbuying more acres per farm
Just how big will farms get? This Just how big will farms get? This competitor in Mato Grosso fields competitor in Mato Grosso fields 31 combines, followed by 12 no-31 combines, followed by 12 no-
till planters for a second croptill planters for a second crop
WHAT COULD CHANGEWHAT COULD CHANGETHE GAME PLANTHE GAME PLAN
• Government• Interest rates
- Borrower - Depositor
• Inflation• Commodity prices• Alternative investments