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Current Economics in Farm Succession
Farm Ownership: The Changing of the Guard Michael Duffy October 6, 2003
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Current Economics in Farm Succession
Current state of Iowa succession planning Iowa farmland ownership Returns to farmland Implications for beginning farmers Options
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Issues/Problems/Opportunities
Losing our young farming population Disappearing middle sized farms Majority of government programs are barriers to entry Commodity production has very tight margins that must have volume for income There are options available but it will take a change in mindset
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Iowa Farm Succession Planning
Random sample mail survey in Spring, 2000 Survey conducted by Iowa Ag. Statistics Service, USDA 418 useable responses (27% response rate)
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Iowa Farmland Ownership and Tenure Survey, 2002
Telephone survey conducted by ISU Statistical Laboratory Data as of July 1 , 2002 633 useable responses, 80% response
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Iowa Farmland Initial Conclusions
Trend away from owner operator continues Trend toward cash rent is accelerating Age of farmland owners continues to increase Investor purchases still remains strong
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Figure 1: Capitalization Rate for Rental Income, 2002
Wright Worth Woodbury Winneshiek Winnebago Webster Wayne Washington Warren Wapello Van Buren Union Taylor Tama Story Sioux Shelby Scott Sac Ringgold Poweshiek Pottawattamie Polk Pocahontas Plymouth Palo Alto Page Osceola OBrien Muscatine Montgomery Monroe Monona Mitchell Mills Marshall Marion Mahaska Madison Lyon Lucas Louisa Linn Lee Kossuth Keokuk Jones Johnson Jefferson Jasper Jackson Iowa Ida Humboldt Howard Henry Harrison Hardin Hancock Hamilton Guthrie Grundy Greene Fremont Franklin Floyd Fayette Emmet Dubuque Dickinson Des Moines Delaware Decatur Davis Dallas Crawford Clinton Clayton Clay Clarke Chickasaw Cherokee Cerro Gordo Cedar Cass Carroll Calhoun Butler Buena Vista Buchanan Bremer Boone Black Hawk Benton Audubon Appanoose Allamakee Adams Adair 3.78% 3.90% 5.28% 5.51% 3.81% 3.88% 7.10% 4.18% 4.54% 5.74% 6.04% 6.61% 5.90% 4.62% 3.77% 3.70% 4.48% 3.59% 4.26% 7.80% 5.39% 4.71% 4.09% 3.74% 3.94% 4.65% 3.82% 3.63% 4.19% 4.53% 7.34% 5.76% 3.83% 3.89% 5.46% 4.50% 5.58% 3.19% 3.56% 3.79% 4.75% 4.15% 3.99% 5.33% 5.44% 5.54% 4.84% 3.91% 4.27% 4.14% 5.20% 4.47% 4.32% 5.34% 3.95% 4.20% 4.17% 4.11% 4.57% 3.37% 4.29% 3.80% 4.89% 7.89% 6.46% 3.31% 5.26% 4.58% 3.46% 8.52% 4.03% 4.59% 3.58% 3.57% 5.63% 4.10% 4.43% 4.04% 4.28% 4.06% 5.48% 7.97% 5.67% 7.32% Percentage 3% - 4% 4% - 4.5% 4.5% - 5.5% 5.5% - 9%
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Figure 2: Average Government Payments
