Outlook for the Land Market American Bankers Association Agricultural Lenders Conference Las Vegas, NV November 14, 2006 Michael Duffy

Outline Current situation Ethanol Observations Discussions

Farm Interest Rates, Chicago Federal Reserve District Interest rates charged on new farm loans in the Seventh District                                                                                                                                              

Minnesota Federal Reserve Board

Recent Estimates Chicago Fed reported a 1% increase in the 2nd quarter and a 9% increase July to July for the 7th District Iowa Chapter of Realtors Land Institute reported a 2.9% increase from March to September. Approximately 5.3% increase Sept. to Sept. ISU Soil Management Conference participants estimated a 7.8% increase from Nov. to Nov. Ethanol demand is starting to be felt

Bioeconomy and Ethanol

Goal of the Bioeconomy The bioeconomy is nothing less than a revolution in the way society will obtain vital sources of carbon and energy for growth and well being, in the process sweeping away the petroleum economy.  Agriculture will make this transformation possible. Robert Brown, Director, ISU, Biorenewable Programs

U.S. Energy Consumption by Sector

Ethanol Related Facts Americans use approximately 382 million gallons of gas a day (1.3 gal/capita) U.S. imports approximately 65% of the crude oil it uses Conversion of corn to ethanol is approximately 2.6 gallons per bushel

Iowa corn processing & ethanol plants, current & planned, 10/26/06 63 Iowa corn processing & ethanol plants, current & planned, 10/26/06

Figure 2. 8/30/06

Questions What price ratios will it take to slow the planned expansion in ethanol production? How long will it take before substitutes are developed? What form will the substitutes take and will they use the same land and infrastructure? Will ethanol be an additive or a fuel?

Ethanol Factors Can we get to 20M acres of corn in Iowa Do we have the storage capacity Do we have the infrastructure to handle the fertilizer use Do we have the ability to transport What will happen to the export and/or livestock sectors Environmental impact and reaction

Factors to Watch The bioeconomy, especially corn based ethanol The government programs, new farm bill will be debated in the coming year; outcome for level and type of programs is unknown; more of the same but less of it; major cuts? Regional differences could be a major factor; Public sentiment

Government Payments/NFI 2000 - 2004 Source:USDA/ERS

Factors to Watch Overall performance of the economy, especially interest rates Recreational demand Performance of the housing market Aging farmland owners and what the second generation will do with the land

Factors to Watch We are entering into a period of major uncertainty. How the ethanol situation will play out no one knows for sure. Land values will move with higher income and anticipation Are we setting ourselves up for another fall or is this a new plateau?

Discussion

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