F ARMLAND L EASING A RRANGEMENTS AND L AND V ALUES Melissa ORourke - - PDF document
8/1/2016 F ARMLAND L EASING A RRANGEMENTS AND L AND V ALUES Melissa ORourke B.S., M.A., J.D. F ARM & A GRIBUSINESS M ANAGEMENT S PECIALIST Housed at ISU Extension Winneshiek County in Decorah www.extension.iastate.edu/agdm
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FARM & AGRIBUSINESS MANAGEMENT SPECIALIST
Housed at ISU Extension— Winneshiek County in Decorah www.extension.iastate.edu/agdm
morourke@iastate.edu 563-382-2949
Read about Kevin & Lisa Martin (Farmers) and Susie Williams & Sam Williams (Landowners). We’ll discuss their viewpoints later today.
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increased knowledge and confidence to assist you to - - – Review current leasing arrangements . . . – Take steps to plan for the future . . . and – Know where to go for resources and assistance.
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financial statement
background letter
depend on the length of the lease
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Answer Response % Non-farming landowner 144 44% Active farmer 97 29% Ag lender 24 7% Attorney or Accountant 8 2% Professional farm manager 3 1% Other (please specify) 53 16% Total 329 100% N=382 excludes Not Lessors/Not Lessees
Decrease rent 30% No changes will be made 24% Change type of lease 9% Other 9% Move from an
written lease agreement 9% Apply for the Beginning Farmer Tax Credit or Custom Farming Tax Credit 4% File and perfect a landlord's lien 3% Increase rent 3%
Intended Changes to Lease Arrangements:
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leasing, rental market and trends
communicating with other parties involved
practices
determining what is fair
profitability
negotiations, terminations
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Kevin & Lisa Martin Susie –and– Sam Williams
the Martins, or the Williams siblings?
arrangement thinks differently about how the
consider a new tenant for 2017 – what questions should they ask of the potential tenant(s)?
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document of ag land sales – for example:
Most county assessor offices in Iowa offer a search tool to find information about real estate ownership, values and sales within the county.
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– Quarterly survey of ag lenders by state – Annual Land Values Conference – AgLetter: Quarterly Newsletter re: ag land values & credit – Go to chicagofed.org and click on publications
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Agricul ultur tural land nd values ues in the Seventh Federal Reserve District fell 4 percent nt from a year ago in the first quarter of 2016—their largest year-over-year decline since the third quarter of 2009. There was a decrease of 1 percent in “good” farmland values in the first quarter of 2016 relative to the fourth quarter of 2015, based on the survey responses of 200 District agricultural bankers. Cash sh rent ntal rate tes s for Distr strict t farmland nd exper perienc nced d a signific nificant nt drop p of 10 percent t for 2016 compa pared with h 2015—even n larger ger than n the decrease se of last st year relative to 2014. Demand to purchase agricultural land was markedly lower in the three- to six-month period ending with March 2016 compared with the same period ending with March 2015. Moreover, the amount of farmland for sale, the number of farms sold, and the amount of acreage sold were all down during the winter and early spring of 2016 compared with a year ago. Nearly two-thirds of the responding bankers expected farmland values to decrease during the second quarter of 2016, with the rest expecting farmland values to remain stable.
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http://usda.mannlib.cornell.edu/usda/current/AgriLandVa/AgriLandVa-08-05-2015.p
“The Iowa farmland market is showing weakness following significant increases in value over the past decade. Based on the Iowa State University Farmland Value Survey, 2015 Iowa land values have decreased two years in a row since 2000. However, despite these decreases, current Iowa farmland values are still more than double what they were 10 years ago, 75 percent higher than the 2009 values and 14 percent .”
