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Peoples Company Ranked Among “America’s Best Brokerages” Specializing in Land

Peoples Company is pleased to announce that the editors of The Land Report, or “The Magazine of the American Landowner,” have listed our company as one of “America’s Best Brokerages,” sharing the results of their annual survey in the publication’s Summer 2014 issue.

Peoples Company Among America's Best BrokeragesThe Land Report recognized Peoples Company as a leading Midwest real estate brokerage specializing in land with 2013 sales in the $100-$200 million range, while pointing to “wow” factors such as the attraction of oil and energy entrepreneur T. Boone Pickens to our annual Land Investment Expo in West Des Moines, Iowa.

Two-thousand-and-fourteen marks the third time in three consecutive years that The Land Report has listed Peoples Company as a leader in agricultural real estate. Surveys published in both 2012 and 2013 ranked our brokerage firm among the “Top Auction Houses” in the nation, based on the total value of domestic land sales by auction. Last year, the magazine’s editors cited Peoples Company’s innovative use of YouTube to highlight auction videos for web-based audiences.

The Land Report magazine provides news, information, and insight into the nation’s land with a diverse focus on opportunities for investment in agricultural real estate – sharing stories from around the country as they relate to farming, conservation and recreation, among other uses, by American landowners.

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Federal Reserve Ag Letter Review and Reflection

The Chicago Federal Reserve released its first quarter summary of agricultural land values in the middle of last month.

This report covers Illinois, Indiana, Iowa, Michigan and Wisconsin, and is put together using information gathered from bankers in this district. The report showed prices holding nearly steady, but there seems to be a common idea among the group expecting land values to fall.

Results of the survey showed that agricultural land was up 1 percent in the first quarter of 2014, compared with the first quarter of last year. The survey also said that “good” farmland was down 1 percent when comparing first quarter of 2014 with the last quarter of 2013. Some other interesting things I took from the survey were that cash rents were down 2 percent in 2014 compared to 2013, and there was a downward trend on number of farms sold, number of acres sold, and amount of land for sale.

The lack of inventory seems to be helping hold farmland steady. The drop in cash rents was the first annual decrease since 1999. There was also talk about drop in rental rates being due to the sentiment that there would be lower profits in farming in 2014.

After reviewing the Federal Reserve Bank of Chicago’s report, I agree with many of their findings on a more local level. Just based on recent sales activity, it seems as if prices have hit a plateau and are holding steady. Very high quality cropland and pasture seem to be in high demand, too. And many pasture farms got converted to row crops when commodity prices were at record highs.

With the record-high beef prices and low corn prices, it seems as if you have a good pasture farm it is demanding a premium. As for the marginal ground that has been converted to cropland, prices on those farms seem to have fallen off. Recent sales on high quality tracts of land have been lucrative at $17,000-$20,000/acre in strong farming areas. The next few months will be interesting to see where commodity prices go. It should give us a better understanding of land prices in the short term.

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Land Investment Monthly – June 2014

The Land Investment Monthly is a round-up of articles and headlines published by the farm press, business media and financial publications with insights into buying, selling or investing in farmland, recreational ground or development ground. Follow Steve Bruere @SBruere on Twitter and find Peoples Company on Facebook for the latest land listings, auction results, upcoming events and real estate news. To subscribe to my monthly updates via email, send a message to Steve@PeoplesCompany.com with “Land Investment Monthly” in the subject line.

Reflecting Farm Profits
Farm producers – reaping positive consequences associated with the cost of commodities between 2006 to 2012 – are well positioned to weather a dip following the recent run up to $8 corn. DTN/The Progressive Farmer’s Marcia Zarley Taylor takes an in-depth look at the grain processing, storage and transportation infrastructures that have been beefed-up as a result of one of the most profitable periods in 100 years. Read more about Midwest states such as Iowa, which is “becoming an energy center and protein center with something that will have a long-lived effect on farm profitability.”
Read more.

