Weekly AgNews – August 8, 2017

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Who Really Owns American Farmland?

We’re used to thinking of escalating rents as an urban problem, something suffered mostly by the citizens of booming cities. So when city people look out over a farm—whether they see corn stalks, or long rows of fruit bushes, or cattle herds roving across wild grasses—the price of real estate is probably the last thing that’s going to come to mind. But the soil under farmers’ feet has become much more valuable in the past decade. While urban commercial real estate has skyrocketed in places like New York, San Francisco, and Washington, D.C., powerful investors have also sought to turn a profit by investing in the most valuable rural real estate: farmland. It’s a trend that’s driving up costs up for the people who grow our food, and—slowly—it’s started to change the economics of American agriculture.

Think of it this way: If you wanted to buy Iowa farmland in 1970, the average going price was $419 per acre, according to the Iowa State University Farmland Value Survey. By 2016, the price per acre was $7,183—a drop from the 2013 peak of $8,716, but still a colossal increase of 1,600 percent. For comparison, in the same period, the Dow Jones Industrial Average rose less than half as fast, from $2,633 to $21,476. Farmland, the Economist announced in 2014, had outperformed most asset classes for the previous 20 years, delivering average U.S. returns of 12 percent a year with low volatility.

That boom has resulted in more people and companies bidding on American farmland. And not just farmers. Financial investors, too. Institutional investors have long balanced their portfolios by putting part of their money in natural resources—goldmines and coal fields and forests. But farmland, which was largely held by small property owners and difficult for the financial industry to access, was largely off the table. That changed around 2007. In the wake of the stock market collapse, institutional investors were eager to find new places to park money that might prove more robust than the complex financial instruments that collapsed when the housing bubble burst. What they found was a market ready for change. The owners of farms were aging, and many were looking for a way to get cash out of the enterprises they’d built.

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New USDA Survey: Land Values Continue to Defy Gravity

U.S. cropland values remained unchanged at $4,090 per acre from the previous year, according to a new USDA survey.

In Corn Belt states, where four years of weak corn and soybean prices have pressured profits, farmland values dropped just a half percent. In the Southern Plains, average cropland values increased 6% from the previous year while cropland values decreased by 4.4% in the Northern Plains.

The highest farm real estate values were in the Corn Belt region at $6,260 per acre. The Mountain region had the lowest farm real estate value at $1,130 per acre.

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Federal Agencies Issue Proposed Rule on the De Minimis Threshold

The Federal Deposit Insurance Corporation, Board of the Federal Reserve, Office of the Comptroller of the Currency, and the National Credit Union Administration jointly issued a proposed Rule regarding the current De Minimis threshold. The rule proposes increasing the De Minimis threshold for federally related transactions of commercial real estate loans from its current level of $250,000 to $400,000. The Agencies cite several comments they received during the regulatory review process under the Economic Growth and Regulatory Paperwork Reduction Act that requested raising the De Minimis level. For transactions under the proposed De Minimis threshold, the Rule would require institutions to obtain a valuation of the property consistent with safe and sound banking practices. The comment period for the rule ends September 29, 2017.

Read the Rule

Senate Agriculture Committee Covers Crop Insurance Commodity Programs 

Before starting its August recess the Senate Agriculture Committee held its first, and possibly, only hearing covering the commodity program and crop insurance titles of the farm bill. With the completion of the hearing, the Senate Agriculture Committee has now held hearings on eight of the twelve titles usually contained in the farm bill.

At slightly over 4 hours, the Senate Agriculture Committee heard from 17 different witnesses in three panels covering the commodity and crop insurance programs. Crop insurance received top billing in the hearing. At slightly over 4 hours, the Senate Agriculture Committee heard from 17 different witnesses in three panels covering the commodity and crop insurance programs. Crop insurance received top billing in the hearing.

Senate Majority Leader Mitch McConnell (R-KY) made a rare appearance during the hearing to introduce a witness from Kentucky (Mr. Mark Haney, President of the Kentucky Farm Bureau Federation). Senator Roberts took advantage of the Majority Leader’s attendance and asked him about providing floor time for the farm bill later this year. “The sooner the better,” Senator McConnell replied.

Read Witness Testimony

Senate Appropriations Committee Passes FY 2018 Ag Spending Bill

The Senate Appropriations Committee passed its version of the FY 2018 agriculture appropriations bill by a vote of 31 – 0 in July. Recall the House Appropriations Committee passed its version of the FY 2018 ag spending bill in early July.

None of the proposals to means test, cap premium subsidy or eliminate harvest price protection (HPO) subsidy were adopted in either House or Senate appropriations bill. The Senate FY 2018 bill also makes cotton seed eligible for PLC and ARC coverage starting with the 2018 crop year. Farmers who elect to enroll cotton base as cotton seed in ARC or PLC would not be eligible to purchase STAX coverage starting in crop year 2018. The Senate bill also makes changes to the Dairy Margin Protection Program effective September 1, 2018.