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Value in each year of $1,000 invested in 1950 in Iowa farmland or the S&P
– Conducted annually since 1941 – Mailed to 1100 licensed real estate brokers; 500-600 responses – Released annually in mid-December – November 1 to November 1 – Latest and historical surveys found on Ag Decision Maker website – www.extension.iastate.edu/agdm
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http://card.iastate.edu/farmland
2000 4000 6000 8000 Land value per acre ($/acre)
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$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 $11,000 $12,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ per acre High Medium Low
↓$1,300 ↓14%
Iowa Farmland Purchases by Farmers and Investors and Land Values 2006-2015
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Average Land Value per Acre Percent of Sales Farmers Investors Average Land Value
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District Increase 5% or more Increase 0-5% Stay the same Decrease 0-5% Decrease 5-10% Decrease 10% or more PERCENT Northwest
16 18 20 16 16 14
North Central
16 12 10 17 22 22
Northeast
7 22 15 10 22 24
West Central
20 20 16 14 16 12
Central
22 21 19 8 19 11
East Central
9 19 17 19 19 19
Southwest
18 15 21 10 13 23
South Central
12 12 15 12 32 18
Southeast
6 14 26 14 17 23
STATE
14 17 17 14 19 18
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declined 8.9% to $7,943 the following year.
values have fallen since 2009.
speculated, but this is not out of line due to a mix of factors, including a lot of cash in hand for many farmers, market expectation of this decline early on, robust livestock returns, and strong recreational demand.
reported values from 10 years ago, and almost 14 % higher than 2011 values.
farming challenges, conditions, costs of productions
information about inputs, yields, and crop plans
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communication to annual rent payment and rent negotiations.
require written annual report as a lease condition.
provided by the Tenant (such as yields, management practices) is kept confidential.
information needs to be shared to negotiate lease terms – but it is not to be shared in the “coffee shop.”
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just once a year
share and educate Owners about current trends in agriculture, farm costs
during growing season
– with respect and kindness.
with declining revenues
records, satellite photos, fertility records, government payments, crop insurance
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what they really mean
negotiation.
– “new truck”
discussion
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that the parties understand
must be in writing to be enforceable.
must be in writing and recorded at the county recorder’s office.
memory.
the provisions that you intend to cover.
because you value the relationship . . . and because you don’t want there to be later misunderstandings!
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And, be sure that: (1) The legal description and parcel number in the lease is accurate. (2) The parties to the lease are properly identified. (3) The lease terms are clear.
(Reduction for interest paid by the borrower may be a consideration.)
from the Producer/Tenant’s lender.
as Payee on checks for crops.
includes recording the lease – seek professional legal assistance for this.
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Without written notice of termination, lease automatically renews under the same terms and conditions for the following crop year.
the lease is oral or written, the termination notice must be in writing!
separate written notice.
terminates the current least on the following March 1).
copy); or by Certified US Mail (keep copy of receipt, return receipt optional); or by publication if neither in-person or mail can be accomplished.
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Tur urn n to to pa page ge 37 37 in y in your
book
Cash Rental Rate survey – and walk through some calculations and ways to think about how to arrive at a number that is fair to both the Owner and the Producer.
read through this page that explains the survey methodology and information.
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$144 $157 $190 $186 $192 $223 $266 $281 $277 $273 $100 $150 $200 $250 $300 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 State District 3
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Corn
*Payments based on yield and price projections as of 7/13/2016
Marshall Benton Clay Shelby Clayton Jackson Hamilton Taylor Muscatine Wright Clinton Iowa Buena Vista Woodbury Kossuth Worth Washington Sac Humboldt Cherokee Winnebago Lyon Marion Keokuk Johnson Monroe O'Brien Dubuque Van Buren Franklin Guthrie Jefferson Floyd Appanoose Davis Clarke Black Hawk Scott Plymouth Mitchell Dallas Palo Alto Fremont Ringgold Butler Montgomery Warren Decatur Webster Calhoun Mahaska Boone Linn Jasper Page Ida Crawford Adams Cedar Carroll Audubon Delaware Hardin Sioux Adair Union Mills Wayne Monona Harrison Lucas Polk Buchanan Chickasaw Des Moines Cass Allamakee Madison Cerro Gordo Fayette Bremer Tama Osceola Henry Poweshiek Hancock Winneshiek Jones Pocahontas Greene Louisa Wapello Lee Story Grundy Pottawattamie Howard Dickinson Emmet
$70 $67 $61 $73 $72 $53 $13 $63 $27 $74 $32 $41 $12 $62 $36 $0 $25 $27 $46 $35 $72 $1 $0 $70 $76 $71 $0 $46 $14 $0 $54 $0 $15 $0 $49 $40 $72 $35 $37 $64 $25 $0 $73 $30 $0 $0 $37 $30 $13 $48 $72 $11 $57 $72 $55 $49 $73 $35 $52 $72 $57 $64 $26 $0 $67 $42 $0 $20 $60 $37 $45 $29 $67 $16 $36 $71 $34 $60 $60 $0 $23 $52 $72 $71 $34 $42 $48 $6 $32 $48 $75 $0 $39 $25 $21 2016 Corn ARC-CO Payment $50 - $76 $25 - $50 $1 - $25 $0 - $1 No Data
Soybeans
*Payments based on yield and price projections as of 7/11/2016
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Crop Reporting District 3
$/Base Acre
Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016 www.extension.iastate.edu/agdm/crops/xls/a1-33farmbilldata.xlsx
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$-50 $-40 $-30 $20 $-10 $0 $10 $20
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crops?
