Oil and energy entrepreneur T. Boone Pickens shares with Neil Cavutoa of Fox Business News a global outlook on production, inventories and oil prices heading into 2015.
THE PEOPLES PERSPECTIVE
Ken Root is a veteran ag broadcaster who has travelled to 50 countries. He’s reported over the past 30 years on agriculture in Asia, Eastern and Western Europe, South America, Iraq and – now – Sub-Saharan Africa. In October, Root filed reports from that continent as part of an expedition underwritten by Peoples Company and to get a close up the potential for agriculture in three countries: South Africa, Mozambique and Zambia. Today, he and Peoples Company President Steve Bruere are planning to host a 10-day excursion with ag-minded vacationers interested in touring farms – and taking in the wonders of African culture and safari – in March 2015.
I am quite excited to go back to Southern Africa during the peak of their growing season. I viewed the landscape and visited the farming regions in October when the fields were ready to be planted.
The farmers invited us to come back in March when their crops are nearing maturity.Keep in mind that Africa is a very large continent. We will be touring the most developed regions that have some of the most beautiful cities and scenery in the world. The roads are good and the air travel is equivalent to ours or better.
Yes, they drive on the other side of the road, but you will become accustomed to the visual picture in a short time. Farmers are of European heritage and speak English very well. They also speak Afrikaans and one or two more tribal languages.For those who are concerned about tropical diseases, the region where we will be traveling is far removed from the problems in West Africa (South Africa is over 3,000 miles from Liberia).
Zambia requires a Yellow Fever vaccination, but that is the only shot required. The local people use mosquito repellent and sleep under mosquito nets in the rural areas as their only precaution.You may get a prescription for a daily tablet to repel malaria, but that is not required.Johannesburg has a latitude similar to San Diego and is warm and dry most of the time. CapeTown is green and beautiful with a more temperate climate. Zambia is hot, but Victoria Falls and the farming region are worth the trip.
We will also see a lot of wildlife on the ZambeziRiver and in Chobe National Park where we will have a safe, yet thrilling, chance to see species we’ve only observed in zoos.In working with Koos DeKlerk and Susan Payne from EmVest Investments, our goal is to show you the agricultural regions of Southern Africa from the perspective of high-yield farmers. We will also see interaction between cultures and the social structure of the countries. Africa has changed a great deal since the 1990s, and is forecast to go through more change in this century than any other continent.
After 400 years as a backwater, there is now an opportunity for all people to thrive in this new environment and support a higher standard of living for a growing population.Africa needs investment and western expertise. Governments are opening up land for development and providing incentives and safeguards for foreign investors.I hope you will join us.
I’ve led tour groups for almost 40 years and am eager to be part of the vanguard of Americans who participate in economically and socially responsible development of this last frontier.
Reservations are now being accepted for this once in a lifetime trip to Sub-Saharan Africa. View the entire 10-day itinerary and reserve your spot today. Those interested in attending can contact Joan Cook for more information on pricing and availability or by phone at (815) 432-6121.
Upcoming Land Investment Expo speaker Dennis Gartman, editor of The Gartman Letter, comments on the uncomfortable position of the Russian economy in light of a “collapsing” rouble. His remarks on CNBC include predictions of political turmoil – given an “unsmart” of Vladimir Putin – as well as a Russian rouble that Gartman said was moving quickly toward 70 to the dollar. “In the world of foreign exchange, a 5-percent move in foreign exchange in the course of a year is a big move,” he said. “Here we’ve moved 30 percent in the course of four months.” Click below to watch the video, here to read more about Mr. Gartman, or here register to hear from him live at the Land Expo in January 2015.
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. Subscribe to my monthly updates or request access to a hard copy of my Land Investor newsletter by sending an email to Steve@PeoplesCompany.com and including “Land Investment Monthly” in the subject line.
