LANDOWNER RESOURCES_Land Value Surveys

Landowner Resources

The Landowner Resources section includes an extensive library of links to hundreds of local and national sites ranging from opinion surveys on land values and lease rates, to farm economics, government farm programs and legal issues. Each week, our research staff updates this section with timely research and analysis to help expand your understanding of land value trends and the factors likely to influence future returns.

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Our Farm Policy and Farm Programs sections help you understand the role of government programs in supporting farm profits and offer insights into how land values can be impacted by changes in current programs. These sections also track developments as Congress shapes the 2012 Farm Bill.

Visit our Farm Mortgage Rate Watch section to read our latest perspective on borrowing cost trends. Each quarter, we analyze fixed- and variable-rate trends across the country.

Rate Increases Pause as Fed Lowers Growth Outlook

Slowing economic growth has set the stage for a pause in farm mortgage rate increases.

The Federal Reserve left interest rates unchanged at its March 20th meeting and signaled it doesn't expect to raise them again this year. That's an abrupt halt to what had been a steady march of rate increases, which pushed up borrowing costs on both fixed and variable rate farm real estate loans last year.

The average rate for a long term fixed-rate mortgage rose to 6.1% at the close of December 2018, up 50 basis points from 5.6% for the same period a year ago, according to regional federal reserve banks. Regionally, fixed rates ranged from a high of 6.6% in the Dallas fed district to a low of 5.6% in the Chicago region.

Banks charged an average 6.0% on variable-rate farm mortgage loans at year-end 2018, an 80 basis-point increase from 5.2% a year ago. Regional variable rates ranged from a high of 6.3% in the Dallas region to a low of 5.7% in the Minneapolis fed district. No data was available from Farm Credit banks lending across the Heartland.

Looking ahead, Fed officials now expect a single rate increase in 2020 and none in 2021. That is a sharp turnabout from December when the Fed said it expected at least two more 0.25% increases this year and another in 2021. The widely followed Livingston Survey, which summarizes forecasts of 39 economists from industry, government, banking and academia, also predicted in December that the interest rate on 10-year Treasury bonds would rise to 3.42% at the end of June 2019, edge up to 3.51% at the end of December 2019, and reach 3.55% at the end of December 2020.

10YrTreasury20190325

Source: Farmland Investor Letter analysis of Federal Reserve data; Board of Governors of the Federal Reserve System (US), 10-Year Treasury Constant Maturity Rate [GS10], retrieved from FRED, Federal Reserve Bank of St. Louis.

The yield on the 10-year Treasury note (a bellwether for mortgage rates) fell to 2.53% after the Fed released its statement on interest rates on March 20. That's down from 3.03% from the start this year.

The downbeat economic assessment is based on slowing growth in household spending and business fixed investment. The Fed forecasts that these factors will ease economic growth to 2.1% for 2019, down from the 2.3% it forecast in December.

The pause in interest rate increases will help support the farm real estate market, which is under pressure amid the downcycle in crop prices and the Trump trade war with China. Rising borrowing costs reduce both the number of qualified potential buyers of farmland and the price they can afford to pay for land. In addition, higher rates signal returns on alternative investments to farmland are rising, making farmland less attractive.

 Fixed4Q18

Source: Farmland Investor Letter analysis of Federal Reserve data. St. Louis region includes southern Ill., southern Ind., western Ky., western Tenn., northern Miss., Ark., and eastern Mo. Data collection for St. Louis region commenced 2Q12. NA= Not available

Variable4Q18

Source: Farmland Investor Letter analysis of Federal Reserve and AgriBank data. *Heartland region includes Ark., Ill., Ind., Iowa, Ky., Mich., Minn., Mo., Neb., N.D., Ohio, S.D., Tenn., Wis., and Wyo. Because the Federal Reserve Bank of Chicago doesn't collect variable rate data on farmland loans, we use the quarterly average variable rate charged by AgriBank-funded Farm Credit Services associations as a proxy for the region. St. Louis region includes southern Ill., southern Ind., western Ky., western Tenn., northern Miss., Ark., and eastern Mo. Figures in italic represent data from fewer than 10 lenders and may be less indicative of regional trends. Data collection for St. Louis region commenced 2Q12.

Spread4Q18

Midwest farm real estate borrowers have historicaly enjoyed lower mortgage interest costs over borrowers in the western U.S. The spread for fixed-rate mortgages between the Chicago and San Francisco Fed Districts has averaged 75 basis points since the first quarter of 2003. The lower interest rate advantage for Midwest borrowers eased two basis points to 72 in the fourth quarter of 2018.  (1 basis point = 1/100th of a percentage point.)

