Land, Energy and Government Programs Ag Outlook, 2006 February 21, 2006 Mike Duffy Director, ISU Beginning Farmer Center

Outline Background information Land values Government programs Energy Summary Discussion

Iowa Land Values

Iowa Land Market The Iowa land market appears to have reached a plateau There continues to be a good volume of land moving but there is also adequate supplies of land for sale Higher interest rates increase the attractiveness of other investments and the 1031, investor type purchases appear to be tapering off

Iowa Land Market A considerable amount of Iowa’s farmland will change ownership over the next decade; most of this land will stay within a family rather than going on the open market Change in ownership will change the way the land is farmed and who will be farming it

Government Programs

Average Government Payments, Source: Environmental Working Group, 2002 Census of Agriculture

Percent of Land Value from the Government Programs, 2005

Government Payments/NFI Source:USDA/ERS

Government Programs Government programs have become a significant part of net farm income Programs are drawing attention in many ways including the monetary outlay for the programs and the impact of the programs on U.S. position in trade negotiations.

Government Programs Economic Report of the President contained an entire chapter on ag.; the first time since 1995 Conclusions were; most farmers don’t benefit from commodity subsidies support can be provided in many forms that are potentially less market- distorting

Energy

The amount of oil left is the subject of considerable debate and differences of opinion U.S. agriculture has become heavily dependent on fossil fuels Agriculture can not effect energy prices through the demand side but there is potential price impact on the supply side

Energy Refining capacity in the U.S. is very concentrated which could lead to further supply interruptions N fertilizer is a heavy fossil fuel user. In the short run mostly conservation measures; in the long run a possible changes in rotation, machinery, tillage and so forth

Outlook Considerable uncertainty and differences of opinions on all three topics Land appears to have stabilized and will likely return to the more traditional rates of return, if things remain the same Considerable amount of land will change hands and more of Iowa’s land will be owned by people who don’t live in the state

Outlook More cash rents 1985 and 1996 farm bills were the last time major changes have been made in commodity programs; both occurred during unusual times Shape of the program is unknown at this time; anything appears to be up for discussion; not sure final shape but the amount will be less

Outlook Farmers, especially young farmers will look towards higher valued crops to replace government support The budget deficit and the impact on world trade will be the factors to watch; Record budget deficits are projected for this year. War and hurricane major expenditures Energy prices will be volatile; but each time they come down they will stop at a higher level

Outlook Regardless of supply; increased concentration in refining (geographically and amount) leaves us susceptible We aren’t going to run out of oil but what we will run out of is cheap oil There will be increased demand for oil as other economies grow, China and India for example

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