Farm Bureau Fun
The Missouri Farm Bureau doesn’t mince words, or musical notes, in a video promoting its “Ditch the Rule” campaign with apparent frustration over the EPA’s proposed waters of the U.S. rules. The video – a parody of “Let It Go” from Disney’s Frozen – portrays a farm family spending quality time in a dry ditch on their property.

Ag Appreciation
The granddaughter of the late Norman Borlaug, a Nobel Peace Prize winner who founded the World Food Prize, suggests the agriculture industry would benefit by a retooled message that raises awareness of and appreciation for its role while welcoming candid conversations regarding the science of modern farming and GMOs. Julie Borlaug is associate director of external relations at the Borlaug Institute for International Agriculture at Texas A&M University. Brownfield Ag News reports.
Read more.

Half-Billion Dollar Plan
A plan that includes the addition of agricultural real estate to the more than $100 billion investment portfolio managed by the Washington State Investment Board is moving ahead with $400 million in commitments approved since November. Three managers are slated to invest in funds related to row-crop farms, the production of fruits and nuts, and an investment in permanent and vegetable crops. Another $150 million could be set for investment in grain storage and processing facilities as part of a forth fund that had been recommended to the board, and is aimed at the US Northern Plains and Canada. Editor Michael Fritz with the Farmland Intelligencer Blog reports on an overall $550 million commitment to the ag sector.
Read more.

Tenth Fed
The Federal Reserve Bank of Kansas City’s fourth quarter survey of Farmland Values and Agricultural Credit Conditions revealed a positive outlook for the Tenth Federal District through the end of the year, reports Farmland Forecast Editor Marc Schober for Investing.com. Despite a decrease in grain prices, farmland values increased year-to-year with a majority of bankers surveyed showing confidence that interest rates will hold steady in the second quarter. Land values are also expected to stay consistent throughout the remainder of 2014. The Tenth District consists of Colorado, Kansas, Nebraska, Oklahoma and Wyoming, as well as parts of New Mexico, and Missouri.
Read more.

Big Timber
The nation’s recovering housing market and strong demand from China is boosting the value of US timberland, which at the end March had posted a stronger annual return than at any time since the third quarter of 2008, according the National Council of Real Estate Investment Fiduciaries. Agrimoney.com reports.
Read more.

Living Legacy
The Daily Iowan explores the legacy of farm ownership, focusing on the importance of succession planning as its investigation turns up conversations with families working to decide who will carry on the work – and how transition of land ownership will be handled in years to come. The student-led newspaper reports that owners of nearly 80 percent of Iowa’s farmland are 55 or older, with eight in 10 owners planning to pass their agricultural real estate to family members.
Read more.

Endow Iowa
Peoples Company’s Ron Beach blogs about the Endow Iowa program, offering up for consideration an array of resources for those considering how to give in a way that is most advantages to a donor while – based on current resources and charitable interests – supports the causes that are most important to them. Appreciated securities, retirement assets, real estate and grain are listed as examples in his report on Endow Iowa tax credits, as administered through the state’s Community Foundations.
Read more.

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Endow Iowa Tax Credits: Great Way to Convert Farmland and Grain into Charitable Dollars

I recently took part in a focus group at the Community Foundation of Greater Des Moines with the topic of charitable gifting of farmland, and I learned much more than I contributed.

Community Foundations throughout the state of Iowa provide a tremendous opportunity for Iowans to create a perpetual legacy by supporting their chosen causes via personalized gifting strategies, and in return obtain significant tax benefits.

By working with a Community Foundation, you can be assured your expressed charitable interests will be maintained. Charitable gifts through your local Community Foundation can be made to any nonprofit of your choice, from schools and churches to health and human service organizations  – and all other areas of interest – gifts will impact those selected for support.

Iowa Community Foundations, including the Community Foundation of Greater Des Moines, provide exclusive access to the Endow Iowa Tax Credit program. Giving through the Endow Iowa program allows Iowa taxpayers the opportunity to receive a 25 percent Iowa tax credit, in addition to the normal federal income tax deduction, when making gifts to qualified endowments. This unique opportunity allows for even greater philanthropic impact by allowing donors to make meaningful gifts to the causes they care about, while creating a charitable legacy which will impact those served by the charities of their choice for generations.

