September 11, 2014 Powerful Insight for LandOwners Vol. 35 Iss. 17

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1 September 11, 2014 Powerful Insight for LandOwners Vol. 35 Iss. 17 County cash rent data is now available from USDA. Each spring, the National Agricultural Statistics Service surveys producers on what they paid on average for cash rent. The results of this year s survey are now available through the very clunky USDA website. You can check the average rent for your county at: quickstats.nass.usda.gov If you do not wish to plow through the website s spreadsheets, keep an eye on your land grant colleges and extension services. They will likely compile and release that data soon. Keep in mind the data collected and released by USDA is obtained from producers. No data is collected from land owners. Some feel the absence of landowner input tends to understate results. Ag bankers pessimistic on farmland values. Creighton University s Rural Mainstreet s latest survey finds rural bankers in 10 Midwestern states looking for a 4.8% decline in the value of farmland over the next 12 months. That s down from the 3.2% expected annual decline marked by the same group six months earlier. In addition, the survey s farmland ratio slumped to 41.4% (50% is growth-neutral) in August, down from 48.3% in July. Much lower crop prices are to blame, says survey coordinator Dr. Ernie Goss. Interest Rates Continue to Support Land Values Recent actions taken by Mario Draghi of the European Central Bank and surges in hostilities in Ukraine, Middle East and South China Sea have investors rushing to U.S. Treasuries as a safe haven and reservoir of value. This has pressured interest rates and strengthened the dollar. Bottom line: The two big negatives on farmland values are declining net farm incomes and rising interest rates. The decline in incomes this year is already weakening farmland prices. But interest rates have remained constrained. The longer that interest rates remain low, the more farmland values have time to adjust to the reality Why All LandOwners Should Fear EPA s WOTUS Rule The map below shows you. Its development was ordered by EPA, but its existence was not known until just recently. The House Science, Space and Technology Committee discovered the maps (there are state maps, too) while reviewing EPA s rule-making process leading up to the issuance of its proposed Waters of the United States (WOTUS) rule. EPA was not forthcoming on the existence of the maps and even slower on releasing them. After delivering them, it said it had not used the maps in its rule-making process. In other words: Move along. Nothing to see here. This map was prepared by the Environmetal Protection Agency, the U.S. National Geological Survey and U.S. Forest Service. The yellow areas are intermittent and ephemeral streamflows as defined by the federal agencies. of lower net farm incomes. While uncomfortable, that adjustment can be accomplished without triggering major disruptions and distress in the market. That will prepare the market for the pressure on prices that will come when interest rates eventually do rise. Our view is interest rates will stay low for much longer than most people expect. If so, that suggests a manageable correction in farmland prices. Key: Continued farmer restraint in adding new debt now that cash flows are reduced. If operators pile on the debt to maintain spending, that will spike stress when interest rates rise. But this map shows the massive threat to individual property rights WOTUS represents. While the scale at lower right is difficult to read, just view the map this way: Anything that has color other than white would be subject to the new WOTUS rule. That s the bulk of the U.S. land mass! And most all of your property rights will be lost in the process! EPA did extend its comment period to Oct. 20. The House may act to pass legislation preventing EPA from enacting the rule. But the Senate would have to agree and the White House says it will veto the bill.

2 Minneapolis Fed: Cropland Values Steady to Weaker Cropland values in the Northern Plains and upper Midwest held steady in the second quarter of 2014 compared to the first quarter but weakened on an annual basis, according to preliminary data reported by the Federal Reserve Bank of Minneapolis. The institution serves bankers in Minnesota, Montana, the Dakotas, the Upper Peninsula of Michigan and northwest Wisconsin. The bank s survey of district ag bankers found the value of district non-irrigated and irrigated cropland both rose slightly less than 1% in the quarter compared to the previous quarter. However, both edged 1.6% to 2.5% lower on an annual basis. Ranchland values, however, rose 4.4% on an annual basis through June but edged 0.8% lower on a