Cash Rents Down 5% to 10% for 2016

Despite dour mood, ag bankers see only a modest uptick in farm loan default rates in the year ahead. The March Rural Mainstreet Index (RMI) survey, conducted by Creighton University Economist Dr. Ernie Goss, says rural bank CEOs in the 10 Midwestern states covered say they expect farm loan defaults to rise to only 5% over the next 12 months. That compares to a reported 2% rate in 2015, which was an increase from 2014 s default rate. This suggests the lessons from the 1980s and the multiple warnings at recent banker conferences has been heeded by rural bankers concerning farm loans. Gone is the optimism that pervaded in the early 1980s that had lenders re-writing loans based on an optimistic outlook on farmland values. This current crop of bankers is quite pessimistic, as evidenced by RMI s farmland and ranchland price index of only 20.2, which is down from February s 29.8. A reading of 50 is considered growthneutral. This index has been under 50 for 28 consecutive months. The survey says land prices are down 6.7% on average the past 12 months, while 4.6% of bankers say values are down more than 20%. March 24, 2016 Powerful Insight for LandOwners Vol. 37 Iss. 6 Cash Rents Down 5% to 10% for 2016 That s our call based on the recent LandOwner/ Pro Farmer Cash Rent Survey conducted by our partners at Doane Ag Research. This follows the 5% reduction in average cash rents our 2015 survey reported, which was eventually confirmed by the Iowa State University survey. Our survey found the decline in 2016 cash rents was not as deep as our audience was anticipating last fall. Our October survey found 73% of survey respondents anticipating lower cash rents in 2016. Some 25% looked for their cash rents to remain unchanged; 42% expected a decline of less than 10%; 25% anticipated a decrease of 10% to 19%; and 6% looked for a decline of 20% or more. 42% Report No Change in Cash Rent for 2016 LandOwner/Pro Farmer Cash Rent Survey Our survey reveals 42% experienced no change in their 2016 rental rate versus a year earlier. Some 36% saw a decline of less than 10%, while 18% report a decrease of 10% or more. That still means slightly more than half (54%) saw a reduction in their 2016 cash rent. Our fall survey found 12% of respondents saying they absolutely would walk away from their cash lease if the rate was not lowered and another 28% said they probably would walk away if the rate was not lowered. None of the March survey respondents reported abandoning a lease. Those willing to walk are probably included in the 54% who cite a reduction in their cash leases for 2016. However, there was plenty of comments from respondents about other operators in their area abandoning leases. Many cited lack of funding from lenders as the reason. Here is a sampling of comments: The guys who had, or are locked into high rental rates ($375/acre+) are not getting financed or are having a farm sale. Iowa Many farmers in the area just gave up marginal ground. Most landlords in this case found someone else to farm it at significantly lower rates. The good to excellent ground remained the same. Ohio Some farmers are letting rented land go. Some because landlords won t take less and some because banks are telling them they won t back them at their current rent level. Iowa Large farmer in the area was over-paying. Divorce forced him out. Landlords were left scrambling which caused rates to drop 25%. Northern Missouri Rising property taxes are hindering rent reductions, too. Property taxes are a real burden in Nebraska. They are nearly $80 an acre for pivot-irrigated ground. Dryland taxes are up 15%, approaching $50 an acre. Difficult to persuade a landowner to reduce rents when taxes continue to rise at these rates. Nebraska Similar responses from Ohio. Despite the cost-price squeeze, however, many respondents still indicate steady competition for tillable ground. Excellent ground still brings $400 an acre. Illinois Very high rents have come down the most. The $300-per-acre mark for good corn ground seems to be the top, but it is easy to obtain despite breakeven being lower. Some rents are at $250 to $275. Iowa landowner Cash rents remain sticky on the high side in my part of central Illinois. Very competitive market $300 to $350 per acre is average rent for Class A ground. Illinois There is talk of rent going down but I haven t seen it yet. South Dakota Rents did not drop, but the demand for land has decreased. Oklahoma