Real Estate Magnate Donald J. Trump will headline 2015 Land Investment Expo, January 23, 2015, at the Sheraton West Des Moines Hotel. Farm producers and agricultural real estate professionals will hear from one of the best known real estate entrepreneurs on earth. Register here. Mr. Trump, as been called the archetypal businessman and a dealmaker without peer. He is expected to remark on his personal experiences in the real estate industry, the current state of the real estate market, and how to get ahead of the competition. Mr. Trump is chairman and president of The Trump Organization, New York, which bills itself as “the world’s only global luxury real estate super-brand.” His many books include the best-selling business book of all time, “The Art of the Deal,” “Trump: The Best Real Estate Advice I Ever Received,” and a string of instructive best-selling titles such as, “How to Get Rich,” “The Way to the Top,” and “Think Like a Billionaire.”
A guest post with presentation slides by Paul Neiffer of CliftonLarsonAllen LLP reflects the CPA’s perspective on choices surrounding the new farm bill. Neiffer, who spoke in front of a full house at Peoples Company’s “Big Questions” seminar on November 3, said “What should I do?” is typically among the first questions he is asked on the subject.
Farmland Investment Center reported that a deal to purchase seven farms totaling 6,819 acres in South Carolina has been struck by Farmland Partners Inc., according to the Farmland Investment Center. Farmland Partners entered into an agreement to pay $28 million for the row crops farms, intending to lever the purchase with debt representing approximately 60 percent of the purchase price and sign multi-year leases with the seller and other third-party tenants. Eight purchase agreements to acquire farms in Colorado, Arkansas and Nebraska for about $18 million in cash were also announced.
The addition of no fewer than 4,500 acres of farmland in an unincorporated Florida community were recently added to the real estate investment empire of legendary tech entrepreneur and Microsoft founder Bill Gates. Cascade Investments, the overseer of the Gates family fortune, is reportedly getting into agriculture and now owns more than 100,000 acres of farmland in multiple states. Gates’ net worth has been estimated by Forbes magazine at $80 billion, making him the richest man in the world.
Government bonds have returned $1 trillion in the form of price gains and interest for investors in the past six years, debunking the “fed naysayers” who have denounced Federal Reserve monetary policy since the financial crisis. Bloomberg reported in September on the resilience and performance of interest-bearing U.S. Treasuries, “a rebuke to the chorus of skeptics.” Buying and holding longer-dated U.S. bonds have this year alone rallied 14.2 percent, and beat the 10.2 percent return for the Standard & Poor’s 500 Index of American stocks.
The positive fundamentals of farmland are attracting lots of attention from Wall Street, and the market is showing signs of resilience even as commodities prices have leveled off. Jeff Caldwell with Successful Farming magazine published my remarks and the comments of Peoples Company’s Ron Beach in an article about rising investor interest in a highly productive asset class.
Long-time Peoples Company client Scott Oakes contrasts the farmland market of the 1980s with variables of today, including continued low interest rates, corn prices that are nearly double that of 1988, and the fact that China is no longer competing with us for corn exports. “These are the main reasons that I am confident in saying, ‘This isn’t your father’s land market.’
CLIVE, Iowa – Farm producers and agricultural real estate professionals will hear from one of the best known real estate entrepreneurs on earth, Donald J. Trump, at the 2015 Land Investment Expo on January 23, at the Sheraton West Des Moines Hotel.
Called the archetypal businessman and a dealmaker without peer, Mr. Trump is expected to remark on his personal experiences in the real estate industry, the current state of the real estate market, and how to get ahead of the competition. Mr. Trump is chairman and president of The Trump Organization, New York, which bills itself as “the world’s only global luxury real estate super-brand.” His many books include the best-selling business book of all time, “The Art of the Deal”; “Trump: The Best Real Estate Advice I Ever Received” (2006); as well as a string of instructive best-selling titles such as, “How to Get Rich,” “The Way to the Top,” and “Think Like a Billionaire.”