House and Senate in Recess, Farm Bill Listening Sessions in Full Swing

Both the House and Senate are in their August recess and won’t return to Washington until after Labor Day. The House Agriculture Committee is taking advantage of its time away from D.C. It has held three listening sessions since starting the recess. The first in San Angelo, Texas on July 31st, the second at Farmfest in Morgan, Minnesota on August 3rd and the most recent in Modesto, California on August 5th. Each listening session has been 2 or three hours long with the Committee taking statements from witnesses throughout each session.

Chairman Conaway has attend all of the listening sessions to date and most recently in California confirmed his desire to have the next farm bill on the House floor in the 4th quarter of this year or the 1st quarter of calendar year 2018.   There have been no surprises regarding crop insurance during the listening sessions so far. The next House Agriculture Committee listening session is scheduled for August 30 at the Farm Progress Show in Decatur, Illinois.

Not to be outdone, USDA Secretary Perdue has been traveling around the Midwest in a RV tour. So far, he has visited Wisconsin, Minnesota and Iowa. Today he will make several stops in Illinois before ending his tour in Indiana. Secretary Perdue stated: “The ‘Back to our Roots’ Farm Bill and rural prosperity RV listening tour will allow us to hear directly from people in agriculture across the country, as well as our consumers – they are the ones on the front lines of American agriculture and they know best what the current issues are.”

Watch the Sessions

FDIC Suggests Legislative Reform

On June 22nd, 2017, the chairman of the Federal Deposit Insurance Corporation, Martin Greunberg, testified in front of the Senate banking, housing, and urban affairs committee. Greunberg addressed several issues regarding the appraisal industry, including the possible increase of the De Minimis Threshold. Furthermore, Gruenberg expressed concerns about delays in receiving appraisals, especially in rural areas. In response to these concerns, Grunberg indicated that the FDIC supports legislative action that would create a new appraisal threshold exemption that would minimize the burden put on community banks. The proposed exemption would apply to insured depository institutions that originate a de Minimis number of residential mortgage loans greater than $250,000. Additionally, the aggregate amount of such transactions for each calendar year must not exceed 5% of the institutions total equity capital. Institutions meeting such criteria would not have to obtain appraisals for residential mortgage loans in rural counties for any transaction amount. The institution would be required to conduct evaluations for these transactions in accordance to outside guidance. Greunberg claims that the FIDC believes that such a legislative reform would alleviate some of the strain on community banks.

House Ag Leaders Looking For Broad Farm Bill Support

It’s no secret that the number of ag lawmakers in Congress is dwindling, which requires ag committee leadership in both chambers to look for ways to get more lawmakers on their side.

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U.S. Farmers Favor Little Change in Farm Programs

Don’t screw up what we already have. That’s the word from the agricultural field to elected representatives in Washington concerning farm bill talks and budget proposals.

On no subject does that advice apply more than on the issue of crop insurance.

President Trump’s proposed budget calls for $29 billion in cuts to the federal crop insurance program over the next 10 years, crippling the safety net many crop producers credit with keeping them in business through tough seasons.

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U.S. Cropland Prices Stable for Fourth Year Amid Ag Sector Slump

Farm income plummeted with the collapse of the commodity boom in 2013 yet cropland, usually a farmer’s biggest asset and the foundation of a farm’s financial health, is as valuable as ever, the USDA says. Producers are making enough money to pay their mortgages, aided in part by low interest rates on the loans, while the perennial hunger among farmers, ranchers, and investors to buy land is bolstering prices on the national level, although the Midwest and northern Plains feel the pain of lower commodity prices.

In its annual Land Values report, USDA estimated U.S. cropland is worth an average $4,090 an acre, unchanged from 2016 and 10% higher than in 2013, when farm income peaked. Net cash farm income, a measure of liquidity or the ability to pay bills, is forecast this year to be 70% of 2013’s level, but up a tick from last year.

Farm group leaders and their allies in Congress say the huge drop in net farm income, down by half since 2013, shows the need for a strong agricultural safety net in the 2018 farm bill. USDA says net farm income is a measure of wealth – the value of a farm operation, including crops held in storage for sale later.

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Want to Buy a Farm? Here’s Where Prices Are Rising and Falling

Ready to quit the city, buy a farm and live out your rural fantasy? Bargains can be found in South Dakota, but you better move quickly in California, which is getting pricey.

Average farmland values nationwide have risen 2.3 percent to $3,080 an acre so far in 2017, according to an annual report released Thursday by the U.S. Department of Agriculture. That gain, which erases last year’s decline of $10 an acre, is mostly due to increases in the value of buildings and land put into non-agricultural uses.

State-by-state, however, the picture is varied.

“What region you’re in and what commodities you produce matter,” said Dan Kowalski, director of research at CoBank, an agricultural lending cooperative based in Greenwood Village, Colorado.

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Hot, Dry American Summer Unlikely to Dent USDA’s Corn Harvest View

CHICAGO (Reuters) – The full impact of a hot and dry summer in the U.S. Midwest is unlikely to show up in the government’s next estimate of the U.S. corn crop as it typically makes just small adjustments to its harvest outlook during August.

The U.S. Agriculture Department will update its yield projection in its monthly supply and demand report on Aug. 10. The forecast will be closely watched as it will be the first harvest outlook for the 2017/18 marketing year that includes data from field surveys.