Illinois Farmland Values Decline 8% to 9% The value of Illinois farmland decreased 8% to 9% in 2015, according to the annual survey of farmland values and cash rents conducted by the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA). The survey found excellent- and good-quality farmland declined 8%, while average-quality farmland decreased 9%. This year s decline marks an acceleration in the downturn in Illinois farmland values first noted in 2013. Average Farmland Values 2015 by Quality or type Excellent Good Average Fair Recreational Transitional Region 1 $11,900 $8,800 $7,580 $5,400 $ - - $ - - Region 2 12,250 9,250 7,500 5,000 4,000 - - Region 3 12,000 7,800 5,500 4,800 3,500 - - Region 4 11,500 9,250 6,250 - - 4,500 - - Region 5 11,250 8,500 6,900 5,000 4,250 - - Region 6 12,000 9,750 6,825 5,750 4,500 17,500 Region 7 11,750 7,000 5,000 3,250 3,000 - - Region 8 - - 10,650 9,600 7,600 4,000 - - Region 9 11,250 8,800 7,000 5,800 3,100 18,000 Region 10 - - 7,760 5,270 4,100 2,550 - - Average 11,737 8,756 6,215 5,188 3,711 17,750 Illinois Society of Professional Farm Managers and Rural Appraisers Excellent-quality farmland dipped 1% in 2014 and 2% in 2013, according to previous surveys. Goodquality cropland posted back-to-back 3% decreases in 2014 and 2013, while average-quality land declined 2% in 2014 and 4% in 2013. Recreational farmland is listed as steady to stronger for the third consecutive year, while the value of transitional farmland was reported as steady on very light volume. The table above shows average changes by region and by quality or type of land. The map indicates counties included in each region listed. Region 1: Excellent- and good-quality cropland declined 6%, while average-quality land decreased 5%. Cash rental rates for 2016 are down 10%, with an average of $300 an acre for excellent soil on recently negotiated leases. Region 2: All classes of cropland are reported as steady to 5% lower, with cash leases for 2016 listed as down 5% to 10%. Recently negotiated cash leases on good-quality cropland are reported as $250 to $300 an acre. Region 3: Excellent-quality cropland is down 10%, while the remaining land-quality types are steady with 2014. The volume of land sold was down 10% to 20%. Cash rents are down 6% to 10% for the top-three land-quality types, with recently negotiated leases for 2016 reported at $325 an acre for good-quality cropland. Region 4: Excellent-quality ground is 8% lower, good quality down 5% and average ground declined 15% in 2015. Cash leases are down 6% to 8%, with rates on recently negotiated leases for 2016 averaging $300 on excellent land and $245 on good-quality cropland. Region 5: Excellent-quality cropland is down 5% to 10%; good is 10% to 20% lower and averagequality cropland is down 10% to 15%. Leases for 2016 are down 10% with recently negotiated leases averaging $330 for excellent land and $290 an acre for goodquality cropland. Region 6: Excellent- and goodquality cropland are 6% and 3% lower, respectively, versus 2014. Average- and fairquality cropland are stable. Average cash rents for 2016 are 5% to 10% lower, with new recently negotiated leases at $300 to $350 for excellent- and $200 to $300 for good-quality cropland. Region 7: Excellent- and good-quality cropland values are down 10% from 2014, while good- and fair-quality cropland are 15% lower. Cash leases are 10% to 15% lower for excellent cropland and steady for other land qualities. Recently negotiated leases for 2016 are averaging $340 an acre for excellent cropland, $275 an acre for good cropland and $225 an acre for average ground. Region 8: Good cropland is 13% lower to 4% higher, while average-quality land is steady to 9% higher. Cash leases are steady at $250 an acre for good cropland. Region 9: Good and