Agricultural Law

This section includes links to agricultural law sites. Links range from university-sponsored sites that offer useful publications and practical guides on a range of legal issues, to newsletters that track current issues, and other legal resources.

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Considering Hiring a Farm Manager?

 

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Though many landowners choose to directly manage the business affairs of their own farms, some hire experienced intermediaries as farm managers. This is more often the case if the owner lives far from the land and finds it difficult to make periodic site visits.

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Depending on the needs of the landowner, farm managers can oversee all aspects of managing the property, or specific tasks, such as negotiating a crop lease. Typical farm management services include: selecting a farm operator, evaluating lease alternatives (from fixed cash lease or flexible cash lease to higher risk/reward custom operator arrangements), negotiating lease terms, making farm visits to ensure lease provisions are being followed and that your land is being properly farmed; overseeing building or land improvements; supervising input purchases and crop marketing; reviewing and paying expenses; securing insurance and signing-up to participate in government farm programs; preparing an annual budget, crop progress reports, and financial reports.

Farm management fees typically range from 5% to 10% of annual gross rent revenue or net proceeds from crop sales, depending on the local competition among managers, lease type and range of services. As cash rents have moved up in recent years on rising crop prices, farm management fees have also risen. To learn more about this dynamic, read our analysis: Farm Management Fees Spike; Time to Press the Reset Button?

Public institutions often solicit bids for farm managers. Though price shouldn’t be your primary criteria in choosing a farm manager, inviting multiple managers to bid for your business can boost your bottom line. For more on the value of soliciting competitive bids from farm managers, read It Pays to Bid the Assignment.

Many farm managers derive substantial income by also working as real estate brokers or have financial agreements to steer clients to specific brokers. For more insights into the importance of ensuring your property is publicly advertised and exposed to local and regional brokers, read our article on Insights into the Shadow Market.

Some farm managers work independently, while others are affiliated with local, regional or national management companies. Many bank trust departments also offer farm management services.

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Though many landowners choose to directly manage the business affairs of their own farms, some hire experienced intermediaries as farm managers. This is more often the case if the owner lives far from the land and finds it difficult to make periodic site visits.

img-landowner-resources

Depending on the needs of the landowner, farm managers can oversee all aspects of managing the property, or specific tasks, such as negotiating a crop lease. Typical farm management services include: selecting a farm operator, evaluating lease alternatives (from fixed cash lease or flexible cash lease to higher risk/reward custom operator arrangements), negotiating lease terms, making farm visits to ensure lease provisions are being followed and that your land is being properly farmed; overseeing building or land improvements; supervising input purchases and crop marketing; reviewing and paying expenses; securing insurance and signing-up to participate in government farm programs; preparing an annual budget, crop progress reports, and financial reports.

Farm management fees typically range from 5% to 10% of annual gross rent revenue or net proceeds from crop sales, depending on the local competition among managers, lease type and range of services. As cash rents have moved up in recent years on rising crop prices, farm management fees have also risen. To learn more about this dynamic, read our analysis: Farm Management Fees Spike; Time to Press the Reset Button?

Public institutions often solicit bids for farm managers. Though price shouldn’t be your primary criteria in choosing a farm manager, inviting multiple managers to bid for your business can boost your bottom line. For more on the value of soliciting competitive bids from farm managers, read It Pays to Bid the Assignment.

Many farm managers derive substantial income by also working as real estate brokers or have financial agreements to steer clients to specific brokers. For more insights into the importance of ensuring your property is publicly advertised and exposed to local and regional brokers, read our article on Insights into the Shadow Market.

Some farm managers work independently, while others are affiliated with local, regional or national management companies. Many bank trust departments also offer farm management services.

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Farm Programs

Federal farm programs have bolstered U.S. farming profits for more than seventy years. Farm programs have included mandatory price supports for specified commodities, direct subsidy payments to farmers, and supply controls. Though once considered temporary and supplementary to farm sector earnings, government farm program payments are increasingly viewed as permanent and of major importance.

Farm program payments represented some 30%-40% of farmland values from 1938 to 1980, according to research by Shaik, Helmers and Atwood. More recently, high commodity prices have been the driving force behind agricultural land values, thanks to strong demand from corn-based ethanol and growing demand for agricultural commodities from developing economies such as China and India. For further insight into the regional influence of farm program payments, read Government Program Payments and Non-Agricultural Returns Affect Land Values (9/10) by Kastens & Dhuyvetter, Kansas State Univ.

Farm program supports are mandated by the Farm Bill, a multi-year, multi-commodity federal support law. Permanent laws such as the Agricultural Adjustment Act of 1938 and

Agricultural Act of 1949 provide standing authority for these programs. However, Congress usually updates farm program provisions every five years.

The following links explain the most significant farm program support programs and include links to program statistics.

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