Trends in Nebraska Farm Real Estate and Flexible Lease Arrangements 2017-2018 by Jim Jansen

Jessica Groskopf Author

02/27/2018 Added

46 Plays

Description

Leading into 2018, Nebraska agricultural producers face challenging financial circumstances with current grain and livestock prices. Making informed decisions regarding the purchase or rental of agricultural land remains more important than ever with low commodity prices. This presentation will summarize trends in Nebraska land values and rental rates along with discussing flexible lease provisions to better adapt cash rents for unpredictable changes in price, yield, or revenue.

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[00:00:03.360]So, who came to my talk last year?
[00:00:05.350]Anyone?
[00:00:06.220]Few?
[00:00:07.100]Okay, so you know how I do things, right?
[00:00:10.050]So, they told me I'm being recorded today
[00:00:12.160]and stay on script and not say things I'm not supposed to.
[00:00:16.690]I guess we're being televised on Facebook or something.
[00:00:20.320]So, I thought the best thing to do,
[00:00:21.850]given that fact,
[00:00:22.870]was to go off script and show you something I found.
[00:00:29.530]So, us here...
[00:00:33.830]Alright.
[00:00:35.170]Did anybody go to Alex Vanalyck's talk yesterday?
[00:00:38.570]Anybody?
[00:00:39.403]Few?
[00:00:40.236]Okay.
[00:00:41.248]So I work with Alan a lot.
[00:00:42.230]And we work on these whole ideas related to
[00:00:44.470]farmland transition and farmland inheritance, right?
[00:00:48.540]If you have an asset, guess what?
[00:00:50.430]Congratulations, you're going to have to dispose of it
[00:00:52.480]at one point in your future.
[00:00:54.060]Whether you make plans or not.
[00:00:56.290]And one thing that people find interesting from my talks
[00:00:59.420]are how do we place a value on what we have?
[00:01:03.170]We have values.
[00:01:04.220]Values can be things like the religion we practice.
[00:01:06.830]Whatever.
[00:01:08.190]Values can also be assets.
[00:01:11.232]What do we got up there?
[00:01:12.800]What is that?
[00:01:15.000]I'm speaking in front of a group of women.
[00:01:16.570]We know what this is, right?
[00:01:17.770]What is it?
[00:01:20.990]Diamond ring.
[00:01:21.823]How many carats is that?
[00:01:25.360]40 acres?
[00:01:26.703](laughing)
[00:01:29.520]40 if it's dry land.
[00:01:32.675]20 if it's irrigated.
[00:01:35.960]160 if it's rough range land, right?
[00:01:39.860]So this ring...
[00:01:40.980]A little bit about myself.
[00:01:42.240]My significant other decided in her life
[00:01:44.420]to go back to law school
[00:01:45.700]and she's down in Lincoln right now.
[00:01:48.060]And I was at her place and we had supper
[00:01:50.340]and then she had to get back to school work.
[00:01:51.860]So that me and Jim went somewhere else.
[00:01:53.960]And we ended up at Costco,
[00:01:55.230]the new Costco in South Lincoln.
[00:01:57.920]They have a 4.2 carat diamond.
[00:02:00.441]Or I think it's 4.02 carat.
[00:02:03.290]A diamond ring in their display case at Costco.
[00:02:07.608]Okay, so what's that thing worth?
[00:02:09.162]Well, what things are worth
[00:02:11.090]are related to their attributes, right?
[00:02:14.690]So, you probably can't see this
[00:02:16.162]and I don't know if we can
[00:02:17.160]kill the lights up here a little bit more.
[00:02:18.990]But, when it comes to this, we have things.
[00:02:21.470]We have the weight, four carats.
[00:02:24.540]The diamond color E, the clarity.
[00:02:27.360]It's set in platinum.
[00:02:29.500]What does that relate to our farm?
[00:02:31.860]We have how many acres, we have livestock
[00:02:33.980]we have machinery, okay?
[00:02:36.400]We have a sale price, what we might have paid for it.
[00:02:39.520]We have assessed value.
