2 dhuyvetter-taylor cashrents
TRANSCRIPT
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2013 Risk and Profit Conference Breakout Session Presenters
2. Kansas Rental Values -- What Cash Rent Information is
Right? Kevin Dhuyvetter Kevin Dhuyvetter assists farmers, landowners, and others throughout Kansas with risk and return assessment of alternative crop and livestock production and marketing systems. He works extensively with land-related issues such as buying and leasing land. Current research projects are looking at factors impacting land values, crop land cash leases, management factors impacting farm profitability, economics of crop-related production technologies, factors affecting feeder cattle and crop basis, and machinery costs. One of Kevins trademarks is his development of decision tools that can be used by clientele to help them with the many decisions they face. Mykel Taylor Mykel Taylor joined the Department of Agricultural Economics as an Assistant Professor in 2011. Her research and extension programs are focused in the areas of crop marketing and farm management. She grew up on a cattle ranch in Montana and attended Montana State University majoring in Agribusiness Management. Her PhD in Economics is from North Carolina State University. Mykel has worked in extension positions at both Kansas State University and Washington State University. Some of her current research areas include measuring basis risk for commodity grains, understanding the implications of food safety and country of origin labeling on meat demand, and estimating land values for crop and pasture land in Kansas.
Abstract/Summary Beginning in 2009 Kansas Agricultural Statistics (KAS) has surveyed producers and landowners regarding cash rent for crop land and pasture at the county level. This provides much more information than has been available historically (values were only available at the Crop Reporting District level). However, in recent years with land values increasing significantly, the appropriateness of these survey values as a reflection of the current cash rent market has been questioned. In response to this, an alternative method of estimating cash rents for cropland at the county level has been developed. This session will outline the alternative method developed and report on values from the two approaches and discuss reasons as to why they might vary. While a similar type of approach is not currently available for pasture rents, an alternative approach for estimating pasture rents at the county level will also be presented and discussed.
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KansasStateUNIVERSITY
KansasRentalValuesWhatCashInformationisRight?
DepartmentofAgriculturalEconomics
KevinDhuyvetter MykelTaylor7855323527 [email protected] [email protected]
DepartmentofAgriculturalEconomicsKansasStateUniversity
www.agmanager.info
Whichbestdescribesthefrequencyofyouruseofcomputerspreadsheets(e.g.,Excel)
1 2 3 4
0% 0%0%0%
Testtomakesureclickersareworking
1. Regularuser(e.g.,daily/weekly)
2. Moderateuser(e.g.,monthly)
3. Limited(e.g.,12times/year)
4. Whattheheckisaspreadsheet?
Typesofleasesoncropland
Cropshare(shareincomeandsomeexpenses) Netshare(shareincomebutnotexpenses) Fixedcashrent
Fixedcashrentwithbonus Combination cashrent+share Cashrent flexonprice(bushelrent) Cashrent flexonyield(pricerent) Cashrent flexonrevenue(i.e.,yieldxprice)
Traditional
Hybrid
TheleasearrangementforthemajorityofcroplandacresIrentormanageis
1 2 3 4 5
0% 0% 0%0%0%
Whattypeofleasesdoyouuse?
1. Cropshare(shareinputs)
2. Netsharerent(noinputsshared)
3. Fixedcashrent
4. Flexiblecashrent
5. Doesnotapply
8
19
30
11.5
10
21.5
0 5 10 15 20 25 30 35
Customfarming
Variablecashrent
Traditionalcashrent
Cropsharewithothermodifications
Cropsharew/supplementrent
Traditionalcropshare
Percent
LeaseArrangementsUsedbyFarmManagers,201112
n/a
43.5
56.5
8.6
55.7
35.7
0.8
21.8
77.3
0 20 40 60 80 100
Other
Cropshare
Cashrent
Percent
FarmlandLeaseArrangements
Iowa(2007)Kansas(2010)Oklahoma(201011)
Sources:IL Schnitkey;IA Duffy,etal.;KS SchlegelandTsoodle
Distributionofcropleasesbytypeoflease
CornBeltgenerallyhasahigherpercentageofcashrent Why?
Trendistowardsmorecashrentmosteverywhere Why?