average cropland is down 7%. Cash leases are 7.5% lower at $230 an acre for good land. Region 10: Good to fair cropland is mixed, while cash rents are steady at $170 to $200 an acre for 2016. LandOwner is published twice a month. Copyright 2016 by Professional Farmers of America, Inc., 6612 Chancellor Drive, Cedar Falls, Iowa 50613-9985 Periodicals postage paid at Cedar Falls, Iowa. Postmaster: Send address changes to: LandOwner, 102 Mackinlay Dr., Webster City, Iowa 50595 Senior Vice President, Chuck Roth Editor, Mike Walsten Publisher, Chip Flory Markets Editor, Brian Grete Editorial Phone: 319-277-1278 E-mail: landowner@profarmer.com Editorial correspondence: 6612 Chancellor Dr., Suite 300, Cedar Falls, IA 50613 ISSN number: 1548-2901 Subscription services phone: 1-800-772-0023 Subscription: $259 per year LANDOWNER 2 / March 24, 2016

Land Quality Lease Type Excellent Good Average Fair $ per acre Average Cash Rents by Land Quality Year Excellent Good Average Fair 2016 $325 $283 $247 $190 2015 350 295 250 200 2014 375 323 277 219 2013 396 339 285 235 2012 379 331 270 218 2011 319 271 220 183 2010 268 231 189 156 2009 267 221 187 155 2008 241 207 172 138 2007 183 164 144 120 History of rents for mid one-third of cash rents ISPMFRA annual survey Lower Cash Rents Likely for 2016 Cash rents declined in 2015 versus a year earlier and will likely head lower in 2016, according to the ISPFMRA survey. It found average rent declined $25 an acre, 7%, on excellent-quality cropland in 2015; $28 on good-quality cropland, or 9%; $27 an acre, 10%, on average-quality ground; and $19 an acre, 9%, on fair-quality farmland. Land quality categories are: excellent (more than 190 bu. per acre); good (170 to 190 bu.); average (150 to 170 bu.); and fair (less than 150 bu. per acre). For the first time since the survey began tracking rental trends, the returns to landowners from cash leases exceeded returns from custom leases in 2015. That was due to the sharp decline in commodity prices. Cash rent averaged $4 an acre more on excellent-quality cropland than a custom lease and $59 more than a crop-share lease. The table below shows anticipated cash rental rates on professionally managed cropland for 2016, by land-quality and lease type. Custom Lease Returns Beat Cash Leases in 2015 Returns to landlord by lease type and land quality Crop Share 204 180 143 111 Cash Rent 263 240 193 145 Custom Farming 259 237 195 134 Top 1/3, Mid 1/3 and Low 1/3 Cash Rents by Land Quality, 2016 Land Quality Lease Type Excellent Good Average Fair $ per acre High 1/3 350 300 260 208 Mid 1/3 325 283 247 190 Low 1/3 275 250 191 150 Farmers Still Dominate Market, Investor Participation Rises The survey found local farmers were still the bulk of farmland buyers in 2015, accounting for 60% of purchases. That is down 6 points from 2014 and down 12 points from 2012. Local Farmers 60% of Buyers Meanwhile, investors both local and non-local investors accounted for 20% of buyers. That s up from 18% reported in 2014 but down from 24% in 2014. Expected Change in 2016 Values 4% 5% 7% Percent 31% 53% Who is selling: The survey found estate sales still dominate as the main reason for selling at 54% of sellers. That figure is up from 49% a year earlier. Retiring farmers accounted for 14% of sellers, up slightly from 12% in 2014 and 11% in 2013. Investors account for 12% of sales, steady with 2015 and down slightly from 14% in 2014. Sales method: Public auctions accounted for 35% of sales, while private treaties were 45% of the market in 2015. That compares to 41% for auctions and 40% for private treaties in 2014. Multi-parcel auctions were 14% of the market in 2015, with sealed-bid auctions accounting for 6%. LANDOWNER 3 / March 24, 2016