[00:02:40.950]Assessed value is what?
[00:02:42.160]Taxation values, right?
[00:02:44.630]We also have appraised values,
[00:02:46.760]the estimated market value on this.
[00:02:48.800]Alright, so we have a four carat diamond ring
[00:02:50.780]that's set in platinum.
[00:02:51.830]What is this thing worth?
[00:02:53.190]Any guesses?
[00:02:57.150]40 acres?
[00:02:58.540]10,000?
[00:03:00.970]No.
[00:03:02.130]Come on, I don't bite.
[00:03:03.560]What is it worth?
[00:03:05.800]Whatever someone's going to pay for it.
[00:03:07.400]Whatever someone's going to pay for it, right?
[00:03:11.510]The sale price.
[00:03:13.050]And this will not ever be on sale.
[00:03:14.680]And, amazingly enough, four months after Costco opened,
[00:03:17.580]it's still available for sale, if anyone wants to buy it.
[00:03:22.050]$137,000 is the current asking sale price.
[00:03:28.170]But, to get us in the context of this boring economics talk,
[00:03:31.620]which, if you know me,
[00:03:32.530]you know I don't like to talk about economics.
[00:03:34.930]It's kind of boring.
[00:03:37.100]We have a sale price on an asset of $137,000,
[00:03:40.810]but the reason I took a photo of this was,
[00:03:43.390]one, to send it to my girlfriend to say,
[00:03:45.490]"Look what I bought you, honey."
[00:03:46.570]And then she looked at the price and she knew.
[00:03:50.500]The appraised value, if you ever go down to Costco...
[00:03:53.590]It's going to show up in there.
[00:03:55.110]The appraised value on this asset was $228,000.
[00:04:01.480]I couldn't believe that they were selling it
[00:04:03.280]for about $100,000 less than what they appraised it at.
[00:04:07.320]But, at any rate, when we start thinking about
[00:04:09.560]the assets that we have back home...
[00:04:12.800]Back home if you're working into a farm operation
[00:04:15.610]if you're young.
[00:04:16.770]If you're in the later tier of your life
[00:04:18.310]and you're starting to think about
[00:04:19.550]"What am I going to be doing with what I have?"
[00:04:22.850]Think about this in the context of
[00:04:25.900]just because it is appraised at
[00:04:28.530]or the current market value...
[00:04:31.210]If you're young again...
[00:04:32.920]If you were young again,
[00:04:33.800]could you afford to buy into it at that amount
[00:04:36.200]or would you maybe have to cut a deal
[00:04:37.720]to the next generation?
[00:04:39.530]And it might be less than fifty percent
[00:04:41.350]of the appraised value or something of that nature.
[00:04:43.830]So start thinking about those things
[00:04:45.390]if you haven't already, alright?
[00:04:47.949]Okay.
[00:04:50.120]So I broke the first thing I wasn't supposed to do today.
[00:04:53.100]So, let's have a little more fun.
[00:05:01.340]So we got...
[00:05:02.794]There we go.
[00:05:03.630]Trends in Nebraska farm real estate markets.
[00:05:06.940]So, let's talk about farm real estate.
[00:05:08.860]Whose property taxes went up this last year?
[00:05:11.750]Everyone, right?
[00:05:13.530]Why do property taxes go up, but the market value...
[00:05:17.640]If you start reading some of my stuff,
[00:05:19.340]we estimate the market value might be declining, okay?
[00:05:22.690]So, I'll talk a little bit about that.
[00:05:25.140]What we're going to do today is we're going to talk
[00:05:26.790]a little bit about the state of land.
[00:05:28.860]And, if you came to my talk last year,
[00:05:30.550]I spent a lot more on the numbers side.
[00:05:32.342]Well, we're going to kind of get an overview
[00:05:34.330]of what is happening in the Nebraska farmland markets
[00:05:38.830]in terms of the demographics.
[00:05:40.410]People are aging.
[00:05:41.740]There's more ground rented out than there ever has been.
[00:05:44.400]Okay, we'll talk a little bit about that.
[00:05:47.275]We'll also talk about where land value's headed.
