The Next Generation of Farmland Prices
Farmland represents over 81% of farm sector assets and values stayed relatively static through the first half of 2019.
Farmland values are impacted by a myriad of factors beyond just demand and the overall agriculture economy.
David Klein, First Mid Ag Services vice president, managing broker and auctioneer, provided the seven issues affecting farmland values during First Mid Ag Services Field Day.
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Farm Succession Strategies: 8 Ways to Communicate Successfully
The struggling farm economy means that farm transfers from one generation to the next may be happening in a sped-up process, instead of over several years. Good communications is vital. Loss of communication leads to lack of trust and can eventually lead to devastating consequences. Here are eight tips from the University of Minnesota to follow when having those tough discussions:
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Determining Ag Land’s Value Is Daunting, but Important
Determining land’s agricultural value can be a daunting, frustrating process for property owners and farmers looking to rent land alike.
Typically, farmland rental rates are 2-3% of its current ag value, so an acre that’s worth $2,000 would be rented for about $50 per year.
But many other factors should be considered to ensure that agreements are fair and equitable.
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Farmer Sentiment on Trade, Overall Ag Economy Improves with Fall Harvest
The Ag Economy Barometer improved to a reading of 136 in October, up 15 points compared to September, which pushed the barometer back to the same level observed in October 2018.
The upswing in the ag economy sentiment index was driven by an improvement in ag producers’ assessments of both current and future economic conditions in agriculture. The Index of Current Conditions rose from 100 in September to 115 in October and the Index of Futures Expectations also rose 15 points to a reading of 146. The Ag Economy Barometer and related indices are based upon results from a nationwide telephone survey of 400 U.S. crop and livestock producers. This month’s survey was conducted from Oct. 14 to 22.
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Land Values Hold
Investors and consumers are feeling the effects of tariffs, and the buzz of a recession looms. Despite the uncertainty, investors can unearth opportunities below the surface, says Steve Bruere, president of the land brokerage and management firm, Peoples Company, Clive, Iowa. “Smart money in the investment market is shifting to American farmland,” he says.
As the U.S. economy has become unsettled by the trade war with China, investors have begun to move money from the stock market into the less risky bond market, specifically into long-term bonds. Over the past 20 years, long-term (10-year) government bonds have yielded returns from 1.5% to 6.66%, averaging 3.5%.
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RMA Extends Interest Accrual Deferral
The Risk Management Agency issued Manager Bulletin MGR 19-23.1 extending its previous deferral of any accrual of interest on unpaid crop insurance premiums with a premium billing date of August 15, 2019 until January 31, 2020 for the 2019 crop year only. For any premium that is not paid by the earliest of the applicable termination date or January 31, interest will accrue consistent with the terms of the policy. For example, without this change, policies with an August 15 premium billing date would have interest attach starting December 1 under the previous Manager’s Bulletin (MGR 19-23) if premium was not paid by November 30. However, under this change, policies with a premium billing date of August 15, 2019 that do not have the premium paid by January 31, 2020, will have interest attach on February 1, calculated from the date of the premium billing notice. Note this only applies to policies with a premium billing date of August 15, 2019.
Another Continuing Resolution Avoids Government Shutdown
The House and Senate passed another Continuing Resolution (CR) funding the government through December 20. President Trump signed the bill to avoid a government shutdown that otherwise would have started November 21. When Congress returns from the Thanksgiving Day recess there will be 12 legislative days remaining to enact either all 12 appropriation bills for FY2020 or another CR is approved to provide more time for completion of FY 2020 appropriation measures. There is currently no agreement on funding levels for each appropriations bill with border wall funding levels the reason for the hang-up.
Tranche 2 of 2019 MFP Payments Paid
U.S. Secretary of Agriculture Sonny Perdue announced the second tranche of 2019 Market Facilitation Program (MFP) payments will be paid. The payments began the week of November 18. The second tranche, at $3.625 billion is 25% of the total previously announced ($14.5 billion). Tranche 2 payments will be made to producers who previously applied for MFP. No action is required by producers if they have already applied.
Senate Democrats Critique Market Facilitation Payment Structure
Led by Senate Agriculture Committee Ranking Member Debbie Stabenow a number of Senate Democrats issued a report criticizing the structure of MFP. The primary complaints in the report are that the bulk of the top payment rates have gone to Southern farmers, who the report claims have been harmed less than other regions of the country by the trade tariffs. Further the report claims the large payment limits accompanying the MFP are primarily helping large farmers instead of small farmers and that the MFP does not help reestablish lost markets. You can read the report here.
House Agriculture Committee Chairman Collin Peterson (D-MN) has also raised issues with the MFP program (see last Weekly). In response, Secretary Perdue has stated he has no plans to change the MFP structure or payment limits.
FCA Chairman Glen Smith Testifies Before House Agriculture Subcommittee
Farm Credit Administration (FCA) Chairman Glen Smith told the House Agriculture Committee last week that the farm lending system is currently “safe and sound” but that officials are “very concerned and closely monitoring some weakening in credit quality.” Smith, a former IA ASFMRA Chapter President, and ASFMRA member, met with the ASFMRA Leadership Institute attendees earlier this year.
During the House hearing Smith said, “I think we’re at a level that’s comparable to the early ’80s,” citing economic trends including falling farm income, rising debt-to-asset ratios, and concerns about the value of farmland. “At that time in the Midwest, we’d lost 15-20 percent of our land values. Guess what? Today we’ve lost 15-20 percent of our land values in the Midwest.” You can read his written testimony and watch a replay of the hearing.
Navigating Multi-Generational Farm Management
Working with family can be the most rewarding part of the farm business, but it also has the potential to be one of the most challenging aspects, full of emotion, relationship evolution, and conflict.
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Creeping Concern in Farm Credit System
Multiple years of losses on the farm have stressed farm balance sheets, but have been slow to injure the farm credit system as a whole.
Glen Smith, CEO of the Farm Credit Administration, testified before the House Agriculture Committee this week that while the absolute number of farm bankruptcies is still small, there is concern in their growth.
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