Theuseofnontraditionalleasesisincreasing Why?(speedofadoptionvariesconsiderablyregionally)
0
10
20
30
40
50
60
70
80
90
100
1998 2000 2002 2004 2006 2008 2010 2012
Perc
ent
Trend in use of cash leases by regions in KS
West Central East
CropshareisverycommonleasetypeinKansas,butthetrendisformorecashrent
AgriculturalResourceManagementSurvey(ARMS) 61.3%ofrentedacresin2010wereonacashbasis.
Source:KSUandKSAgStat NonIrrigatedFarmLeaseArrangementSurveys
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Oncashleases,rentpaymentsaredue
1 2 3 4 5 6
0% 0% 0%0%0%0%
Timingofcashleasepayments
1. Jan1(approximately)
2. Atplanting
3. Atharvest
4. Dec31(approximately)
5. Multipletimes
6. Other
Lengthofcroplandleasesinyears
Producerstendtoleaselandfromthesamelandownerforarelativelylongtime,butcashleasestendtobeforfeweryears.
Whyisthis?
Sources:IA Duffy,etal.;KS SchlegelandTsoodle;OK DoyeandSahs
State Share Cash AllIowa (2007) 18.1 9.5 11.4Kansas(2010) n/a n/a 18.6Oklahoma (20102011) 17.0 14.0 15.3
Determiningthetermsofalease...
Tenant
Landowner
Howarecashleaseratesorthetermsofcropshareleasesestablished? Shortansweristhemarket Thatis,thetermsofaleasearedeterminedbyProducers(demand)negotiatingwithLandowners(supply)
S
D
P
Q
Marketestablishedrates...
LandUseValueProjectoftheKSUAgEconDeptannuallyconductsoneoffoursurveys(irrigated,nonirrigated,pasture,inputcosts)
KansasAgriculturalStatistics(KAS)annuallysurveyslandownersandproducersregardinglandvaluesandcashrents
Localandregionalsurveysofleasingpractices
Withsurveysthereisoftenatradeoffbetweenstatisticalvalidityandlevelofaggregation
Examplesofmarketestablishedcropshares
Source:SchlegelandTsoodle 2010KAS/KSUsurvey(availableatwww.agmanager.info)
PercentofLeasesbyCropSharePercentage
Landlord CropReportingDistrictShare NW10 WC20 SW30 NC40 C50 SC60 NE70 EC80 SE9020.0% 0.0% 0.0% 0.0% 1.4% 0.0% 0.0% 0.0% 0.0% 0.0%
25.0% 0.0% 3.5% 1.4% 0.0% 0.7% 0.0% 5.3% 1.0% 0.0%
33.3% 96.2% 96.5% 94.5% 62.7% 83.4% 90.8% 22.3% 70.7% 94.4%
40.0% 0.0% 0.0% 1.4% 28.9% 13.1% 6.4% 27.7% 9.1% 0.0%
50.0% 0.0% 0.0% 2.7% 6.3% 0.7% 2.1% 44.7% 17.2% 4.2%
66.7% 0.0% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 1.0% 0.0%
75.0% 1.9% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 0.0% 0.0%
Other 1.9% 0.0% 0.0% 0.7% 0.7% 0.7% 0.0% 1.0% 1.4%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
Colorcodingscale >80% 5080% 2050% 520%
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Forcashrentsyouareawareof,howdotheycomparewithKASvaluesonmap?
1 2 3 4 5 6 7
0% 0% 0% 0%0%0%0%
KAScashrentsurveyvaluesvs.yourobservations
1. Morethan25%lower
2. 1025%lower
3. Abouteven(+/ 10%)
4. 1025%higher
5. 2550%higher
6. 50100%higher
7. Morethan100%higher
PotentialissueswithKASsurveyedrentalrates
1. Doestheaveragevaluereflectyoursituation? Notalllandisequal Notallrelationshipsareequal
2. Missingcounties:2009=4,2010=6,2011=7,2012=243. Howwelldoaveragesreflectthecurrentmarket?
0
20
40
60
80
100
120
140
160
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Cash
rent,$/acre
AverageCashRentinKansasbyLandType
Irrigated(7.41%)Nonirrigated(3.92%)Pasture(3.18%)
Source:KansasAgriculturalStatisticsandKState
2%
8%
26%
35%
19%
7%
3%
0% 10% 20% 30% 40%
Lessthan$100
$100to$60
$60to$20
$20to$20
$20to$60
$60to$100
Greaterthan$100
Percent
Figure1.DistributionofFarmCashRentslessCountyAverageCashRents,2010.