A charitable gift is eligible for the 25 percent Endow Iowa Tax Credit when the gift is made:

  • Through a qualified community foundation
  • To a permanent endowment fund which limits distributions to 5%
  • For the benefit of one or more Iowa charitable causes
  • By individuals, businesses or financial institutions

Tax credits of 25 percent of the gifted amount are limited to $300,000 in tax credits per individual for a gift of $1.2 million. For couples, $600,000 in tax credits are available for a gift of $2.4 million if both are Iowa taxpayers. Endow Iowa Tax Credits are made available on a first-come/first-serve basis, so it is beneficial to work with your local Community Foundation early in the year to ensure you or your clients can take advantage of this opportunity.

Often when considering charitable contributions, traditional gifts of cash or appreciated securities are top of mind. The Endow Iowa Tax Credit program allows for consideration of a much wider variety of charitable assets to make a gift which is most advantageous for donors based upon current resources and charitable interests. A variety of gifts qualify for Endow Iowa Tax Credits including cash, appreciated securities, retirement assets, real estate and grain. This flexibility allows for the opportunity to give of currently held resources, and ensures the causes you or your clients love have sustainable support to continue their work for years to come.

Gifts of real estate or land provide a wonderful opportunity to turn a currently held asset into charitable support for the future. The transition of these resources into charitable assets can be made simple by working with the Community Foundation of Greater Des Moines to unearth the maximum deduction available for the gift. This gifting structure also allows donors to bypass capital gains tax on the gift. By making a gift of real estate or land, property gains translate into community impact, a rewarding return on investment.

Considering a gift of grain is another opportunity to make a lasting difference, and perhaps give more than otherwise thought possible to support causes in the community. By giving grain, sale of the grain is avoided in farm income. The avoidance of declaring the sale of grain as income is a significant benefit. The cost of growing the crops can be deducted which typically results in saving self-employment tax, federal income tax and state income tax. Benefits can be realized even if deductions are not itemized and the standard deduction is taken instead. As with gifts of real estate or land, Endow Iowa Tax Credits are available when making a gift of grain.

For information on how to contact Community Foundation of Greater Des Moines or making an Endow Iowa qualified gift, contact Ron Beach at Peoples Company at (712) 579-2587 or Ron@PeoplesCompany.com.

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NASS Ag Census Reveals Full Detail of 2012 Iowa Rankings, Values

A detailed census of 2012 agriculture released last week by the USDA’s National Agricultural Statistics Service (NASS) showed that the value of ag products sold by Iowa farmers totaled $30.8 billion for the year, an increase of 51 percent, or $10.4 billion, from 2007. Crop sales accounted for $17.4 billion of the total.

National Agriculture Statistics ServiceThe NASS said in a release that this information and other trends identified in Iowa agriculture will be used by farmers, ranchers, local officials, agribusiness, and commodity groups to guide decisions, as well as to evaluate and implement policies and educate consumers.

“The 2012 Census of Agriculture provides a wide range of demographic, economic, land, and crop and livestock production information as well as first-time or expanded data,” said Greg Thessen, an NASS regional director. “Many of these data about Iowa and our counties are only collected and reported as part of the every-five-year census.”

Iowa was ranked No. 2 in the nation for total value of agricultural products, crop sales and livestock sales in 2012 – up from the No. 3 spot for each of those items – compared with 2007. The amount of land operated by Iowa farmers declined by less than one percent between 2007 and 2012, with the average size of Iowa’s 88,637 farms coming in at 345 acres.

The largest value of ag sales were tied to farmers in Sioux, Lyon, and Kossuth counties with the latter in North Central Iowa ranking as the top corn-producing areas in the United States. The Census showed farmers spent a total of $23.7 billion on production expenses in 2012, an increase of 54 percent from the $15.4 billion in 2007.