Illinois: Champaign Co. March 7: 160 acres 5 miles northwest of Gifford; 159 acres tillable; PI 121.2; $7,906 per acre. Murray Wise Associates, Champaign, 217-398-6400. Nebraska: Keith County March 1: 464 acres plus water rights east of Big Springs. Tracts 1 & 2: 314 acres; 267 certified irrigated acres; $1,580,000 total or about $5,032 per acre. Tract 3: 150 acres; 116 certified irrigated acres; $680,000 total or about $4,533 per acre. Water: 85.3 certified irrigated acres; $254,000 total. Mike Polk, Agri Affiliates, Inc., North Platte, 308-539-4446. Kansas: Edwards County February 29: 160 acres 3 miles north of Belpre; all dryland cropland; 80 acres seeded to wheat, 100% to buyer; $2,170 per acre. Carr Auction & Real Estate, Larned, 800-503-2277. Indiana: La Porte County February 16: 171 acres near La Porte. Four farmland tracts totaled 168 acres; 147 acres tillable; 20 acres wooded; corn PI 115.2; $11,115 per acre. Threeacre farmstead; $160,500 total. Larry Smith, Halderman Real Estate Services, La Porte, 219-362-4041. Kentucky: Daviess County Private Treaty: 127 acres southwest of Stanley; 114 acres tillable; 50% of oil, gas and mineral rights; $894,733 total or about $7,045 per acre. Mike Melloan, Kurtz Auction and Realty Co., Owensboro, 270-505-6894. Indiana: Wells County January 26: 91 acres 1 mile east of Bluffton; corn PI 128.3. Tract 1: 62 acres; 57 acres tillable; 1 acre wooded; $5,173 per acre. Tract 2: 30 acres; 20 acres tillable; 10 acres wooded; $7,833 per acre. Rick Johnloz, Halderman Real Estate Services, Bluffton, 260-824-3130. $ 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 319-277-1278 or e-mail us at landowner@profarmer.com. Indiana: Grant County March 22: 462 acres east of Van Buren. Tract 1: 47 acres; all tillable; $6,402 per acre. Tract 2: 90.5 acres; all tillable; $6,987 per acre. Tract 3: 61 acres; mostly tillable; $6,043 per acre. Tracts 4 & 5: 152 acres; mostly all tillable; $6,676 per acre. Tracts 6 & 7: 111 acres; all tillable; $5,859 per acre. Al Pfister, Schrader Real Estate and Auction Co., Inc., Bluffton, 260-760-8922. Kansas: Sherman & Rawlins counties March 22: 736 acres 14 miles north of Brewster. Tract 1: 124 dryland cropland acres; $2,120 per acre. Tract 2: 157 dryland cropland acres; $2,014 per acre. Tract 3: 160 acres; 158 acres dryland cropland; $2,226 per acre. Tract 4: 135 acres; 134 acres dryland cropland; $2,067 per acre. Tract 5: 160 acres in Rawlins Co.; 159 acres dryland cropland; $1,563.50 per acre. Donald Hazlett, Farm & Ranch Realty, Inc., Colby, 800-247-7863. Minnesota: Faribault County March 22: 160 acres 1 mile east of Minnesota Lake; 155 acres tillable; PI 89.6; $7,675.50 per acre. Offered as two tracts; purchased as a single unit by an investor with area ties. Charles Wingert, Wingert Realty & Land Services, Inc., Mankato, 800-730-5263. Illinois: Jasper County March 21: 102 acres southwest of Newton. Tract 1: 20 acres; all tillable; PI 108.5 (maximum 147 per Bulletin 811); $8,625 per acre. Tract 2: 40 acres; 39 acres tillable; PI 99.4; $8,700 per acre. Tract 3: 42 acres; all tillable; PI 99.1; $8,700 per acre. Tracts 2 & 3 are contiguous. Sullivan Auctioneers, LLC, Hamilton, 844-847-2161. Nebraska: Washington County March 16: 389 acres 6 miles north of Omaha. Tract 1: 125.5 acres; 120 acres tillable; SRPG 38.7; $6,300 per acre. Tract 2: 107 acres; 105 acres tillable; SRPG 37.3; $5,200 per acre. Tract 3: 107 acres; 97 acres tillable; SRPG 38.7; timber, half-mile Missouri River frontage, mobile home; $7,000 per acre. Doug Hansen, AFM, Farmers National Company, Omaha, 402-290-9521. Iowa: Greene & Guthrie counties March 15: 310 acres north of Bagley on county line. Tract 1 in Greene Co.: 160 acres; 156 acres tillable; CSR2 87.5 (80.1 county average); steel shed; $8,500 per acre. Tract 2 in Guthrie Co.: 150 acres; 146 acres tillable; CSR2 84.4 (61.2 county average); $9,150 per acre. Adam Pick, Farmers National Company, Jefferson, 515-386-5320. Iowa: Grundy County March 11: 160 acres southwest of Parkersburg; all tillable; CSR2 87.4 (87.2 county average); classified NHEL (non-highly erodible land) with no wetlands; $9,150 per acre. Jeffrey Obrecht, Peoples Company, Iowa Falls, 641-648-5065. Minnesota: Meeker County March 10: 328 acres southwest of Eden Valley; 324 acres tillable; PI 88.5; $1,900,000 total or about $5,786 per acre. Offered as three tracts; purchased as single unit. Ashley Huhn, Steffes Group, Inc., Litchfield, 320-693-9371. LANDOWNER 4 / March 24, 2016