Widevariabilityinrentsexists
Source:FEFO1121,Schnitkey,DepartmentofAgriculturalandConsumerEconomics,UniversityofIllinois.
Partlyduetolandqualitydifferences Bigportionduetorelationships
Landownersandtenantsaregenerallyawareofdifferencesthatexistandmuchofthesedifferencesareconsistentwiththeirdesires
Largedifferencesinobserved/reportedrents
Implications Averagecashrentsarenotagoodindicationofwhatit
takestoacquireland
Highcashrentswehearaboutarenotanindicatorofaveragerents
Source:FEFO1121,Schnitkey,DepartmentofAgriculturalandConsumerEconomics,UniversityofIllinois.
Tenant
Landowner
Howarecashleaseratesorthetermsofcropshareleasesestablished? Shortansweristhemarket
Whenmarketreportedratesarenotsufficienttoanswerthequestionathand,whatdowedo?
Whilelandownersandtenants(i.e.,themarket)ultimatelydeterminetermsofleases,weuseeconomictheory andtheequitable concepttoarriveatastartingpointfornegotiations andtobetterunderstandthemarket.
Determiningthetermsofacroplease...
Profitmaximization(MR=MC)
Economicprofits(expectedprofit=0*)
Opportunitycosts
Riskacrossleasetypes
Equalratesofreturnonannualinvestment(ifeconomicprofit=0,thenreturnonannualinvestment=0)
*Onaverage,inthelongrun
Principlesembodiedinanequitablelease
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-100
-50
0
50
100
150
200
Ret
urn
over
TC
, $/a
cre
NC KFMA Enterprise Analysis
Corn ($46.45 / $-3.82)
Milo ($50.12 / $-8.28)
Soybean ($55.98 / $3.65)
Wheat ($6.49 / $7.10)
Alfalfa ($88.46 / $36.25)
Onaverage,weseldomcovertotalcosts.Why?
(Average for 2007-12 / 1991-06)
Source:KFMAEnterpriseAnalysisReport
3.002.502.001.501.000.500.00
0.50
1.00
1.50
2.00
2.50
3.00
$/bu
AverageManagementMarginforCornandSoybeansinIL
Corn(199106=0.29;200712=0.55)
Soybeans(199106=0.92;200712=1.20)
Onaverage,weseldomcovertotalcosts.Why?
Source:IllinoisFarmBusinessFarmManagementAssociation
Methodsofestablishingcashrentvalues
Marketgoingrate(ifavailableandbelievable)
Cropshareequivalent(adjustedforrisk)
Landownerscost
Amounttenantcanaffordtopay
Thelastthreerequireyield,price,andgovernmentpaymentprojections(aswellascostinformationusedforcropshare).
Itypicallyfocusonthesetwo
Landowner/producer riskreturntradeoffx
sx
Cashrent
Cropshare
Cashrent
Cropshare
Risk,$/ac
Return,$/ac
???
[Producer]
[Landowner]
Howshouldcashrentfornonirrigated landcomparewithexpectedreturnsfromequitablecropshare
1 2 3 4 5 6 7 8
0% 0% 0% 0%0%0%0%0%
Riskpremium
1. 510%higher
2. Roughlyequal
3. 510%less
4. 1015%less
5. 1520%less
6. 2030%less
7. 3040%less
8. >40%less
MethodofcalculatingKSUrentalrates
1. UsedKSULease.xlsandregionalcropbudgetstoestimateequitablenetshare percentagesforeachregion UsedaverageyieldscenariofromFMGuides Longrunpriceprojections(~5yearaverage) Customratemachinerycostsincreased20% Setlandvaluesuchthatreturns=totalnonlandcostsx10%
(i.e.,profit>$0 resultedinprofitsof~$14$30/acre)
2. Appliedequitablepercentagetoincomeateachcounty Yield=8yraverage(wheat,sorghum,corn,andsoybeans) Price=201317priceforecast Cropmixbasedonaveragevaluesin2002&2007census
3. Multipliedlandownerincomeby80%toaccountforrisk
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35
KASsurveyvaluesofKansasNonirrigated CashRents,2012
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KSUEstimatedKansasNonirrigated CashRents,2012*
*Estimatedinthefallof2012basedoncountyaverageyieldsandregionalpricesandusinganequitablenetsharelease(adjustedforrisk)approach.