Mr. Trump’s featured speaking platform at the Land Expo follows the 2014 engagement of T. Boone Pickens, who turned a $2,500 investment into the nation’s largest independent oil company. Correspondingly, Mr. Trump – whose first real estate deals were in middle-class rental housing in Brooklyn, Queens and Staten Island – in 2013 received the T. Boone Pickens Award for entrepreneurial excellence and business leadership from The American Spectator magazine, which described him as an American original.
Presented by real estate firm Peoples Company, the Land Investment Expo is a daylong event that each January attracts the brightest minds in land investing and farm real estate to Central Iowa. Hundreds of bankers, farmers, real estate agents, investors and developers are expected to attend expert educational sessions, visit trade exhibitors, and interact with fellow producers and professionals on-site.
Besides Mr. Trump, whose name is synonymous with prestigious addresses in New York and around the world, programming at the eighth annual Land Investment Expo will look as far afield as sub-Saharan Africa for budding opportunities in real estate. A delegation of Iowans recently back from South Africa, Zambia and Mozambique will reunite for an appraisal with their host, EmVest Agricultural Corp. CEO Susan Payne, who runs a “turf to table” operation in Africa for the diversified agricultural investment company.
Ms. Payne is a repeat Land Expo speaker whose initial, 2011 discussion of the role of agriculture in global food security was followed by a 2013 presentation of her views on untapped investment opportunities in Africa, including emerging farmland markets. This year she will be joined by a crew of “agri-tourists” from the agricultural heartland of the U.S.: noted ag journalist Ken Root, economic analyst Maurice Clark and videographer Michael McClean.
Other expert speakers confirmed for the 2015 Land Investment Expo include:
• Dennis Gartman, an influential investor who closely follows commodities and capital markets as editor and publisher of The Gartman Letter and is a frequent contributor on CNBC and Bloomberg TV;
• Eric O’Keefe, editor of The Land Report, the magazine of the American landowner;
• Simon Atkins, M.B.A., Ph.D., D.Sc., climate risk economist, commodity yield expert and CEO of Advanced Forecasting Corp. of Billings, Montana; and
• Edmond Seifried, Ph.D., executive consultant and chief economist for the Sheshunoff CEO Affiliation Programs, Austin, Texas, high performance education and idea exchanges for community bank CEOs, lenders and technology/operations officers.
Peoples Company President Steve Bruere, the originator of the Land Investment Expo who secures compelling guest speakers each year, said Mr. Trump is a good fit for the top of the 2015 lineup. “With so many superlatives to his name – including the tallest residence in the world right here in the Midwest, the Trump International Hotel & Tower/Chicago – Donald Trump is a true legend in the real estate industry,” Mr. Bruere said.
“He’s been credited with entire market shifts like creating a condominium boom in New York City, and his multiple development projects there had a positive impact in the midst of an economic downturn. He’s a founding member of The Wharton School Real Estate Center at the University of Pennsylvania, which is a leading center of real estate education and research. And of course he’s well-known for his outspoken nature, so we look forward to hearing what he has to say to fellow investors here in Iowa.”
Find more information about or register to attend the 2015 Land Investment Expo at www.LandInvestmentExpo.com, or by phoning 855-800-LAND (5263).
A guest post by Paul Neiffer, CPA, of CliftonLarsonAllen, LLP, on choices surrounding the new farm bill.
I had the privilege of speaking in front of a full house for Peoples Company on Monday November 3, 2014, on the new farm bill. I have given many seminars on the new farm bill this year and one of the key questions that is always asked is, “What should I do?”
I believe I answered that question in the seminar and for most Midwest corn and soybean farmers; that answer is “You should elect ARC and not PLC.” Now that may be different for certain farmers, but in general, I believe this is correct answer.
I have updated the slides to reflect changes since the November 3 seminar, and these slides contain additional information that I did not have time to present at that seminar.
If you need professional help on getting your answer to “What should I do?” our firm is providing a Farm Bill Analysis service for a flat fee of $475. This analysis will answer the following questions:
- Should I reallocate my base acres?
- Should I update my payment yields?
- Which program should I select among PLC, ARC-CO and ARC-IC, and why?