quarterly basis. While the district-level comparisons suggest a stable market, the survey found variability between states. The corn-heavy states of Minnesota and Wisconsin report annual declines of 4% and 6%, respectively. Meanwhile, North Dakota reports annual increases of nearly 8% and 6% for non-irrigated and irrigated cropland respectively. In addition, ranchland in the state is 26% higher on an annual basis. Economic gains Percent Change by Quarter from the Bakken oil boom is a strong contributor to the rise in both cropland and ranchland values. The surge in cattle prices along with plenty of healthy grassland is levering ranchland upward at a faster pace. The survey shows ranchland values surged 16% on a quarterly basis in the second quarter alone. Meanwhile cash rents are on the defensive, with rent for irrigated cropland down 4% and down 3% for non-irrigated cropland district wide. Cash rent in Minnesota is down 9% from a year earlier but steady in Wisconsin and higher in South Dakota. Average Land Value by State and by Type Minnesota Montana N. Dakota S. Dakota Wisconsin Non-irrigated $6,890 $ 756 $2,180 $5,714 $4,157 Irrigated 6,333 1,935 2,833 7,467 4,340 Ranchland 2, ,197 2,350 Federal Reserve Bank of Minneapolis survey. Average values include all banks responding to current survey. Quarterly and Annual Percent Changes by State Quarterly Annual Non-irrigated Irrigated Ranchland Non-irrigated Irrigated Ranchland Minnesota -0.4% - 0.1% 2.1% -4.5% -7.3% - 5.2% Montana N. Dakota S. Dakota Wisconsin District Percent change includes only those banks responding to both the current and year-ago survey. Caution: Extremely small sample size for Montana and North Dakota. Federal Reserve Bank of Minneapolis survey. Percent Annual Change July-June Annual Basis Federal Reserve Bank of Minneapolis Federal Reserve Bank of Minneapolis LandOwner is published twice a month. Copyright 2014 by Professional Farmers of America, Inc., 6612 Chancellor Drive, Cedar Falls, Iowa Periodicals postage paid at Cedar Falls, Iowa. Postmaster: Send address changes to: LandOwner, P.O. Box 36, Cedar Falls, Iowa Senior Vice President, Chuck Roth Editor, Mike Walsten Publisher, Chip Flory Markets Editor, Brian Grete Editorial Phone: landowner@profarmer.com ISSN number: Editorial correspondence: P.O. Box 36, Cedar Falls, IA Subscription services phone: Subscription: $249 per year LANDOWNER 2 / September 11, 2014

3 Indiana Marks 6% to 7% Gains in Cropland Values The value of Indiana farmland increased 6% to 7% for the year ending in June, according to the annual Farmland Values and Cash Rents Survey conducted by Purdue University. The findings mark a slowing in the appreciation of Indiana farmland values. The survey yielded gains of 15% to 19% in The survey also indicates the bulk of this year s rise occurred in the second half of It reports values have eased since Jan. 1. With a few exceptions, the survey shows values slipped 1% to 5% during the first half of The boom that has characterized crop agriculture for the past several years seems to be waning, observes Craig Dobbins, Purdue University extension ag economist who conducted the survey along with research associate Kim Cook. While income prospects associated with crop farming have declined, other factors that influence the farmland market remain strong, Dobbins states. Interest rates continue to remain favorable, farmland demand may have softened but there continues to be a limited supply of farmland for sale, farmland continues to be an attractive investment and buyers still seem to be in a strong cash position. The value of average- and poor-quality farmland both increased 7.1%, according to the survey, reaching a state average price of $7,976 and $6,160 per acre, respectively. The value of top-quality farmland rose 6.4% to a state average $9,765 per acre. But the survey finds top-quality farmland slipped 0.9% from January to June, average-quality farmland eased 1.4% and poorquality farmland declined 4.1%. The West Central region continues to have the highest per-acre farmland values. The value for top-, average- and poor-quality farmland was $11,726, $9,616 and $7,611 per acre, respectively. To assess farmland productivity, respondents estimated long-term corn yields for top-, average- and poorquality farmland. For the state, the average long-term corn yield of top-, average- and poor-quality farmland were 196 bu., 163 bu. and 132 bu. per acre, respectively. The survey also found the value of hunting and recreational farmland rose 23%, reaching $3,875 an acre. Looking ahead, survey respondents indicate they expect farmland values to decline by 1% to 2% from June to December. Cash rents mixed. This year s survey found the change in cash rental rates ranged from a decline of 0.7% to