Wright Worth Woodbury Winneshiek Winnebago Webster Wayne Washington Warren Wapello Van Buren Union Taylor Tama Story Sioux Shelby Scott Sac Ringgold Poweshiek Pottawattamie Polk Pocahontas Plymouth Palo Alto Page Osceola OBrien Muscatine Montgomery Monroe Monona Mitchell Mills Marshall Marion Mahaska Madison Lyon Lucas Louisa Linn Lee Kossuth Keokuk Jones Johnson Jefferson Jasper Jackson Iowa Ida Humboldt Howard Henry Harrison Hardin Hancock Hamilton Guthrie Grundy Greene Fremont Franklin Floyd Fayette Emmet Dubuque Dickinson Des Moines Delaware Decatur Davis Dallas Crawford Clinton Clayton Clay Clarke Chickasaw Cherokee Cerro Gordo Cedar Cass Carroll Calhoun Butler Buena Vista Buchanan Bremer Boone Black Hawk Benton Audubon Appanoose Allamakee Adams Adair $48.15 $48.04 $37.59 $41.86 $52.71 $43.35 $29.50 $48.88 $28.11 $33.22 $24.16 $28.39 $32.46 $47.39 $43.29 $44.02 $42.80 $51.51 $40.04 $30.82 $42.31 $37.99 $38.71 $44.79 $37.07 $46.68 $32.12 $45.35 $43.36 $45.74 $36.25 $20.63 $38.81 $47.07 $36.68 $48.01 $30.48 $42.41 $22.81 $39.50 $23.46 $42.44 $32.25 $48.66 $48.86 $45.60 $42.68 $39.52 $36.91 $43.10 $43.80 $48.03 $44.46 $43.70 $35.25 $46.63 $47.59 $44.99 $38.20 $47.61 $42.02 $32.93 $49.59 $46.37 $47.94 $51.85 $37.35 $43.27 $41.47 $53.05 $23.14 $26.61 $37.81 $36.16 $53.98 $36.36 $51.15 $26.59 $47.91 $41.28 $55.03 $52.95 $36.33 $40.36 $45.87 $42.60 $46.21 $49.56 $40.05 $47.51 $44.45 $40.85 $20.69 $33.24 $31.60 $31.47 AVG Payment $20 - $33 $33 - $40 $40 - $46 $46 - $56
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Government Payments as Percentage of Land Values
Wright Worth Woodbury Winneshiek Winnebago Webster Wayne Washington Warren Wapello Van Buren Union Taylor Tama Story Sioux Shelby Scott Sac Ringgold Poweshiek Pottawattamie Polk Pocahontas Plymouth Palo Alto Page Osceola OBrien Muscatine Montgomery Monroe Monona Mitchell Mills Marshall Marion Mahaska Madison Lyon Lucas Louisa Linn Lee Kossuth Keokuk Jones Johnson Jefferson Jasper Jackson Iowa Ida Humboldt Howard Henry Harrison Hardin Hancock Hamilton Guthrie Grundy Greene Fremont Franklin Floyd Fayette Emmet Dubuque Dickinson Des Moines Delaware Decatur Davis Dallas Crawford Clinton Clayton Clay Clarke Chickasaw Cherokee Cerro Gordo Cedar Cass Carroll Calhoun Butler Buena Vista Buchanan Bremer Boone Black Hawk Benton Audubon Appanoose Allamakee Adams Adair 53.1% 65.2% 40.5% 46.2% 64.7% 48.4% 38.4% 51.6% 33.8% 36.9% 34.3% 32.6% 41.9% 50.6% 47.2% 44.6% 51.3% 45.4% 40.3% 45.8% 46.1% 41.8% 45.2% 50.8% 55.3% 43.1% 52.6% 48.1% 49.3% 49.5% 26.8% 41.4% 56.2% 50.7% 37.5% 44.5% 33.6% 44.1% 39.2% 57.9% 47.3% 42.7% 54.0% 56.6% 44.4% 39.1% 34.4% 40.7% 53.7% 60.4% 49.6% 38.0% 50.4% 53.0% 50.3% 43.3% 47.5% 43.2% 53.3% 56.4% 54.2% 65.1% 55.4% 49.4% 36.1% 37.1% 50.2% 38.1% 48.7% 32.1% 64.4% 32.8% 58.6% 46.0% 62.9% 53.6% 40.2% 41.7% 43.9% 43.6% 26.7% 38.2% 36.0% 44.3% Percentage 26% - 40% 40% - 48% 48% - 55% 55% - 76% Government Payments as Percentage of Land Values
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Figure 3: Capitalization Rate for Income Earned 2002
