Outlook for Land 2008 ABA National Agricultural Bankers Conference Michael Duffy, Director Iowa State University Beginning Farmer Center November 18, 2008

Outline Background Current situation Observations Outlook Discussion

Background Land values appear to have reached a plateau; property is not bringing what it might have brought a few months ago There does not appear to be a drop in actual values Land values are still at record level Commodity prices have dropped considerably from their highs this summer Costs of production are increasing rapidly

Background Land continues to change from one generation to the next and trend will likely accelerate Equal division of land assets among family members will increase non-resident owners, cash rent, and may put more land on the market Trusts are being more widely used Many of the purchases are equity financed and farmers continue to be major drivers but if incomes drop so will their interest

Costs of Production

Land and Cash Rents

Debt Situation

Land Owner Demographics

Observations

Observations Conditions can change very quickly This ‘boom’ period appears to have ended much sooner than anyone thought Most people are kind of numb right now; just waiting for the other shoe to drop Farmers appear to be moving back from purchases and taking a wait and see attitude

Observations Great deal of uncertainty Concentration in input industry leads to sticky prices on the down side Farmers are making decisions to cut costs; Successful Farming survey showed 33% will cutback over 50% and 16% between 26 and 50% Only 12 percent of the leased land in Iowa uses a flexible lease

Outlook The economy is the biggest factor to watch Commodity prices and input costs determine income and income determines land values Energy prices and the impact will be important

Factors to Watch Public sentiment including environmental concerns World situation Impact on food costs Energy prices Farmer profitability; costs, especially seed, fertilizers and rents rapidly increasing Alternative energy

Outlook Values will remain relatively flat depending on how deep recession goes Energy crisis and renewed strength in biofuel efforts will determine strength Very uncertain

Discussion

THANK YOU