“The Census of Ag is an extremely valuable snapshot of agriculture in Iowa and across the nation that helps tell the story of our state’s farmers,” said Iowa Secretary of Agriculture Bill Northey. “The results released today again show the tremendous economic impact of agriculture on our state’s economy and the importance of Iowa agriculture nationally. It also contains valuable information about the conservation practices used on farms, showing that farmers use no-till or conservation tillage on two-thirds of their crop acres.”

More information on the Census of Agriculture, including all final results from the 2012 report, can be found by visiting www.agcensus.usda.gov. To speak with a Peoples Company land professional regarding your Midwest land brokerage, land management or land investing needs, call Peoples Company at (855) 800-5263.

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Land Investment Monthly – May 2014

The Land Investment Monthly is a round-up of articles and headlines published by the farm press, business media and financial publications with insights into buying, selling or investing in farmland, recreational ground or development ground. Follow Steve Bruere @SBruere on Twitter and find Peoples Company on Facebook for the latest land listings, auction results, upcoming events and real estate news. To subscribe to my monthly updates via email, send a message toSteve@PeoplesCompany.com with “Land Investment Monthly” in the subject line.

Big Feed
How will world feed an estimated 9 billion people by 2050? A National Geographic article explores the topic and though the editors paint a somewhat negative view of commercial agriculture, it also sheds some light on the combination of both commercial farms and small farms to feed the world with expanding populations expected to require us to nearly double the amount of crops we grow. Read more.

Farm Business
The Des Moines Business Record features Peoples Company’s Mollie Aronowitz in a real estate article about regarding the services of a land management company and role women play in the ownership and management of Iowa farmland.
Read more.

Central Corridor
Members of Capital Crossroads, which lays out a multiyear vision plan for Central Iowa, unveiled that an area within an approximate 60-mile radius of Greater Des Moines has been dubbed the “Capital Corridor” with the intention branding the region to attract ag companies, bioscience companies and professionals to locate here. “We don’t want to just be a leader (in this industry), we want to be the leader,” says Brent Willett, the corridor’s executive director. Read more.

Certified Sites
The state of Iowa has unveiled four industrial sites that have achieved certification through the new Iowa Certified Site Program and as part of a collaborative effort prepare more project-ready industrial sites in the state. Applicants for the four sites – located in Fort Dodge, Iowa Falls, Dexter and Van Meter – were accepted following a rigorous application process and with developers working closely with local officials and utility partners to better market their sites with specific site-related data and information about the community. Peoples Company represents two of the certified sites in Van Meter and Dexter. Read more.

Survey Says
Low commodity prices, inadequate moisture and high input prices were among the biggest potential challenges faced by farm operators going into the 2014 planting season, according to an April survey of bank CEOs in a 10-state region as reported by Creighton University economist Ernie Goss. The Rural Mainstreet economy has moved above the 50.0 threshold for two straight months, and Goss says recent upticks in commodity prices should help boost the economy in the months ahead. Read more.

Chinese Dirt
Nearly one-fifth of it China’s arable land is polluted, according to a report released by the nation’s government and amid questions pertaining to rapid industrialization in the country. The New York Times reports that 16.1 percent of China’s soil is polluted, including 19.4 percent of farmland. Read more.

15-Year Dip
Rental rates for Iowa farmland fell this year for the first time since 1999, according to an annual survey by Iowa State University Extension and Outreach, which reported that estimated cash rents were down to $260, a nearly 4 percent decrease compared with last year. Read more.

China Sprawl
Conversations of sprawl continued in April with Dinny McMahon of the Wall Street Journal’s China Real Time reporting on the appetite of local governments for revenue generated from land sales in that country. Last year, local Chinese government officials sold more than 900,000 acres of land while the central government permitted more than 1.2 million acres of agricultural land to be approved for construction and industrial use. Read more.