Wright Worth Woodbury Winneshiek Winnebago Webster Wayne Washington Warren Wapello Van Buren Union Taylor Tama Story Sioux Shelby Scott Sac Ringgold Poweshiek Pottawattamie Polk Pocahontas Plymouth Palo Alto Page Osceola OBrien Muscatine Montgomery Monroe Monona Mitchell Mills Marshall Marion Mahaska Madison Lyon Lucas Louisa Linn Lee Kossuth Keokuk Jones Johnson Jefferson Jasper Jackson Iowa Ida Humboldt Howard Henry Harrison Hardin Hancock Hamilton Guthrie Grundy Greene Fremont Franklin Floyd Fayette Emmet Dubuque Dickinson Des Moines Delaware Decatur Davis Dallas Crawford Clinton Clayton Clay Clarke Chickasaw Cherokee Cerro Gordo Cedar Cass Carroll Calhoun Butler Buena Vista Buchanan Bremer Boone Black Hawk Benton Audubon Appanoose Allamakee Adams Adair 1.75% 2.26% 2.82% 2.45% 2.14% 1.77% 4.66% 1.86% 2.44% 2.91% 3.87% 3.53% 4.13% 1.88% 1.61% 1.50% 2.36% 1.23% 1.74% 5.10% 2.21% 2.41% 1.72% 1.84% 3.15% 1.66% 2.68% 4.62% 3.00% 1.96% 3.12% 2.99% 2.94% 2.70% 1.63% 4.56% 1.82% 1.39% 1.58% 1.70% 1.76% 2.15% 1.78% 2.38% 2.20% 2.64% 2.08% 3.07% 1.42% 1.59% 2.43% 1.98% 2.11% 2.07% 1.81% 1.44% 2.74% 2.09% 1.89% 6.06% 4.11% 1.47% 2.57% 1.90% 5.22% 2.17% 1.83% 1.91% 1.53% 1.73% 1.55% 4.48% 2.37% 3.94% 3.51% Percentage 1.00% % 1.75% % 2.50% % 4.00% % Figure 3: Capitalization Rate for Income Earned 2002 Corn $2.40; Soybeans $5.50
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Capitalization Rate for Income Earned in 2002
Wright Worth Woodbury Winneshiek Winnebago Webster Wayne Washington Warren Wapello Van Buren Union Taylor Tama Story Sioux Shelby Scott Sac Ringgold Poweshiek Pottawattamie Polk Pocahontas Plymouth Palo Alto Page Osceola OBrien Muscatine Montgomery Monroe Monona Mitchell Mills Marshall Marion Mahaska Madison Lyon Lucas Louisa Linn Lee Kossuth Keokuk Jones Johnson Jefferson Jasper Jackson Iowa Ida Humboldt Howard Henry Harrison Hardin Hancock Hamilton Guthrie Grundy Greene Fremont Franklin Floyd Fayette Emmet Dubuque Dickinson Des Moines Delaware Decatur Davis Dallas Crawford Clinton Clayton Clay Clarke Chickasaw Cherokee Cerro Gordo Cedar Cass Carroll Buena Vista Calhoun Butler Buchanan Bremer Boone Black Hawk Benton Audubon Appanoose Allamakee Adams Adair 0.95% 1.23% 1.81% 1.21% 1.24% 0.91% 3.12% 0.99% 1.40% 1.78% 2.47% 2.14% 2.85% 0.87% 0.80% 0.71% 1.38% 0.53% 1.03% 1.46% 0.79% 0.92% 0.94% 0.96% 2.11% 0.68% 0.97% 1.57% 2.95% 1.94% 1.05% 2.10% 0.66% 1.72% 1.77% 1.45% 0.75% 2.96% 1.11% 0.58% 1.62% 1.06% 1.80% 0.86% 2.05% 0.65% 1.01% 1.25% 1.31% 1.63% 1.20% 0.89% 1.97% 0.74% 1.48% 1.09% 1.10% 0.98% 1.00% 0.56% 1.74% 0.90% 3.97% 0.64% 1.53% 0.77% 3.46% 0.82% 1.12% 1.27% 0.81% 0.76% 1.91% 2.61% 2.45% 2.08% Rate Capitalization Rate for Income Earned in 2002 Corn $2.20; Soybeans $5.25
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Figure 5: Land Value as a Multiple of Income Value
Wright Worth Woodbury Winneshiek Winnebago Webster Wayne Washington Warren Wapello Van Buren Union Taylor Tama Story Sioux Shelby Scott Sac Ringgold Poweshiek Pottawattamie Polk Pocahontas Plymouth Palo Alto Page Osceola OBrien Muscatine Montgomery Monroe Monona Mitchell Mills Marshall Marion Mahaska Madison Lyon Lucas Louisa Linn Lee Kossuth Keokuk Jones Johnson Jefferson Jasper Jackson Iowa Ida Humboldt Howard Henry Harrison Hardin Hancock Hamilton Guthrie Grundy Greene Fremont Franklin Floyd Fayette Emmet Dubuque Dickinson Des Moines Delaware Decatur Davis Dallas Crawford Clinton Clayton Clay Clarke Chickasaw Cherokee Cerro Gordo Cedar