Trends in US Farmland Values and Ownership

Todd H. Kuethe and Jennifer IfftUSDA – Economic Research Service

NCRCRD WebinarWednesday October 10, 2012

The views expressed are those of the authors and should not be attributed to ERS or USDA.

Objectives

• Motivation• Major findings of the

report• Some updates• Other ERS research on

farmland values

Outline

• Why study farmland?• Recent trends• Important drivers

Farm real estate basics

• “Barometer” of financial health of the agricultural sector

• Collateral for farm loans• Retirement• Links to farm policy• Price appreciation

2008 2009 2010 2011 2012F

84.283.9

84.6

85.3

86.0

Share of total farm assets (%)

Source: ERS

Average farm real estate values, 1960-2012

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

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20120

500

1,000

1,500

2,000

2,500

Nominal

Inflation ad-justed

Dolla

rs p

er A

cre

Farmland vs. Other Investments

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

TreasuryFarmland

Dow JonesS&P 500

1970 - 2011

Standard Deviation Return (%)

Mea

n Re

turn

(%)

0 5 10 15 200

2

4

6

8

10

AAA

Treasury

Farmland

Dow Jones

S&P 500

2000 - 2011

Standard Deviation Return (%)

Mea

n Re

turn

(%)

Drivers of farmland values

• Returns• Interest rates

Farm real estate and net cash income, 1990 - 2011

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0

500

1,000

1,500

2,000

2,500

0

20

40

60

80

100

120

140

Real Estate

Net Cash Income

$/A

cre

(200

5)

$/A

cre

(200

5)

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

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0

500

1,000

1,500

2,000

2,500

0

20

40

60

80

100

120

140

Real EstateLinear (Real Estate)Net Cash Income

$/A

cre

(200

5)

$/A

cre

(200

5)

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 3-month Treasury Rate, 1990 - 2011

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

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

(200

5)

Perc

ent

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

Farm real estate and 3-month Treasury Rate, 1990 - 2011

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

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 EstateLinear (Real Estate)Interest Rate

$/A

cre

(200

5)

Perc

ent

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

Regional differences

Average farmland values by land use and region, 2012

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

Northeast

Lake

Corn Belt

Northern

Plains

Appalachian

SoutheastDelta

Southern Plains

MountainPacifi

cUSA

0

1,000

2,000

3,000

4,000

5,000

6,000

Cropland

Pastureland

$/A

cre

(200

5)

Drivers of farmland values

• Returns• Interest rates• Non-agricultural drivers?

Rent-to-value ratio

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0

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

Urban influence

Share of farmland in urban-influenced areas

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

5.0

10.0

15.0

20.0

Perc

ent

Source: USDA, National Agricultural Statistics Service

Median cropland values

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

1,000

2,000

3,000

4,000

5,000

Urban-influenced

Rural

$/A

cre

(200

7)

Real estate values are inflation adjusted to 2007 by the GDP Chain-type deflatorSource: USDA, National Agricultural Statistics Service

Average Farmland Values

Real estate values are inflation adjusted to 2007 by the Consumer Price IndexSource: USDA, National Agricultural Statistics Service June Area Survey

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

2,000

4,000

6,000

8,000

10,000Urban CroplandUrban PastureRural CroplandRural Pasture

$/A

cre

(200

7)

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Urban AreaCropland Market Value / Capitalized Value

Low High

Source: NASS June Area Survey

Price-to-Rent Ratio for Cropland

1999 – 2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008 – 2009 – 2010 – 2011

Presenters

Todd H. Kuethe• tkuethe@ers.usda.gov• (202) 694-5593

Jennifer Ifft• jifft@ers.usda.gov• (202) 694-5552

Suggested readings…

• 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

• Nickerson, C., J. Ifft, T. Kuethe, and M. Morehart (2012) “Farmland Values on the Rise: 2000 – 2010 ” Amber Waves

• Kuethe, T.H., J. Ifft, and M. Morehart (2012) “The Influence of Urban Areas on Farmland Values” Choices 26 (2).

• Ifft, J. and T.H. Kuethe (2011) “Why Are Outside Investors Suddenly Interested in Farmland ?” ARE Update 15(1): 9-11.