Outlook Provided by Pro Farmer Commodities Weekly Bloomberg Commodity Index Commodities working on a low Violation of the downtrend signals a low may be in place. A move above the 40-day moving average (green line) near 851.70 is needed to confirm a low. 919.40 The January 2016 low of 723.30 was the lowest level for the index since 1999 s low of 742.40. 723.30 Commodities: The commodity sector seemingly posted a super-cycle peak in spring 2011 and has since fallen sharply. The early 2016 low in the Bloomberg Commodity Index was more than 50% smaller than the high from five years ago. This weakness can be partially attributed to the persistent U.S. dollar strength of recent years. In contrast, the Federal Reserve s lack of followthrough on plans to raise U.S. interest rates has undercut the dollar and boosted commodity values. Markets like gold, copper, crude oil, coffee and livestock futures have risen substantially from their winter lows, which may indicate the long-term commodity downtrend is ending. Wheat Weekly SRW Wheat Futures Upside limited to corrective buying Futures would need to rally sharply from current levels to challenge the long-term downtrend. The downtrend and the last reaction high at $6.17 1/2 must be cleared to signal a trend change. $6.17 1/2 $4.25 1/2 If support at $4.42 1/4 is broken, it would open the downside to $4.25 1/2. $4.42 1/4 SRW: Wheat futures have recently advanced strongly in concert with soybeans and corn. However, it was apparent active fund short-covering had played a big part in the rally. However, the upside remains limited to corrective buying given abundant global supplies and limited demand for U.S. wheat. HRW: Concerns about a harsh cold snap played a big part in the recent HRW wheat rally, since the growing crop in the Central and Southern Plains could prove quite vulnerable in such conditions. However, it will be difficult to find sustained buyer interest from the freeze concerns. LANDOWNER March 24, 2016 / Outlook page 1

Corn Weekly Corn Futures Export demand surge gives market a temporary boost Futures have held in a roughly 50 trading range since mid-summer. Resistance on the top side of that range is formed by the downtrend from the 2014 and 2015 highs and old support at $4.06 1/4. Support on the bottom end of the extended sideways range is at $3.46 1/2. Below that, support is at the 2014 low of $3.18 1/4. $4.06 1/4 $3.18 1/4 $3.46 1/2 Corn: The recent trend of surprisingly large corn export sales continued during the week ended March 10, with the 1.227-million-metric-ton total topping expectations. That indicates there s strong value buyer interest under the market. The weekly Energy Information Administration report also indicated strong ethanol production activity and a modest decline in stocks. Plus, the Fed s decision not to raise U.S. interest rates boosted equities and undercut the dollar. Those developments pushed prices higher. But with industry surveys indicating spring plantings will top USDA s preliminary projection of 90 million acres, the upside is limited to brief bouts of short-covering. Soybeans Weekly Soybean Futures Focus on U.S./Brazil currency exchange rate Futures are butting up against resistance at $9.04. The downtrend from the late 2014 high intersects just above that level. The November low at $8.44 1/4 is key near-term support. Below that, longer-term support lies at the 2009 low at $8.38 1/4 and the 2008 low at $7.76 1/4. $9.04 $8.44 1/4 Beans: Recent hopes for a regime change in Brazil had boosted that country s currency versus the U.S. dollar and supported soybean prices, since the forex shift increased the cost of Brazilian beans to export customers. The real appeared to peak on March 11, with last week s early decline translating into soybean futures weakness. However, the dov- LANDOWNER March 24, 2016 / Outlook page 2 ish Fed rate decision sent the U.S. dollar lower, thereby sparking a fresh bullish surge in soybean futures. New-crop contracts led the rally, which may reflect growing suspicions that spring soybean plantings will fall short of forecasts. Predictions of potential spring/summer weather issues are also price-supportive.