37
RatioofKSUtoKASEstimatedCashRents,2012*
ValuesreflecttheamounttheKASvaluewouldneedtobemultipliedbytoequaltheKSUestimatedvalue.Forexample,avalueof1.5wouldimplytheKSUestimatewas50%higherthanKASvalue.
Averageratio=1.63(min=1.03andmax=3.17)
KASversusKSUestimatedrentalrates
Whythebigdiscrepancy?1. Dothevaluesrepresentthesamething?
2. Multiyearfixedrateleases?
3. Ratesthathavenotbeenrenegotiatedforyears?
4. Productivityofland/producermaynotbethesame?
5. WedontknowthetermsoftheleaseforKASvalues(e.g.,arebonusesincluded?)
6. Landowner/tenantrelationship?
7. Other?
LandvalueandcashrentinformationMAJOR changefromwhatwasreportedinthispaperpreviously
1.KASsurvey dataforlandvaluesandcashrents(sameasinthepast)
and2.KSUestimates ofcountylevellandvaluesandrents(newstuff)
KSUestimatesofbothlandvalues(basedonmarkettransactions) andrents(basedoncropshare) aresignificantlyhigherthanKASreportedvalues
Workinprogresstodosomethingsimilarwithpasturerents.
Somerandomthingstothinkabout
DepartmentofAgriculturalEconomics
KansasStateUNIVERSITY
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Whoseresponsibilityisittoseetoitthatalandownerscashrentalrateisequitableconsideringcurrentconditions?
1 2
0%0%
Responsibilityforrentalrates
1. Landowner
2. Tenant
Whotypicallyhasbetterinformation?
Whetheryouhaveparticipatedinthemornot,whatisyouropinionofcashrentauctions?
1 2 3 4 5
0% 0% 0%0%0%
Cashrentauctions
1. Ilovethem
2. Theyareokay
3. Imindifferent
4. Dontcareforthem
5. Ihatethem
Cashrentauctions asolutiontoasymmetricinformation?
CashRentAuctionsinIowaFeb24,20122Yearlease(2012and2013)Moneyupfrontfor2012Acwtdavg $486 3347.7 71.0 $6.72Average $476 139.5 73.5 $6.52Min $325 52.1 51.8 $5.57Max $530 421.1 92.5 $8.15Corrwith$/acre 0.362 0.748 0.072
Tract County $/acre Acres CSR $/CSR1 Cass $475 132.6 79 $6.012 Guthrie $525 153.4 81.5 $6.443 Guthrie $525 167.0 76.3 $6.884 Hardin $520 78.1 77.9 $6.685 Hardin $460 59.6 78.6 $5.856 Hardin $510 101.3 83 $6.147 Hardin $530 113.3 92.5 $5.738 Franklin $520 108.4 76 $6.849 Franklin $425 102.1 67.8 $6.2710 Franklin $425 199.4 59.6 $7.1311 Franklin $490 170.3 70.7 $6.9312 Franklin $475 53.9 73.1 $6.5013 Franklin $495 139.7 81.1 $6.1014 Franklin $490 252.7 68.9 $7.1115 Franklin $445 60.2 77 $5.7816 Franklin $460 52.1 82.6 $5.5717 Franklin $325 62.1 51.8 $6.2718 Butler $435 121.7 67.7 $6.4319 Butler $520 421.1 71.6 $7.2620 CerroGordo $490 145.0 72 $6.8121 CerroGordo $500 148.0 71.4 $7.0022 Hancock $450 214.3 55.2 $8.1523 Mitchell $530 221.0 86.1 $6.1624 Mitchell $400 70.4 62 $6.45
$267 $277 $266
$279 $275$252
$246 $193 $217
Source:Edwards,CashRentalRatesforIowa,2012Survey
CashrentauctioninNWKS
CashrentauctioninNWKS
Cropland $/acre Annual Wheat Corn Milo Govt Govtpymt Avg% PPMTract acres(FSA) rent dollars stubblea stalksa stalksa payments peracre orgmatter soiltestP1 214.0 $110 $23,540 108.0 106.0 $3,255 $15.21 2.00 37.50