If you are interested in this analysis, please send me an email to Paul.Neiffer@CLAconnect.com.
There has been a lot of chatter in the past few months regarding rental rates for 2015.Corn and bean prices are significantly down from the record-high prices we saw of the past few years. But as a landowner, how do you know how low prices will really go in 2015? We want to be fair to the farm operator and adjust leases if the market indicates it is necessary.
But we also don’t have a crystal ball to see the future – we do not want to leave money on the table.
As we look at the numbers for 2015, let’s first consider the farm operator’s cost of production. Research from Iowa State University Extension shows us that cost of production (seed, chemicals, fertilizer, storage, drying, et cetera) increased as prices increased over the past several years. Between 2007 and 2014, the cost of corn production increased by $300 per acre and cost of bean production increased by $200 per acre. And while we may see a slight decrease in cost of production, it won’t decrease at the same rate as corn and bean prices.
|Year||Corn $/acre||Soybeans $/acre|
Knowing that cost of production will play a significant role in the farm operator’s bottom line for 2015, let’s do some quick back of the envelope math for 2015.
For the following charts, we are going to:
- Calculate GROSS REVENUE PER ACRE by multiplying bushels per acre times price
- Subtract EXPENSE PER ACRE
This number will be a projection of the cost of seed, fertilizer, chemicals, crop insurance, drying, storage and interest. Costs were estimated by checking local elevator prices.
- Subtract 65% ISU’S CUSTOM MACHINE COST AND DELIVERY CHARGE.
This number takes into account machine cost and harvest delivery charge. For this number, we’ll use 65 percent of ISU’s Custom Machine Cost ($125 per acre) as an estimate of the operator’s out of pocket expenses for labor and machinery, plus $0.10 per bushel harvest delivery charge.
- GROSS LESS VARIABLE COSTS is the available cash for landowner and farm operator to share at the end of the day.
Gross Less Variable Costs will an estimate of the cash available to pay cash rent and operator return. This is the money left in the pot at the end of the day for landowner income (in the form of rent) and farm operator income.
|Gross Revenue per Acre (bushels per acre x price)
- Expense per Acre
- 65% ISU Custom Machine Cost and Delivery Charge
= Gross Less Variable Costs
Let’s calculate the cash available for a low, average and high-yielding farm. For this exercise, we will assume corn prices for October 2015 delivery of $3.50 for corn and $9.30 for beans.
Remember, I did not include rent into either expense column so rent due to the landowner still needs to come out of the far right column (Gross Less Variable Costs). These numbers certainly do not paint a pretty picture.
I was curious to know how these numbers lined up with rent rates I have in place for the 2015 growing season. I tallied up the farms I manage in Warren County, Iowa, with the leases in place for 2015 and averaged rent/acre. The average rent per acre on my Warren County farms is $247 per acre and CSR2 is 70. If we plugged $247 rent/acre into our equation, how would the farm operator end up?
|Bushels per Acre||170||50|
|- Expense per Acre||$331.11||$175.91|
|- 65% ISU Custom Machine Cost||$86.00||$86.00|
|= Gross Less Variable Costs||$177.89||$203.09|
|- Rent per Acre||$247.00||$247.00|
|= Farm Operator’s Share||-$69.11||-$43.91|
Using $3.50 corn, the farm operator will lose $69.11 an acre and the farm operator will lose $43.91 an acre with $9.30 beans.
How much to corn and bean prices have to rise for the farm operator to make $50 an acre?
|Bushels per Acre||170||50|
|- Expense per Acre||$331.11||$175.91|
|- 65% ISU Custom Machine Cost||$86.00||$86.00|
|= Gross Less Variable Costs||$297.00||$297.00|
|- Rent per Acre||$247.00||$247.00|
|= Farm Operator’s Share||$50.00||$50.00|
Using the same rent of $247/acre, the farm operator would need to see corn at $4.20 and beans at $11.18 to make $50 an acre. Only a 70-cent increase in corn prices to get the farm operator out of the red. A slightly larger increase ($1.88) in bean prices is needed to get the farm operator out of the red.