Drone On
MIT explores the use of drones with sensors and imaging capabilities that some say give farmers an edge in reducing damage and increasing crop yields. Beyond better views of farmland, how does this trend of sensors and big data relate to precision ag?
Read more.

Peoples Perspective
An update on the 2014 Farm Bill, the announcement of the new Peoples Company website, and an article regarding the relationship among corn, credit and land values were each featured on our blog in April, including a guest post on the new CSR2 rating system by Randy Ripperger, Chief Deputy Assessor with Polk County, Iowa. Read more.

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2014 Farm Bill Presents Options for Tenants, Landowners with Changes in Some Categories

The 2014 Farm Bill provides options for tenants and landowners, who must agree on a farm-by-farm basis. Those options, once chosen, will be in force through the 2019 crop year. The 2014 Farm Bill also allows for updates to crop acreage bases and yields in some cases.

The 2014 Farm Bill continues with many of the provisions of past legislation when it comes to eligibility criteria, but with changes in many categories. An eligibility determination for most USDA programs requires a producer, sharing in the risk of growing a crop, to submit an eligibility form that provides FSA County Committees with an overview of the farming operation. The information then goes into detail with regards to the person(s) who supply management, labor, equipment and land for the farming operation.

To be deemed “Actively Engaged in Farming” and eligible to receive program benefits, the county committee will look at the contributions of each individual and entity applying for benefits, whether those contributions are at “risk” and whether those contributions are commensurate with the benefits requested. Actively Engaged in Farming requires a significant contribution of 1) Capital, Land, Equipment, or a combination of all three; AND 2) Active personal labor, active personal management, or a combination of the two; AND 3) those contributions must be at risk for a loss. One exemption still applies to landowners. Landowners are deemed eligible through their role as owner, however, their shares must still be “commensurate” with the risk of loss.

Commensurate is simply that the amount of those contributions must be the same as the requested share of benefits for that particular farm program (CRP, PLC, ARC and others). When the actively engaged determination is for an individual, it is fairly easy to determine whether the shares requested are commensurate and the individual is actively engaged.

The 2014 Farm Bill changes the way Entities, such as LLCs, Partnerships and Corporations, will be deemed “actively engaged.” Under new regulations, each partner, stockholder, or member must make a contribution of Active Personal Labor and/or Active Personal Management to the farming operation, and those contributions must be 1) performed on a regular basis, 2) identifiable and documented, and 3) separate and distinct from the contributions of any other partner, stockholder or member of the farming operation. The failure of any partner, stockholder or member to meet these requirements will result in a reduction of payments to the entity.

As regulations are released, it will be important for individuals and entities to stay up-to-date so the operation can make necessary adjustments to remain eligible for program benefits. In addition, there are a number of regulations that must also be reviewed and followed under the “Substantive Change” rule if the farming operation is going to request an increase in the number of persons eligible for benefits. Substantive Change requires 1) a 20 percent or more increase in the number of base acres; 2) that the transfer of land or equipment by sale or gift from a present member to a new member is commensurate; based on fair market value; is not financed by the former owner; or any agreements that allow the former owner to retain residual control or repurchase at a later date.

Payment eligibility, especially for entities, requires a great deal of focus and patience. The person in charge of working with USDA employees needs to understand that the regulations are there to benefit all, but at times seem to limit what is permissible. Changes can be made, sometimes requiring legal changes to an entity that will provide maximum benefits to the farming operation.

Just don’t expect USDA employees to offer any advice as to which changes can be made. They can only act on the information provided. It is the “person” requesting program benefits who must be in compliance with regulations.

Once the “actively engaged” and “person” determination is completed, that ‘person’ is subject to a payment limitation for each commodity program under the 2014 Act. This payment limit is an amount, by program, that the “person” is not to exceed. As an example, a ‘person’ who enrolls in ARC or PLC will not receive payments in excess of $125,000 annually. This amount includes combined benefits from PLC or ARC, Loan Deficiency Payments and Marketing Loan Gains. For the Conservation Reserve Program (CRP) the payment limit is $50,000 per “person” per fiscal year. Other programs have the same or different payment limits.

