Profits Weather – Profit – Clouds Hills Community Center January 26, 2005 Michael Duffy

Outline Background / Current Situation Land Costs of Production Profits or Income Questions

Iowa Farmland 91 percent of land is in farms 68 percent of land is harvested 62 percent of the land and 68 percent of the land in farms are in corn or soybeans 91 percent of the harvested acres are corn or soybeans Iowa farmland valued at approximately $73B

Estimated Returns to Land

Capitalization Rate 2002 land taxes $10 land management fee ISU Extension Estimated Costs of Production, Land Values, and Cash Rents Government payment data from Environmental Working Group

Land Compared to Dow Jones Yearly Dow Jones Industrial dividend reported by Dow Jones USDA/Economic Research Service rent values ISU Extension land values Assume $1,000 invested with returns reinvested Land tax is only ownership cost assumed

Are we setting ourselves up for another fall?

Different Financial Situation More land without debt Less land held under contract Different reasons why we are here

Land Rents and Rental Arrangements

Costs of Production

Profits or Income

Options Get big, survive low margins with volume Increase efficiency in production/marketing or both Alternative marketing approaches Alternative enterprises Extra income

Conclusions Considerable uncertainty in the short run How budget deficit is handled will have an impact of land values and Iowa in general What happens with government farm programs will influence profitability US balance of trade will be important to watch

Conclusions There are options and alternatives to consider for farmers of all ages Iowa’s land ownership will change considerably over the next few decades Iowa needs to expand its agricultural base Iowa is the primer agricultural state, how we farm says who we are and whether or not Iowa is a desirable place to live

Thank you! For more information contact me; mduffy@iastate.edu (515) 294-6160 www.econ.iastate.edu/faculty/duffy

Strategies Decide what you want Inventory what you have Determine how best to combine what you have to achieve what you want

Strategies Keep an open mind Be willing to make changes Maintain diversity Mange crops for highest profits, not yields Manage livestock for lowest cost per pound Marketing Value added products

Questions to ask Why do I want to farm? What is agriculture as I envision it? What are the options available to me? What can I learn from my neighbors? What can we do? Never quit asking questions