If corn and bean prices remain as low or dip farther, will we see 2015 rent rates decrease as significant as my simple math calculations may warrant? I don’t think so. Farm operators still have an appetite to retain and rent additional lease acres. I had very few lease terminations by the farm operator this past August and receive calls weekly from farm operators looking for new acres to rent.
In fact, in northwest Iowa I recently requested bids for an average yielding farm with 300 acres. I received bids with a $177 range from the lowest to highest bid and the highest bidder was $25/acre higher than how much the farm rented last year! And if we plugged these rent rates into our equation, almost all of the bidders were offering a rent rate that put him in the red next fall. While not as significant of a range, I’m seeing the same aggressive bids in the farm bids received for southern Iowa farms.
Considering our quick math, how should the landowner respond? I have really played both sides of the coin here and have not given a definitive answer either way of staying strong at current prices or reducing for 2015. At this point, I think it is more important for us to realize that rental rates for 2015 are still across the board and not in line with the market. And I foresee many landowners will get by next year without a rent adjustment as many farm operators will hope for prices to increase and smart marketing with the 2015 crop.
If you are in the position of renegotiating your lease for 2015 and getting pushed to reduce rent, there are still opportunities to maintain the income you have become accustomed to in the past few years. This isn’t a promise – but potential.
- A FLEX LEASE sets a base rent with a bonus structure that takes into account market volatility. If there is a bump in the market or the farm yields high numbers, the landowner gets to share in the increased revenue. This lease structure takes some of the uncertainty out of the picture for the landowner as there are still so many unknowns as what the 2015 year will bring.
- CUSTOM FARMING is a good option if you have an appetite to take on some of the risk of farming. In this scenario, the landowner pays all of the crop expenses; hires a local operator to plant and harvest the crop for a flat fee per acre; and receives all of the crop revenue. This may sound contradictory to our discussion as we have shown a financial loss for 2015. But if we do see increased prices and/or yield the landowner will be all to gain.
- IOWA BEGINNING FARMER TAX CREDIT allows landowners to earn tax credits for leasing their land to beginning farmers. Administered by the Iowa Finance Authority, landowners can receive a 7 percent tax credit for cash rent leases, 17 percent tax credit for crop share leases, and additional credit available if the beginning farmer is a veteran.
No one knows where yields and prices will end up next year. And to add another layer of complexity, we are still learning how the new Farm Bill payments will affect the bottom line. In general, we know PLC and ARC payments will be significant this year and next so landowners and farm operators should take that into consideration. Running through October 2015 price projections is simply a good exercise to better understand current volatility and prepare us for potential lease negotiations moving forward.
Peoples Company land managers are well equipped to discuss the options landowners have for the 2015 growing season. Pending on the landowner’s request, we can simply provide a lease analysis laying out the landowner’s options; negotiate a 2015 with a farm operator; or provide full land management services including accounting and production reports.
For more information, please contact Peoples Company today.
If you have been reading the popular farm magazines over the past six months, you no doubt have been introduced to the possibility, if not the impending danger, of seeing the Midwest slip into another farm depression.
While it is true that the price of corn has slipped $1.35 – average October futures price –from a year ago, there are several important factors that differ from the depressed commodity and land market of the 1980s. The Iowa farmland market declined 63 percent from a high of $2,147/acre in 1981 – to the $787/acre low of 1987 – due to high interest rates and low corn prices. By the fall of 1985, the United States had ending stocks projections of 3 billion bushels of corn, or 35 percent, of the total 1985 corn crop.
The contrast of these key variables to 2014 are striking. Interest rates are low, and corn prices are nearly double that of 1985. Ending stocks in the latest WASDE Report for corn are 2 billion bushels, or 14 percent, of the total 2014 crop. We are now much less dependent on export demand, with 82 percent of our crop consumed domestically, versus 62 percent in 1985.
