Download - 2014 Outlook for Farmland Values & Cash Rent
2014 Outlook for Farmland Values & Cash Rent
2013 Purdue Land Value SurveyState-wide
Land Quality
Yield (Bu/a)
Value per acre%
Change2012 2013
Top 193 7,704 9,177 19.1%Average 160 6,359 7,446 17.1%
Poor 127 5,013 5,750 14.7%
2013 Purdue Land Value SurveyState-Wide Cash Rent
Land Quality
Yield (Bu/a)
Cash rent per acre%
Change2012 2013
Top 192 265 294 10.9%Average 159 208 229 10.1%
Poor 126 159 174 9.4%
Value of Indiana Farm Real Estate, 1913- 2013, USDA
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Nominal Real Estate Value Inflation Adjusted Value (Base 2013)
Year
$ pe
r acr
e
Percentage Change in Nominal Indiana Real Estate Values 1911-2013, USDA
1911
1914
1917
1920
1923
1926
1929
1932
1935
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
-30%
-20%
-10%
0%
10%
20%
30%
40%
Year
% a
nnua
l cha
nge
Frequency of Change in Farmland Value
No. of Obs.
(20%) to
(16%)
(15%) to
(11%)
(10%) to
(6%)
(5%) to
(0%)
0% to 5%
6% to
10%
11% to
15%
16% to
20%
More than 20%
Land Value 102 3 4 4 14 26 31 9 6 5
Trend in Value of Indiana Farm Real Estate1910 – 2013
1910
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
f(x) = 31.8225406782698 exp( 0.0463547239084368 x )R² = 0.907589279038948
Nominal Real Estate Value Exponential (Nominal Real Estate Value)
Year
$ pe
r acr
e
Indiana Cash Rent, 1967- 2013, USDA
19671969
19711973
19751977
19791981
19831985
19871989
19911993
19951997
19992001
20032005
20072009
20112013
0
50
100
150
200
250
300
350
400
Cropland Cash Rent Inflation Adjusted Rent (Base 2013)
Year
Cash
rent
per
acr
e
%Change in Real Estate Value + Cash rent / Value, 1967 – 2013, USDA
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Cropland Cash Rent / Value % Change Real Estate
Year
Chan
e in
Val
ue+C
ash
Rent
/Val
ue
Farmland Drivers
Current n
et inco
me
Expecte
d return growth
Crop price &
outlook
Lvstk
price &
outlook
Current &
expecte
d interest
Return competing in
vest.
U.S. ag exp
orts
U.S. in
flation/deflation
Current la
nd inve
ntory
Buyer c
ash liquidity
Current U
.S. ag polic
y
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
2012 2013 2002 2003
Long-term Interest Rates
1860 1880 1900 1920 1940 1960 1980 2000 20200.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Year
Inte
ret R
ate
Source: Shiller, R. , Irrational Exuberance, 2nd ED., http://www.irrationalexuberance.com/
Estimated ReturnsAugust 13, 2013
2013 2014 2015 2016
Corn Soybeans Corn Soybeans Corn Soybeans Corn SoybeansYield 163 54 164 55 165 55 166 56Price $4.86 $12.23 $4.70 $11.60 $4.57 $11.08 $4.49 $10.71
Gross Revenue $792 $660 $771 $638 $754 $609 $745 $600
Production cost $454 $247 $444 $259 $466 $272 $489 $286
Contribution margin $338 $413 $327 $379 $288 $337 $256 $314
Machinery & labor overhead $129 $129 $132 $132 $139 $139 $146 $146
Return to land & risk $209 $284 $195 $247 $149 $198 $110 $168
Cash rent $233 $233 $233 $233 $233 $233 $233 $233
Economic profit -$24 $51 -$38 $14 -$84 -$35 -$123 -$65
Rotation economic profit $14 ($12) ($60) ($94)
2014
• Cash rents will be pretty much unchanged– Tenants will be cautious because of tightened margins– Landowners will be happy with a rent that is more than
they ever thought they would get• Tight margins and tight cash flows will dampen
farmers farmland buying– Land values will slow their increase – But we could find ourselves in an a 2009 like event and see
downward adjust in farmland
The Future Not To Long From Now
• 2014 was the first of a series of good crop years• Corn and soybean demand grows but slowly• The investments in production capacity made around
the world provide even more corn and soybeans• Long-term interest rates rise but stay in a 4% - 6% range • After dipping below $4.00, corn prices settle in at a new
plateau around $4.50 and beans at $10.70. The return to land is $196 per acre.
• After a period of adjustment the return to land grows at close to 2%
Future
• After a turbulent period of adjustment, farmland values have – Stabilized at $6,500 (a decline of 15%) and resumed their
steady upward rise • because we need to feed 9 billion people and everyone knows
they aren’t making any more of it.
Questions, Comments