BioFuels Impacts Today/TomorrowLand, Rents, Farm Management

Midwest, Great Plains and Western Outlook Conference

Indianapolis, INMike Duffy

August 15, 2007

Outline

• Land values and rents• Current situation• Observation• Outlook• Discussion

Land Values

U.S. Average Land Values

$0

$500

$1,000

$1,500

$2,000

$2,500

1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Average Farmland Value by Region

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

NE Corn belt SE Plains MT Pacific US

Percent Change in Land Values by Region, 2006-2007

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

North

east:

Lake

Sta

tes:

Corn

Belt:

North

ern

Plains

:

Appal

achia

n:

South

east

:

Delta

Sta

tes:

South

ern

Plains

:

Mou

ntai

n:

Pacific

:

48 S

tate

s

Percent Change in Land Values by Region, 2002 to 2007

0%

20%

40%

60%

80%

100%

120%

140%

Select States Farmland Value, 2007

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

IA MO SD IN OH IL

Selected States Farmland Value, 2007

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

KS ND KY MI CO OK

Selected States Percent Change in Value, 2006-2007

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

IA MO SD IN OH IL

Selected States Percentage Change in Value, 2006-2007

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

KS ND KY MI CO OK

Current Percentage Changes in Land Values, 7th Federal Reserve District

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

IL IN IA WI 7th District

1st Quarter '07 April to April '07

Average Cash Rent by Region and Year

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

1999 2000 2001 2002 2003 2004 2005 2006 2007

Northeast: Lake States: Corn Belt: Northern Plains:

Appalachian: Southeast: Delta States: Southern Plains:

Mountain: Pacific: 48 States

Percent Change in Cash Rent by Region, 2006-2007

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

North

east:

Lake

Sta

tes:

Corn B

elt:

North

ern P

lains:

Appala

chian

:

South

east:

Delta

State

s:

South

ern

Plains

:

Moun

tain

:

Pacific

:

48 S

tate

s

Percent Change in Cash Rent by Region from 1999 to 2007

0%

5%

10%

15%

20%

25%

30%

35%

Selected States Cash Rent Value, 2007

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

IA MO SD IN OH IL

Selected States Cash Rent Value, 2007

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

KS ND KY MI CO OK

Selected States Percent Change in Cash Rent Values, 2006-2007

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

IA MO SD IN OH IL

Selected States Percent Change in Cash Rent Values, 2006-2007

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

KS ND KY MI CO OK

Rent to Value for Cropland by Region, 2007

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Northeast: Corn Belt: NorthernPlains:

Southeast: Mountain: Pacific: 48 States

Current Situation

• Sub prime mortgage situation and responses

• Increased production costs, especially seed and fertilizer

• Increased fertilizer use with more corn

• Considerable interest in 2008 rents in Iowa

• Two camps; 10% or 25% increase• Changing rent structure and owner

demographics

Distribution of Iowa Farmland by Age of Owner

0%

5%

10%

15%

20%

25%

< 25 25 - 34 35 - 44 45 - 54 55 - 64 65 - 74 > 75

1982 1992 2002

Percent Distribution of Iowa Farmland by Residence of Owner

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1982 1992 2002

Iowa Non-Iowan

Distribution of Rented Land in Iowa by Type of Lease and Year

0%

10%

20%

30%

40%

50%

60%

70%

1982 1992 2002

Cash Crop Share Other

Observation

Another Golden Era?• “There never has been a more

glorious opportunity in the history of the world for the Corn Belt farmer than there is today…”

• “It (Tama County land) will never be worth any less and the tendency will be for higher prices from now on,..”

• 1919 Tama County survey

Another Golden Era?• “The 1970’s have sometimes been

called the second golden age of American agriculture, comparable in many ways to the period from 1905 to 1915,…” the first golden age.

• “..many agricultural economists, and others urged farmers to expand their operations so the United States would be able to meet the demands for its farm products.”

Another Golden Era?• Is the bioeconomy the final push to

move agriculture beyond “the curse of agricultural abundance”?

• Some factors are different but some factors remain the same

• Farmers always have a tendency to bid profits into land values; other costs of production, especially energy based costs are increasing

Outlook

Factors to Watch• The bioeconomy, especially corn

based ethanol• The government programs;

outcome for level and type of programs is unknown; more of the same but less of it; major cuts? Regional differences could be a major factor; Public sentiment

Factors to Watch

• Overall performance of the economy, especially interest rates

• Recreational demand• Performance of the housing market• Aging farmland owners and what

the second generation will do with the land

Factors to Watch

• We are entering into a period of major uncertainty. How the ethanol situation will play out no one knows for sure.

• Land values will move with higher income and anticipation; tempered by overall economy

• How long will this ‘golden era’ last and what will be the aftermath?

Discussion