China is no longer competing with us for corn exports, but, as you know, they switched from being a major exporter to a net importer of food and fiber. These are the main reasons that I am confident in saying, “This isn’t your father’s land market.”
Looking at all years from 1950 forward, farmland in Iowa increases an average 190 percent over nine years, before correcting. When land prices declined, the average was 16 percent, over 2.5 years.
If you have purchased farmland in the last two years and are worrying about putting the top in the market, you are not alone. There have been five other high price plateaus since 1950, and within a few years they were all glad they bought when they did. Remember the long-term view you had when the purchase was made.
I advise taking advantage of opportunities to buy farmland this year that would fit well into your farming operation, or investment portfolio. The average decline in land prices is 4 percent, if we take out the minus-63 percent slide of the 1980s. One big advantage you have currently as a land buyer is that there is much less competition than during the past three years, which should translate into a lower purchase price.
Corn prices could continue to rally through the winter based on less competition from Brazil, and the fact that U.S. corn stocks are in strong hands. Whether the Iowa average land index turns higher in 2015, or it takes a few more years, there are people every year that need to sell. Obviously each situation is unique, but these generalizations may provide a good starting point for you.
Scott Oakes manages farm investments in the United States and Brazil, and is a long time client of Peoples Company.
The American Society of Farm Managers and Rural Appraisers (ASFMRA) has awarded Peoples Company Land Manager Randy Luze with the Accredited Farm Manager (A.F.M.) designation.
Denver, Colorado – November 6, 2014 – Randall Luze with Peoples Company has recently been awarded the Accredited Farm Manager (A.F.M.) designation from The American Society of Farm Managers and Rural Appraisers (ASFMRA).
Luze’s A.F.M. designation demonstrates that he meets stringent education and experience requirements, has passed rigorous oral and written examinations, and maintains the highest standards of integrity, professionalism, competence, and ethics. He joins a select 45 percent of the ASFMRA membership who have received, and maintain through continuing education, the Accredited status.
“We are pleased with Luze’s commitment to professional excellence, and his dedication to providing superior farm management services,” stated Jim Rickert, A.F.M., A.R.A., the American Society’s national president from California. “By receiving this designation, clients, associates and industry peers can easily recognize Luze’s personal investment in his career and dedication to maintaining an exceptional degree of knowledge and skill.”
Accredited Farm Managers are specifically educated and experienced in agricultural management and understand efficient production and profitable marketing by focusing on procedure, analysis, critical thinking and innovation. Farm Managers have specialized expertise in production, business, environmental issues, and government activities. In addition, an Accredited Farm Manager is directly connected to an international network of professionals and leaders in the industry.
The ASFMRA is the recognized leader as an international organization for professionals who provide management, consultation and valuation services on agricultural and rural assets. Its focus is to create and maintain a professionally trained group of Accredited Farm Managers (A.F.M.), Accredited Rural Appraisers (A.R.A.), Real Property Appraisers (RPRA), AND Accredited Agricultural Consultants (A.A.C.), who are capable of providing expert guidance and assistance to people who own and/or operate agricultural lands and rural resource properties.
Executive consultant and chief economist Dr. Edmond J. Seifried is Professor Emeritus of Economics and Business at Lafayette College in Easton, Pennsylvania. He will speak speak during the 2015 Land Investment Expo on January 23.
Dr. Seifried, author of the book “The Art of Strategic Planning for Community Banks,” appears frequently as a guest speaker at regional and national conferences, and has delivered more than 2,500 presentations on the economy to various groups both in the United States and abroad.
Dr. Seifried serves as Executive Consultant and Chief Economist for the Sheshunoff CEO Affiliation Programs, and is a partner in Seifried & Brew LLC, a community bank consulting firm. He serves as the dean of the Virginia and West Virginia Banking Schools, as well as on the faculty of numerous banking schools including: Stonier Graduate School of Banking, and the Graduate School of Retail Bank Management.
In addition to his academic and consulting experience, Dr. Seifried has also served as a director of a community bank.