Using information that is currently available, all farming operations are encouraged to look at how the operation is setup, who is handling all of the day to day activities, who is at risk and which benefits will mostly likely be requested for the 2014 crop year. It may be next fall before signup is completed, so it is necessary that the farming operation be working in a manner that will meet eligibility requirements, since it will be very hard to go back and make changes after the fact.

-Terry Pauling

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Navigate the Land Market on the New Peoples Company Website

Peoples Company has revamped its online presence with the unveiling of a new, easy-to-navigate website that reflects our straight-forward approach to providing buyers, landowners and land investors with modern tools to help navigate today’s land market.

The re-launch of www.PeoplesCompany.com focuses on our core business of land brokerage, land Peoples Website Homepageauctions, land management and land investing, and coincides with our commitment to the employing the most innovative marketing practices in digital media and social networking.

The new website also features mobile-responsive design, optimizing the view and functionality for those surfing the Internet on tablets or smartphones.

Our real time communication efforts regarding news in the land industry include the publication of all new Peoples Company land listings, auction results and recent sales reported daily on Peoples Company’s social media sites. Since the beginning of March, Peoples Company has shared more than 50 Facebook status updates, dozens of Twitter posts and nearly a dozen blogs on everything from land values to cash rents and commodity prices, as well as the announcement of a new Peoples Company land agent and guest post covering the impact of CSR2 on land values.

Please take a moment to explore the new site, where you can also find easy access to our newsletters, agent bios and contact information, and a portal to sign up for monthly e-mail updates. 

Thank you for considering Peoples Company as your ag real estate company of choice. As always, we invite you to find, follow and otherwise interact with us on Facebook, Twitter and LinkedIn – streaming with our latest land listings, information about upcoming events, and access to breaking news.

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Corn, Credit and Land Values

During the past year, agricultural publications, websites and seminars have warned about an inevitable downturn in commodity prices and the impact on land values when a drop in net farm income is realized. As 2013 unfolded and land value surveys were published, they all reflected a significant deceleration from the rapid increase in land values that had been realized during the previous three years.

Each successive report showed value increases getting smaller and smaller to the point of calling the land market flat. The latest report published last week by the Iowa Realtors Land Institute showed a -5.4 percent average state wide decline (Sep 13-Mar 14) and an annual decline of -4.2 percent (Apr 13-Mar 14).

 

Farmland Values

Anecdotal observations support these published reports. As corn prices continued to slide throughout 2013, land sale results became more variable. The days of each successive sale setting a record came to an end. As corn prices traded in the low $4 range, buyer caution took hold with many sales having fewer and less aggressive bidders. In some cases, seller expectations were unmet and for the first time in several years “no sales” were happening. However, this has not been a consistent trend and many farms continue to sell in the upper ranges. And as corn prices have rebounded to $5, we have observed a corresponding rebound in buyer willingness to aggressively pursue good quality land that fits well into their operation.

A recent blog post by Andrew Zellmer published on this website summarized the magnitude of the drop in crop insurance guaranteed income between 2013 and 2014, and how that drop in income – if maintained over an extended period – could negatively impact farmland values. Scroll to that blog post to see how the drop in corn price from $5.65 in 2013 to $4.62 for 2014 could potentially impact land prices.

Bankers report drops in many of their customers’ net worth and working capital, due to 2012 crop inventory being sold at lower prices and the 2013 inventory being significantly below last year’s value. In addition, farmers are having a difficult time projecting net income levels that leave their bankers with a positive outlook. The following chart, “Beware of the Expense Tail” (Farrell Growth Group, LLC) sums up where many farmers find themselves going into 2014; in the “Lower/No Profits” zone.

 

Expense Trail

This part of the cycle will have significantly different impacts on farmers based on their financial position going into this phase, and how long it last. Two of the primary factors of comparison between the end of the land bull market in 1983 and today are 1) the leverage level of the farm sector and 2) the reaction to the changing economics by the farmers and their bankers. Today the farm sector as a whole has a debt-to-asset ratio of 10 percent, just half the leverage as in 1984.