an increase of 2.9%. That compares to the 9% to 10% gains reported last year. Top-, average- and poorquality farmland had cash rent averages of $292, $232 and $179 per acre, respectively. For top-quality farmland, cash rent as a percent of farmland value was 3.0%, down from 3.2% last year. Top 7.1% Ave. 7.4% Poor 5.6% Top 5.6% Ave. 7.4% Poor 8.6% Top 9.3% Ave. 5.8% Poor 6.2% Top 4.1% Ave. 8.3% Poor 6.1% Top 7.0% Ave. 11.9% Top -2.3% Ave. -1.1% Poor 9.3% Poor -8.0% Top 6.4% Ave. 7.1% Poor 7.1% Percent increase in top-, average- and poor-quality farmland by region; Craig Dobbins and Kim Cook, Purdue University Changes by Region and Land Quality Land Corn Dollars Per Acre Percent Area Class Per Acre June '13 June '14 Change North Top 194 $9,336 $9, % Ave ,372 7, Poor 130 5,424 5, Northeast Top 189 8,946 9, Ave ,157 7, Poor 132 5,668 6, W. Central Top ,948 11, Ave ,955 9, Poor 147 7,206 7, Central Top 200 9,633 10, Ave ,170 8, Poor 142 6,459 6, Southwest Top 189 9,252 9, Ave ,085 7, Poor 112 4,908 4, Southeast Top 181 4,873 5, Ave ,904 4, Poor 100 3,065 3, State Top 196 9,177 9, Ave ,446 7, Poor 132 5,750 6, Craig Dobbins and Kim Cook, Purdue University LANDOWNER 3 / September 11, 2014

4 INDIANA: HUNTINGTON CO. August 7: 151 acres 3 miles south of Markel; 143 acres tillable; corn PI 143.9; $9,272 per acre. Rick Johnloz, Halderman Real Estate Services, Bluffton, MINNESOTA: CLAY COUNTY August 7: 65 acres 4 miles south of Moorhead; 100% tillable; PI 94; southern border may be subject to access easement; $3,900 per acre. Steve Link, Pifer s Auction & Realty, Moorhead, ILLINOIS: PIKE COUNTY August 7: 222 acres 7 miles southeast of Pittsfield. Tract 1: 79 acres; 75 acres tillable; $9,500 per acre. Tract 2: 81 acres; 44 acres tillable; $4,100 per acre. Tract 3: 62 acres; 60 acres tillable; $10,000 per acre. Sullivan Auctioneers, LLC, Hamilton, S. DAKOTA: LINCOLN CO. August 7: 103 acres 5 miles west of Tea; 100 acres tillable; PI 75; $6,850 per acre. Chuck Sutton Auctioneer & Land Broker, Sioux Falls, IOWA: DECATUR COUNTY August 5: 76 acres northwest of Decatur City; 72 acres pasture; CSR2 29.2; farmstead with fences and sheds for cattle; $2,850 per acre. Jon Peterson, Farmers National Company, Lorimor, INDIANA: CLINTON COUNTY July 23: 118 acres 5 miles north of Frankfort; 109 acres tillable; 7 acre wooded; $9,349 per acre. Jim Clark, Halderman Real Estate Services, Frankfort, IOWA: WOODBURY COUNTY July 10: 72 acres southwest of Lawton; 65 acres tillable; CSR 49.1 (49.7 county average); CSR ; $8,400 per acre. Dennis Reyman and Grant Aschinger, Stalcup Ag Service, Storm Lake, $ Recent sales reported to... Here s a listing of recent sales reported to us by real estate brokers and auctioneers across the country. If you have recent sales you d like to share, call us at or us at landowner@profarmer.com. IOWA: KOSSUTH COUNTY September 5: 320 acres 3.5 miles east and south of Swea City; 308 acres tillable; CSR 67.9 (70.4 county average); CSR2 77.7; $8,800 per acre. David Jacobsen, AFM, Hertz Farm Management, Inc., Humboldt, WISCONSIN: GREEN COUNTY September 3: 133 acres 6.5 miles east of New Glarus; 132 acres tillable; corn PI 129.8; $5,000 per acre. Purchased by a local dairy producer. Mark Mommsen of Martin, Goodrich & Waddell, Inc., Sycamore, IOWA: JONES COUNTY August 29: 169 acres 3 miles south of Martelle; 168 acres tillable; CSR 86.4 (67.2 county average); CSR2 90.2; $13,000 per acre. Troy Louwagie, ALC, Hertz Real Estate Services, Mount Vernon, ILLINOIS: FULTON COUNTY August 29: 161 acres 3.5 miles east of Lewistown. Tract 1: 87 acres; 51 acres tillable; balance in mature hardwoods and large stocked lakes; $5,850 per acre. Tract 2: 74 acres; 47 acres tillable; hardwoods and stocked lakes; $4,800 per acre. Sullivan Auctioneers, LLC, Hamilton, IOWA: OSCEOLA COUNTY August 29: 200 acres 3 miles west of Melvin; noncrossable waterway divided farm into two tracts. Tract 1: 85 acres; 84 acre tillable; CSR 79 (68.0 county average); CSR2 95; irregular-shaped field; $10,700 per acre. Purchased by local young farmer. Tract 2: 115 acres; 104 acres tillable; 2 crossable waterways; small wooded site and old building which will be removed; CSR 68.9; CSR2 84.8; $7,350 per acre. Purchased by out-of-state investor. Vander Werff and Associates, Inc., Sanborn, ILLINOIS: FRANKLIN COUNTY August 25: 765 acres 8 miles west of Benton; 715 acres tillable; farmstead; offered in 13 tracts; 45 bidders; four eventual buyers, all farmers who out-bid a large investor; average selling price of $5,483 per acre. Joe Bubon, Murray Wise Associates, LLC, Champaign, INDIANA: TIPTON COUNTY August 21: 94 acres one-half mile south of Groomsville; 88 acres tillable; 4 acres CRP; corn PI 163.4; $12,000 per acre. Offered as two tracts; purchased as single unit. Ken Ziegler, Halderman Real Estate Services, Tipton, COLORADO: POWERS COUNTY August 14: 646 acres in CRP north of Holly; CRP contract expires in 2020 with annual payment of $37.21 per acre; $750 per acre. Purchased by an investor. Scott White, United Country Rocking X Land Co., Ltd., Burlington, ILLINOIS: ST. CLAIR COUNTY August 12: 90 acres northeast of Fayetteville. Tract 1: 38.5 acres; 35 acres tillable; PI 81.5 (147 maximum per Bulletin 811); $5,584 per acre. Tract 2: 51 acres; 25 acres tillable; PI 98.9; west borders Kaskaskia River; $3,382 per acre. Bret Cude, AFM, CCA, Farmers National Company, Nashville, LANDOWNER 4 / September 11, 2014

