Cash Rental Rates and Land Values

1. Cash Rental Rates and Land Values Where from Here? Craig Chase, Field Specialist Farm & Ag Business Management

7. Determining Cash Rental Rates(Pct of Land Values) Land value $4,000 % return 5% Rental rate $ 200/acre

8. 2006 Land Values by CSR Point

9. Determining Cash Rental Rates(Dollars per CSR) CSR 85 Rent/CSR point $1.95 Rental rate $ 166/acre

10. Determining Cash Rental Rates(Dollars per corn yield) Avg. corn yield 170 Rent/bushel $1.05 Rental rate $ 179/acre

11. Determining Cash Rental Rates(Percent of Gross - Corn) Avg. corn yield 170 Price/bushel $3.50 Gross income $ 680/acre % of gross 35% Rental rate $ 238/acre

12. Determining Cash Rental Rates(Summary) Percent of land value $200/acre Dollars/CSR $166/acre Dollars/corn yield $179/acre Percent of gross $238/acre

13. Lease Arrangements Because of grain market uncertainty, may want to look at some type of flexible lease. Be aware that flexible leases, however, are considered share-crop leases by FSA.

14. What’s Causing the Rise in Land Prices?

21. Factors to Watch • The bioeconomy, especially corn based ethanol • The government programs, new farm bill will be debated in the coming year; 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

22. 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

23. 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 • Are we setting ourselves up for another fall or is this a new plateau?

24. Conclusions • Iowa agriculture is undergoing some fundamental changes; the actions and reactions in the corn market, other commodity markets (including livestock) and export market will all be impacted • Price volatility will increase as energy prices increase in importance

25. Choosing Crop Insurance for 2007 William Edwards, ISU Extension Economist William EdwardsIowa State University

26. Indemnity Prices: Corn 20072006 • APH, GRP $3.50 $1.95 • CRC,RA,GRIP $4.00? $2.59 • FSA loan rate $1.90 $1.90 • CCP trigger $2.35 $2.35

27. Indemnity Prices: Soybeans 20072006 • APH,GRP $7.00 $5.15 • CRC,RA,GRIP $8.00? $6.18 • FSA loan rate $4.93 $4.93 • CCP trigger $5.36 $5.36

28. Revenue versus Yield Insurance • Revenue insurance is advantageous when indemnity prices are “high” • When indemnity prices are low, yield insurance plus USDA payments give about the same protection for less premium dollars. • Revenue ins. + LDP = double dip

29. What is Your Marketing Pattern? • If you price before harvest: • use CRC or RA-HPO to guarantee bushels • If you only price after harvest: • use standard RA or APH (lower premium)

30. What is Your Feed Balance? Feed deficit (must buy feed if short) • Buy CRC or Harvest Price RAto insure replacement bushels

31. GRIP (Group Revenue Ins.) • Based on county yields, not farm • Now available with harvest price option as well as standard price • Indemnity prices were high in 2004, not so high in 2005 or 2006 • Same indemnity price as RA, CRC • May show a “profit” in the long run

32. Group Insurance may be appropriate When: • Individual yields closely track county yields • No production history is available or APH is low • Can stand more risk • Indemnity prices are “high” (a price decline affects everyone equally, unlike a yield loss)

33. Bremer Co. Premiums 2007(150 bu. corn, basic units)

34. Bremer County Premiums 2007(46 bu. soybeans, basic units)

35. Crop Insurance Premium Calculator University of Illinois Extension http://www.farmdoc.uiuc.edu/cropins

36. How Many $ to Insure? • Consider cash flow needs • Seed, fertilizer, pesticides • Machinery and hired labor • Land rent or payments • Debt payments • Family living • Subtract your “deductible”

37. Higher Proven Yields for 2007 Drop 1996 yields, add 2006. CornSoybeans 1996 138 bu. 44 bu. 2006 166 bu.50 bu. APH yield +2.8bu. +0.6bu. (Iowa average yields)

38. Higher Guarantees Available! Corn example 2006: 148 bu. x $2.59 x 75% = $287 2007: 151 bu. x $4.00 x 75% = $453 Soybeans example 2006: 45 bu. x $6.18 x 75% = $209 2007: 46 bu. x $8.00 x 75% = $276 Lower the % guarantee to get the same $ coverage and similar premiums as last year.

39. Warning! • Revenue Insurance guarantees are based on futures prices. • Deduct basis to estimate your actual guaranteed dollars. • Your protection level is affected by basis risk.

40. What Units to Choose? $ • Optional Units: Each farm is separate • Basic Units: Combine owned and cash rented acres in same county • Enterprise Units: Combine all acres of the same crop in same co. • Whole Farm: Combine corn and beans

41. Insurance Units • Generally, the more acres you combine into one unit, the lower the cost per acre. • Probability of collecting a payment is lower, too.

42. Important Points for 2007 • Proven yields for both corn and soybeans may increase. • Indemnity prices will be much higher. More downward price risk. • $ Coverage levels will be higher. • Premiums will be higher. • Use some form of revenue insurance to guarantee higher gross revenues. • GRIP may work for some people.

43. Crop Ins. Pubs / Ag Decision Makerwww.extension.iastate.edu/agdm/ • FM 1826 – Multiple Peril Crop Insurance • FM 1850 – Group Risk Plan and Group Risk Income Protection • FM 1852 – Catastrophic Crop Insurance • FM-1850 -- Group Risk Plan and Group Risk Income Protection • FM 1854 – Managing Risk with Crop Insurance • FM 1858 – Important Dates for Multiple Peril Crop Insurance • FM 1859 – Delayed and Prevented Planting Provisions for Multiple Peril Crop Insurance • FM 1860 – Actual Production History and Insurance Units for Multiple Peril Crop Insurance