– Yes –
your production (yields, weed pressure, burn down, differences from year to year)?
pressures?
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Released late December or early January each year Numbers from several sources:
Iowa Farm Business Association ISU Department of Agriculture and Land Stewardship Survey of input suppliers around Iowa
Often used as a gauge for planning purposes by ag businesses and financial institutions Page 78 in your book . . .
economic losses.
losses.
– Operating costs, variable machinery costs, hired labor – Land costs if the land is cash rented, or in the process
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Preharvest machinery , $36.90 Seed, chemicals, etc., $292.46 Harvest machinery, $89.85 Labor, $33.80 Land, $266.00
[CATEGORY NAME], [VALUE] Seed, chemicals, etc., $162.63 Harvest machinery, $36.95 Labor, $29.25 Land, $266.00
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http://www.card.iastate.edu/ag_risk_tools/cash-rental-rates/
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for 4 different bases for cash rent calculations:
(yields)
– Other flexible methods
county USDA FSA Office: Form 578 completed annually)
County Assessor's Office or NRCS Soil Survey)
field shapes (See tile, terrace maps, aerial photos)
that farm (Corn & Soybeans).
Source: Johnson, ISU Extension, May 2011
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p 41
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county average (78); but yields (167 & 45) are a little lower than county average (174-corn; 50-beans).
$286, medium quality rent is $245.
parcel, based on the ISU survey.
$ 1.40
$ 233.80
– 167 X $1.40 = $233.80
$ 4.86
$ 218.70
– 45 X $4.86 = $218.70
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$ 255.84
– 82 CSR X $3.12/CSR point = $255.84 ($256)
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Source: ISU Extension Publication FM-1851
Method 1: Typical Cash Rent $ 266 Method 2: Average Rent per yield $ 226 Method 3: Average Rent per CSR2 Point $ 256 Method 4: Return on Investment/Value $ 198
Average $236.50 /acre
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Landlord Tenant Land ½ inputs Labor ½ inputs Machinery Management ½ income ½ income
Landlord Tenant Land $105 ½ inputs $195 Labor $ 31 ½ inputs $195 Machinery $ 92 Management - $ 18 ½ income $300 ½ income $300 Crop Share Corn Lease 2016 Corn
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Landlord Tenant Land $146 ½ inputs $ 81 Labor $ 27 ½ inputs $ 81 Machinery $ 72 Management $ 47 ½ income $227 ½ income $227 Crop Share 50-50 Lease 2016 Soybean
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CORN: (151 bu X $3.97) = $ 599 SOYBEANS: (46 bu X $9.85) = $ 453
Iowa cash rents typically are equal to about 30 to 40 percent of the gross income from producing corn, and 35 to 45 percent of the gross income from producing soybeans.
Cash Rental Rate CORN: $ 599/ ac x 30% = $ 180 SOYBEANS: $ 453/ ac x 40% = $ 181 Average $ 180
CORN: $ 599- $ 572 = $ 27 SOYBEAN: $ 453 - $ 321 = $ 132 Average: $ 80
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Cash Rent Survey Per Bushel Yield Per CSR Point Return on Investment Gross Income Tenant Residual Crop Share Average Corn Soybeans $242 $242 $242 $239 $242 $242 $195 $195 $180 $181 $ 27 $132 $195 $ 81 $188
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J.D.
Housed at ISU Extension—Winneshiek County in Decorah
www.extension.iastate.edu/agdm morourke@iastate.edu 563-382-2949