Cass Carroll Calhoun Butler Buena Vista Buchanan Bremer Boone Black Hawk Benton Audubon Appanoose Allamakee Adams Adair 2.16 1.72 1.87 2.25 1.78 2.19 1.52 1.86 1.97 1.56 1.43 2.45 2.33 2.46 1.90 2.92 2.44 1.53 1.96 2.35 2.17 2.14 2.12 1.48 2.30 2.42 2.23 1.69 1.59 1.92 1.95 1.49 2.59 1.82 1.67 2.39 1.23 1.75 2.56 2.01 2.63 2.34 1.83 3.03 3.20 2.57 2.58 2.20 1.79 1.88 2.15 2.02 1.74 2.49 1.73 2.11 2.21 2.98 1.51 1.30 1.57 2.04 2.76 3.13 1.63 2.50 1.93 1.99 2.72 2.48 2.41 2.86 2.65 1.60 Multiple Figure 5: Land Value as a Multiple of Income Value Corn $2.40; Soybeans $5.50
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Figure 6: Land Value as a Multiple of Income Value
Wright Worth Woodbury Winneshiek Winnebago Webster Wayne Washington Warren Wapello Van Buren Union Taylor Tama Story Sioux Shelby Scott Sac Ringgold Poweshiek Pottawattamie Polk Pocahontas Plymouth Palo Alto Page Osceola OBrien Muscatine Montgomery Monroe Monona Mitchell Mills Marshall Marion Mahaska Madison Lyon Lucas Louisa Linn Lee Kossuth Keokuk Jones Johnson Jefferson Jasper Jackson Iowa Ida Humboldt Howard Henry Harrison Hardin Hancock Hamilton Guthrie Grundy Greene Fremont Franklin Floyd Fayette Emmet Dubuque Dickinson Des Moines Delaware Decatur Davis Dallas Crawford Clinton Clayton Clay Clarke Chickasaw Cherokee Cerro Gordo Cedar Cass Carroll Calhoun Butler Buena Vista Buchanan Bremer Boone Black Hawk Benton Audubon Appanoose Allamakee Adams Adair 3.99 3.17 2.92 4.57 3.08 4.27 2.28 4.21 3.24 3.22 2.44 3.10 2.07 5.30 4.74 5.17 3.25 6.79 4.68 2.50 5.24 5.16 4.06 4.19 4.08 2.21 4.84 5.33 4.30 2.89 2.49 2.97 3.66 5.85 3.18 3.11 5.19 1.88 2.87 6.11 2.77 3.56 2.64 5.89 4.63 2.81 7.88 8.37 5.47 4.79 4.16 3.42 3.16 4.03 3.61 4.26 2.71 6.24 5.36 2.83 3.83 3.74 4.64 3.37 7.61 2.39 3.06 5.41 1.99 2.62 5.20 3.44 5.80 7.70 3.30 2.46 3.36 5.58 3.20 4.82 3.13 3.23 4.12 5.91 4.96 4.71 6.33 5.76 2.88 3.05 5.73 2.98 Multiple Corn $2.20; Soybeans $5.25
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Implications Current commodity based programs are capitalized into land values and produce a significant barrier to entry for new farmers Low rates of returns in commodity production require high volumes to produce an adequate income Older farmers are looking to land as a source of retirement income Low rates of return require significant resources to allow land purchase
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Options for Beginning Farmers
With commodity production they must work towards volume as a means of generating income Look for means to produce differentiated products to widen the margins Look for off-farm income to supplement farming income Consider alternative employment
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Conclusions Trends continue to move against beginning farmers
Society must decide what is the purpose of the government programs and if having beginning farmers is a legitimate concern Beginning farmers must realistically make their choices based on their resource base and the situations they face Cheap credit is not the solution for beginning farmer problems
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