Cash Rental Rates and Land Values Where from Here? Craig Chase, Field Specialist Farm & Ag Business Management

Determining Cash Rental Rates (Pct of Land Values) Land value $4,000 % return 5% Rental rate $ 200/acre

2006 Land Values by CSR Point

Determining Cash Rental Rates (Dollars per CSR) CSR 85 Rent/CSR point$1.95 Rental rate $ 166/acre

Determining Cash Rental Rates (Dollars per corn yield) Avg. corn yield 170 Rent/bushel$1.05 Rental rate $ 179/acre

Determining Cash Rental Rates (Percent of Gross - Corn) Avg. corn yield 170 Price/bushel$3.50 Gross income $ 680/acre % of gross 35% Rental rate$ 238/acre

Determining Cash Rental Rates (Summary) Percent of land value$200/acre Dollars/CSR$166/acre Dollars/corn yield$179/acre Percent of gross$238/acre

Lease Arrangements Because of grain market uncertainty, may want to look at some type of flexible lease. Be aware that flexible leases, however, are considered share-crop leases by FSA.

What’s Causing the Rise in Land Prices?

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

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?

Conclusions Iowa agriculture is undergoing some fundamental changes; the actions and reactions in the corn market, other commodity markets (including livestock) and export market will all be impacted Price volatility will increase as energy prices increase in importance

Choosing Crop Insurance for 2007 William Edwards Iowa State University William Edwards, ISU Extension Economist

Indemnity Prices: Corn APH, GRP$3.50$1.95 CRC,RA,GRIP$4.00?$2.59 FSA loan rate$1.90$1.90 CCP trigger$2.35$2.35

Indemnity Prices: Soybeans APH,GRP$7.00 $5.15 CRC,RA,GRIP$8.00? $6.18 FSA loan rate$4.93$4.93 CCP trigger$5.36$5.36

Revenue versus Yield Insurance Revenue insurance is advantageous when indemnity prices are “high” When indemnity prices are low, yield insurance plus USDA payments give about the same protection for less premium dollars. Revenue ins. + LDP = double dip

What is Your Marketing Pattern? If you price before harvest: –use CRC or RA-HPO to guarantee bushels If you only price after harvest: –use standard RA or APH (lower premium)

What is Your Feed Balance? Feed deficit (must buy feed if short) –Buy CRC or Harvest Price RA to insure replacement bushels

GRIP (Group Revenue Ins.) Based on county yields, not farm Now available with harvest price option as well as standard price Indemnity prices were high in 2004, not so high in 2005 or 2006 Same indemnity price as RA, CRC May show a “profit” in the long run

Group Insurance may be appropriate When: Individual yields closely track county yields No production history is available or APH is low Can stand more risk Indemnity prices are “high” (a price decline affects everyone equally, unlike a yield loss)

Bremer Co. Premiums 2007 (150 bu. corn, basic units) Level APH RA BASICRA-HPO CRC GRP Basic GRIP 65% $3.57$3.58$6.55$ % $4.84$6.12$10.36$9.48$2.71$ % $7.04$10.40$16.72$13.95$3.47$ % $10.56$17.46$27.07$21.33$4.94$ % $16.06$28.96$43.61$33.34$6.35$21.94

Bremer County Premiums 2007 (46 bu. soybeans, basic units) LevelAPH RA-STDRA-HPO CRCGRPGRIP 65%$2.06$1.91$3.12$ %$2.96$3.39$5.15$4.94$ 1.36$ %$4.54$5.86$8.52$7.57$1.69$ %$7.19$9.95 $14.04 $12.02$2.19$ %$11.50 $16.63$22.93$19.39 $3.37$9.11

Crop Insurance Premium Calculator University of Illinois Extension

How Many $ to Insure? Consider cash flow needs –Seed, fertilizer, pesticides –Machinery and hired labor –Land rent or payments –Debt payments –Family living Subtract your “deductible”

Higher Proven Yields for 2007 Drop 1996 yields, add CornSoybeans bu.44 bu bu.50 bu. APH yield+2.8bu. +0.6bu. (Iowa average yields)

Higher Guarantees Available! Corn example 2006: 148 bu. x $2.59 x 75% = $ : 151 bu. x $4.00 x 75% = $453 Soybeans example 2006: 45 bu. x $6.18 x 75% = $ : 46 bu. x $8.00 x 75% = $276 Lower the % guarantee to get the same $ coverage and similar premiums as last year.

Warning! Revenue Insurance guarantees are based on futures prices. Deduct basis to estimate your actual guaranteed dollars. Your protection level is affected by basis risk.

What Units to Choose? Optional Units: Each farm is separate Basic Units: Combine owned and cash rented acres in same county Enterprise Units: Combine all acres of the same crop in same co. Whole Farm: Combine corn and beans $

Insurance Units Generally, the more acres you combine into one unit, the lower the cost per acre. Probability of collecting a payment is lower, too.

Important Points for Proven yields for both corn and soybeans may increase. 2.Indemnity prices will be much higher. More downward price risk. 3.$ Coverage levels will be higher. 4.Premiums will be higher. 5.Use some form of revenue insurance to guarantee higher gross revenues. 6.GRIP may work for some people.

Crop Ins. Pubs / Ag Decision Maker FM 1826 – Multiple Peril Crop Insurance FM 1850 – Group Risk Plan and Group Risk Income Protection FM 1852 – Catastrophic Crop Insurance FM Group Risk Plan and Group Risk Income Protection FM 1854 – Managing Risk with Crop Insurance FM 1858 – Important Dates for Multiple Peril Crop Insurance FM 1859 – Delayed and Prevented Planting Provisions for Multiple Peril Crop Insurance FM 1860 – Actual Production History and Insurance Units for Multiple Peril Crop Insurance