2 79.7 $90 $7,173 79.7 $586 $7.35 1.50 15.00
3 153.1 $105 $16,076 153.1 $597 $3.90 1.80 17.00
4 160.9 $135 $21,722 160.9 $1,776 $11.04 1.70 15.00
5 314.6 $140 $44,044 226.4 88.2 $3,638 $11.56 1.60 23.00
6 156.0 $140 $21,840 156.0 $1,747 $11.20 1.70 21.00
7 308.7 $130 $40,131 240.0 68.7 $3,441 $11.15 1.74 24.55
8 305.9 $125 $38,238 305.9 $3,847 $12.58 1.80 24.00
9 299.0 $135 $40,365 299.0 $5,465 $18.28 2.00 20.00
10 156.3 $120 $18,756 78.2 78.2 $1,709 $10.93 1.65 21.00
Total 2,148.2 $271,884 735.3 729.9 683.1 $26,061
Overallperacrevalues $126.56 $12.13 1.75 21.80Correlationofcashrentwithabovecolumns> 0.51 0.14 0.04
Munkrescashrentauction,January15,2011
Onlymarginal differences infarmabil ityandlandqualityacross tracts,exceptthattract2hadseveral acres inalagoon.All landis nonirrigated,fairlyflat,l ittleerosion,andhas goodroadandgrainmarketaccess.All landis open,i .e.,nogrowingwheat.Landleasedfor5years andtenantmustensurenoloss ofsoil fertil ityduringleaseterm,i .e.,mustreimburse
Preauctionexpectations l ikelywerecenteredaround$80/acre.LandlocatednearRexfordandGeminbothThomas andSheridancounties,Kansas.landowneratendofleaseforanyreducedfertil ity(bothNandP),asjudgedbybefore&aftersoil tests.
*2010CashrentvaluesasreportedbyUSDANASSandKansasAgriculturalStatistics(KAS).
Kansascountylevelnonirrigatedcropcashrents
So,whatisthemarketvalue?
SD
$36.00($37.50 2011)
TH
$38.00($37.50 2011)
NOSECRETS.Farmlandtenantsgenerallydislikepublicleaseauctionsfortworeasons:1)Theyremovethetraditional,personalrelationshipbondbetweentheowner/tenantandreduceittoanumbersgame;and2)Itpublicizesactualcashrentssoallthelandlordsintheareacancomparehowtheirleasesstackup.
ArticleaboutlandcashrentauctionsinIowa(TheProgressiveFarmer/April2012)
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Howwouldyoufeelaboutyourtypicalrentalarrangementifyouwereontheothersideofit?
1 2 3 4
0% 0%0%0%
Yourleasingarrangement
1. Imgettingagooddeal
2. IthinkImgettingtakenadvantageof
3. Seemsaboutright
4. Notsurewhattothink
1.Arelandowners(especiallyabsentee)treatedsimilartootherinputsuppliers?
Doyoudotherightthing?
2. Arefamilymemberstreatedsimilartoothernonrelativebusinesspartners?
3. Regardlessofthesizeofyouroperation,treatitlikeabusiness.
Themoreyoutreatyourfamilyfarmlikeabusiness,andlesslikeafamilyoperation,themorelikelyyoullhaveafamilyfarmtopassontofuturegenerations.
www.agmanager.info/mast Formoreinformationanddecisiontoolsrelatedtofarmmanagement,marketing,andriskmanagementgotowww.AgManager.info
IfinterestedinreceivingweeklyAgManager.infoUpdate oranyofourotherAgEconnewslettersviaemail,pleasecontactKevinDhuyvetterorRichLlewelyn.(Kevin:[email protected] 7855323527orRich:[email protected] 785.532.1504).
2_Dhuyvetter-Taylor_RentalValues2_Dhuyvetter-Taylor_CashRents.pdf