However, the debt is more highly concentrated with 15 percent of the highest leveraged farms presently holding 50 percent of the total farm debt versus holding 30 percent in 1984. This means that 85 percent of farmers are in a position with little or no debt and able to not only handle a down cycle in net farm income, but will find opportunities during this period.  The 15 percent of highly leveraged farmers will have a difficult time adjusting. In fact, many are already under significant pressure.

During the past year there have been many articles about the “Wealth Effect” and how the response of farmers, and their bankers, to the Wealth Effect will be a major determinant in whether land values make a reasonable market adjustment or crash. Follow this link for a detailed reading about “The Wealth Effect in U.S. Agriculture” as published by the Federal Reserve Bank of Kansas City.

The Wealth Effect is created during prosperous periods with rising asset values, especially land. During these times, farmers spend more freely including more aggressively on capital items. When revenue declines the “wealth effect” leads farmers to borrow against their higher asset values to maintain this higher level of spending. This phenomenon is considered a significant factor in the farmland value collapse of the 1980s. So today, as farmers enter the “Lower/No Profits” phase, are they going to step up borrowing to maintain a higher level of spending?

Based on many recent conversations with farmers and bankers my conclusion is that both are being conservative and we are not experiencing “Wealth Effect” borrowing to any significant degree. I’m looking forward to seeing some additional Federal Reserve credit condition reports for verification. During the past two months, I have had several contacts from farmers wanting to sell land and lease it back as a method for shoring up their working capital position. This bit of anecdotal evidence leads me to believe fundamental adjustments are going to be made rather than simply borrowing against higher valued assets. This is a healthy sign and supportive of a stable/moderate adjusting land market versus a burst of today’s values.

The second half of 2013 and the beginning of 2014 have seen a stall in the farmland market price increases. It’s a “yellow light” situation. And I’m observing farmer’s reactions similar to any yellow light situation: some apply the brakes, some take their foot off the gas and coast through and others keep their foot on the gas and ignore it. I believe the long-term fundamentals for farmland ownership remain very strong.

Farmland that’s a good fit, meets your investment parameters and is part of a long-term strategy remains one of the best investments available.

Ron Beach is part of the Land Investment Programs division at Peoples Company where he works with farmers wanting a source of capital to purchase land they can then lease and with numerous capital sources wanting to invest in farmland. Ron may be reached at (712) 579-2587 or Ron@PeoplesCompany.com.

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CSR2 and Ag Use Adjustments: Impact in Polk County, Iowa

The new CSR2 rating program is intended to calculate a Corn Suitability Rating with more simplicity, consistency and clarity. Ag professionals have long relied on the original program to help negotiate cash rents, put a value on a parcel of farmland or other day-to-day activities. The following guest post by Polk County Chief Deputy Assessor Randy Ripperger explores the conversion of the CSR2 rating system and implementation of state-mandated adjustments for non-cropland.

The Polk County Assessor revalued all agricultural classed property for the 2014 assessment. This revaluation was the result of two changes in the assessment formula:  1) implementing the new CSR2 soil rating system and 2) using the new formula for making adjustments to the productivity values of certain agricultural lands as mandated by changes in the Iowa Administrative Code 701-71.3.

History

In Iowa, assessments on agricultural property are based on the productivity and net earning capacity of the property.  Assessors use the results of a modern soil survey in conjunction with the Corn Suitability Rating (CSR) system to spread the valuation among individual parcels of such agricultural property. The CSR system was first introduced in 1971 as a soil productivity rating system designed for equitable taxation. As a result of advances in soil science, CSR2 was released in 2013. The new CSR2 system is similar to the original CSR system, but has some differences. CSR2 primarily uses more of a data-driven model as compared to the original CSR system which used a judgment and experience-based system.