5 Outlook Provided by Pro Farmer ASSETS Investors continue to favor stocks over commodities Stocks & Commodities SPECULATIVE INVESTMENT: The Dow Jones Industrial Average and the Goldman Sachs Commodity Index performed similarly from 2004 to 2008 when both sectors rallied with a growing economy. From 2008 to 2009, the indices collapsed as investors pulled money out of all assets during the recession. A recovery from the recession occurred from 2009, Blue line = Goldman Sachs Commodity Index Red line = Dow Jones Industrial Average but starting in 2011, commodities waned while stocks marched higher. The markets with the highest returns tend to attract greater investment. The mentality to favor stocks over commodities may not reverse until the stock market slows its pace of return. The bull market for stocks is expected to continue to year-end, which would limit buying in commodities. WHEAT Monthly Chicago Wheat Futures Demand concerns keeping wheat on the defensive Initial support is at the psychological $5.00 level, but there isn t much strong chart support until the $4.50 to $4.25 area. To signal a short-term low is in the works, bulls need a close above $5.72 1/4. To signal a trend change, bulls need to push futures above the downtrend from the 2012 high. $4.25 1/2 $5.72 1/4 SRW: December SRW wheat futures violated the August low with rising open interest, suggesting bears added to short positions. Prices are forecast to be soft this month. Barring a sharp escalation of geopolitical tensions between Russia and Ukraine, the upside is limited to corrective buying in wheat futures. HRW: The strong U.S. dollar renewed fears that wheat is not competitive in the global market. Open interest rose slightly alongside lower prices, suggesting hedgers added to short positions compared to the previous week. With basis still trending lower, the cash market was reflecting low buyer interest. LANDOWNER September 11, 2014 / Outlook page 1

6 CORN Monthly Corn Futures Record yield expectations capping buying interest Bulls need a close above the downtrend from the all-time high to signal a potential low. A close above the $4.50 level is needed to signal a potential trend change. $4.50 $3.02 The long-term uptrend and the 2007 to 2009 lows provide strong support in the $3.25 to $3.00 area. CORN: Historically strong crop condition ratings for early September have traders fully expecting a record corn yield this year. Our crop condition-based yield model points the national average yield to bu. per acre. On the demand side, a recent surge in the U.S. dollar raised trader concerns that weekly export sales would drop. But when comparing the dollar to SOYBEANS Weekly Soybean Futures only our major export competitors, the greenback dipped last week. This may be a sign that sales performance may be resilient the next couple of weeks. Prices are expected to be soft this month as traders focus on large crop expectations. We lowered the bottom end of the value range of $3.60 to $3.40 down to $3.33 for December futures. Funds record-short soybeans amid record crop expectations Bulls need a close above $ /4 to signal a short-term low is in the works. The 1997 high at $9.03 1/2 is next key support. If violated, it would open the downside to the long-term uptrend, which currently intersects around $8.00. $ /4 $9.03 1/2 BEANS: Crop condition ratings don t typically rise in late August/early September, but that happened this year. The rise in the rating caused our condition-based yield model to raise the national average yield to 45.6 bu. per acre. In addition, bulls are concerned about a recent surge in the dollar. But, the dollar declined last week when compared to our major export competitors. This LANDOWNER September 11, 2014 / Outlook page 2 suggests the news headlines about the surging dollar may not correlate to soft weekly U.S. export sales. Weekly export sales have been strong for seven consecutive weeks. Strong export sales should continue, but November futures are likely to trend toward $9.86 this month. Traders will assume soft prices into harvest. Funds have built a record short position for soybean futures.