During the past 20 years, the USDA has cut its corn yield estimate nine times in the August report. The average cut in those years has been 4.6 percent.

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Report: China’s Foreign Food & Ag Acquisitions Set to Increase

After a series of high profile acquisitions and more likely on the way, China is poised to have a much larger footprint in the global food supply chain in the near future, according to a new report from Rabobank. The report highlights six acquisitions from the last six years that demonstrate China’s agricultural priorities and perhaps predict the role the world’s most populous country is seeking on the global agriculture stage.

The sense of urgency around feeding China’s 1.4 billion people has been leading to deals both private and public for the last several years. In April, Alex Zhang, cofounder and management partner of Beijing Hosen Investment Management (Hosen Capital), who has invested $300 million in food and agribusiness-related companies that are either located in China or are directly involved in meeting Chinese demand, told AgFunderNews, “The whole industry is modernizing at a speed we haven’t seen in Chinese food industry history, and if we follow a similar pattern to how the US food industry evolved in the past, we are now at the stage that we will see more and more sector consolidation. We will see more trade sales and large Chinese food companies will continue to go global,” said Zhang. “Our food industry will evolve in a similar fashion to our internet industry where four of the world’s top 10 companies are Chinese; we will probably see something similar in 10 years time in the food industry.”

The Rabobank report posits that China’s acquisitions are not simply meant to give the country more global superiority in terms of food production and ag-related holdings, but also to meet specific goals within the nation’s own food supply.

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Mike Morris, ARA, MAI Appointed to the Illinois Appraisal Board

ASFMRA would like to congratulate member Mike Morris,ARA, MAI on his appointment to the Illinois Appraisal Board. Mike was appointed by the governor last week.

New Accreditation

Please join us in congratulating member Jeff Barker, ARA on his new accreditation!

ASFMRA Members Attend 21st International Farm Management Congress

In early July 375 individuals attended the 21st International Farm Management Congress (IFMA) in Edinburgh, Scotland. Among the attendees were ASFMRA members Kirk Weih, AFM, Paul Marsh, AFM, ARA, Phil Eberle, Norbet Soltwedel, RPRA, Carroll Merry, Tyler Mark, Ph.D, and Dan Childs, AFM.

Tours of local agriculture were provided pre and post conference allowing attendees to see first-hand the work local producers were doing. Seeing their challenges and successes helped to create a more robust dialogue during seminars. The top 5 takeaways from the conference were:
1) Brexit is coming and no one knows what the actual impacts will be. The uncertainty has many UK farmers concerned for they are quiet reliant on subsidies and the EU is one of the largest consumers of UK products.
2) Technology is changing rapidly. Farm labor availability and immigration issues in the US is putting pressure on the agricultural system and driving innovation in the sector. While technology has made great strides in the sector there are still many legal hurdles that need to be cleared before they can fully be implemented.
3) Food safety and security continue to be hot topics. We toured a farm where the producer has added a farm store and restaurant onto his operation. Grocery representatives also discussed the possibilities of sourcing directly from producers.
4) Sustainability – clearly has a different meaning to everyone depending on where they are from. More certifications seem to be becoming available.
5) Succession planning is a problem across the globe. It was fascinating to learn about the decision process everyone goes through since different countries have different laws affecting how this can be done.

Overall, the conference was an enlightening experience that allowed attendees to network internationally. Learning what producers, researchers, farm managers, appraisers and consultants are doing worldwide provided new insight into the processes being used at home. The 22nd Annual IFMA Conference will be held in Tasmania, March 3-8 2019.

Membership Update

Comparing National membership numbers for June 2017 and July 2017 noticeable changes include the following – Accredited membership increased by 9 members (3 obtained their AFM, 6 obtained their ARA); Associate membership decreased by 8 members (5 new members, 6 terminated, 9 advanced to Accredited, 1 transferred to Associate from Student, 1 renewed that was previously terminated); and Student membership decreased by 4 members.

Chapters that increased their membership numbers from June 2017 and July 2017 include: Georgia by 1; Iowa by 2; Kansas by 1; North Carolina by 1; and Texas by 1.
Chapters that had a decline in their membership numbers from June 2017 and July 2017 include: California by 2; Mid-South by 2; Ohio by 1; Oklahoma by 1; and South Dakota by 1.

USDA Land Values 2017 Summary Report

The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,080 per acre for 2017, up $70 per acre (2.3 percent) from 2016 values. Regional changes in the average value of farm real estate ranged from a 8.7 percent increase in the Pacific region to 1.8 percent decrease in the Northern Plains region. The highest farm real estate values were in the Corn Belt region at $6,260 per acre. The Mountain region had the lowest farm real estate value at $1,130 per acre.

The United States cropland value remained unchanged at $4,090 per acre from the previous year. In the Southern Plains region, the average cropland value increased 6.0 percent from the previous year. However, in the Northern Plains region, cropland values decreased by 4.4 percent.

The United States pasture value increased by $20 per acre (1.5 percent) from 2016 values. The Delta region had the highest increase of 2.9 percent from 2016. The largest decrease, at 1.7 percent, was in the Corn Belt region.

Read the Full Report