The Agricultural Adjustment Committee was formed in 2011 at the direction of Governor Terry Branstad, and consisted of representatives from across the state. Its purpose was to review practices for making adjustments to the assessed productivity values of certain agricultural lands to provide more consistency statewide for the assessments of  non-tillable lands. The Ag Adjustment Committee came about because of a growing public awareness that some county assessors were making adjustments to various non-tillable lands, while others did not. Committee members made a recommendation that was enacted by the Iowa legislature in July of last year (see Iowa Administrative Code 701-71.3).

The new rule requires assessors to adjust non-cropland acres and also requires assessors to implement the adjustments for their entire jurisdiction by the 2017 assessment, or the 2019 assessment in the case of a hardship. Some counties, including Polk, implemented this new adjustment formula for 2014.

Impact in Polk County

CSR 2 ImpactThe change in the total aggregate rating points across Polk County from CSR to CSR2 increased slightly, about +0.36%.  This is comparable to the statewide average, which was +0.3%. The mean average change in the total rating points per parcel was +0.32%, while median average change was +0.93%. These numbers would directly correspond to changes in the assessed value attributable to implementing the new CSR2 rating system. The chart to the left shows the relation between the two rating systems, with the points representing the total CSR and CSR2 rating points for each parcel in Polk County.

Polk County was one of 44 counties in the state that developed adjustments for land use prior to the 2014 assessment; 50 counties did not. These adjustments, in general, were more generous than the newly mandated adjustment scheme and will no longer be used. Under the new system, adjustments will be made for any non-cropland with a CSR2 that is greater than 50 percent of the average CSR2 for cropland in the county. And the adjustment will be based upon the five-year average difference in cash rent between non-irrigated cropland and pasture as published by the National Agricultural Statistics Service. Here’s an example of the calculation for Polk County.

 

Average county CSR2 rating for cropland: 82 CSR2

50% of average cropland CSR2: 41 CSR2

Example of non-cropland soil 11b CSR2 rating: 79 CSR2

Non-cropland CSR2 points to be adjusted: 79 − 41 = 38 points

5-year average rent for non-irrigated cropland: $183.60

5-year average rent for pasture land: $39.10

Percent difference (rounded): $39.1/$183.60 = 21%

Percent difference times points to be adjusted: 38 points * 21% = 7.98 adjusted points

Adjusted CSR2 non-cropland: 41 + 7.98 = 48.98 adjusted CSR2 points

There are four categories of land use: cropland, building lot, non-cropland, and water; adjustments are made for building lot, non-cropland, and water uses.

Implementing both the CSR2 rating system and the new adjustment formula, the total aggregate adjusted rating points across theCSR 2 Impact county increased by 5.5%. The mean average change in the total adjusted rating points per parcel was +11.0%, while median average change was +3.5%. The chart on the right shows the relation between the CSR/old adjustment scheme and the CSR2/new adjustment scheme on a parcel basis.

These changes correspond directly to changes in the assessed value attributable to both changes. However, in order to keep the same productivity value per acre as the five-year study conducted for the 2013 assessment ($1,629.14), the dollar per CSR point had to be adjusted from $20.88 per point down to $19.71 per point. In the end, of the 5,715 ag parcels in Polk County, 2,226 saw a land value increase, 3,228 saw a land value decrease, and 261 saw no change. The median percent change was -2.3%.

Single Parcel Comparison

A new feature on the Polk County Assessor’s website launched at the end of March shows actual calculations, including land use adjustments, made for the 2014 agricultural land value. It’s much more detailed than the information that was previously on the site and includes:

  • A soil map of the property
  • A CSR use summary (broken down by crop land and non-crop land)
  • A breakdown by CSR soils

You can also review how the land was valued last year using the CSR rating system with the “old” adjustments by clicking on the “2013 CSR Report” link located above the soil map.

Any questions, you can call (515) 286-3014, fax (515) 286-3386, or email polkweb@assess.co.polk.ia.us.

Randy Ripperger
Chief Deputy Assessor
Polk County, Iowa

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