[00:05:51.495]What influences the value of land?
[00:05:55.040]We'll talk a little bit about that.
[00:05:56.720]And then we'll wrap this all together
[00:05:58.720]in the context of a cropland lease arrangement.
[00:06:01.420]We'll give you a basic example of
[00:06:03.680]a flexible cash lease arrangement
[00:06:05.900]for a grow crop enterprise.
[00:06:09.670]So, if you want to get ahold of me in the future,
[00:06:11.430]if you want a copy of my slides...
[00:06:13.150]And it looks like you got colored handouts.
[00:06:14.770]So that's good.
[00:06:15.603]But, if you like anything that
[00:06:16.440]I'm going to talk about today,
[00:06:17.770]just send me an email and I'll send you
[00:06:19.090]a PDF or a PowerPoint of it.
[00:06:21.510]And this makes the phone in my pocket ring.
[00:06:23.770]And I will turn it on silent.
[00:06:26.640]And we're good to go.
[00:06:30.020]So, in your slides here, each section...
[00:06:32.930]When I start talking about something,
[00:06:34.610]I give the hyperlink up here.
[00:06:36.750]In this hyperlink,
[00:06:37.640]if you're bored and you work as an economist
[00:06:40.130]or you want to find more stuff on it,
[00:06:41.670]this is where you find it at.
[00:06:44.480]I kid you not.
[00:06:45.730]When your girlfriend's in law school,
[00:06:47.040]you have all kinds of time,
[00:06:48.080]because you don't have to go out
[00:06:48.980]on Saturday nights anymore right?
[00:06:52.120]So, I did this in December or January, I think.
[00:06:57.160]So, first question, where do we rent land out
[00:07:01.312]in the United States?
[00:07:03.560]Where do we rent it out at?
[00:07:05.600]Is there something that influences
[00:07:07.740]what percent of ground in Nebraska is rented out?
[00:07:12.240]Is it the type of crops we have,
[00:07:13.940]the presence of livestock?
[00:07:15.395]That's the first thing we're gonna talk about.
[00:07:18.460]So, in your handouts, you got a map of the United States.
[00:07:23.290]And we have this blue thing on the right hand side.
[00:07:25.510]Now, really try to break this down the best that I can
[00:07:28.250]when I do my talks so we don't get lost.
[00:07:31.100]But the point is you start in that light tan color
[00:07:33.690]down to a dark blue color.
[00:07:36.170]The darker blue it is, the darker the color is,
[00:07:40.930]the higher the percent of ground is rented out,
[00:07:45.960]by county, in the United States.
[00:07:48.670]So, that real dark blue is all the way down to 60%.
[00:07:52.235]60% or more of the ground in that county
[00:07:54.670]is being rented out.
[00:07:56.530]Why do we rent ground out?
[00:07:59.520]Make money, right?
[00:08:00.510]That's one thing.
[00:08:02.550]We might have an owner that's retired.
[00:08:05.090]Absentee land owner.
[00:08:06.770]Whatever, right?
[00:08:08.768]So, think about the demographics of
[00:08:11.350]what's happening here in Nebraska
[00:08:12.990]and how things are starting to change.
[00:08:14.580]The changing face of Nebraska ag.
[00:08:17.280]For better or for worse, it's happening.
[00:08:19.130]But, so, what do we notice up there.
[00:08:20.820]We see Nebraska.
[00:08:21.790]We can hardly see it.
[00:08:23.140]We see there's a huge dark blue spot in Iowa.
[00:08:26.750]That's where the girlfriend's from.
[00:08:28.210]And then, Illinois and Indiana,
[00:08:29.730]we see some pretty dark blue there, too.
[00:08:32.470]Where is the corn belt at in the United States?
[00:08:36.670]Right there.
[00:08:37.633]We'll talk about that in a few slides.
[00:08:40.300]Here we go.
[00:08:41.133]We zoom in a little further.
[00:08:42.160]So, we got Nebraska
[00:08:43.310]and all the surrounding states around Nebraska.
[00:08:46.730]Okay, so a few things start appearing to me.
[00:08:48.991]And, hopefully, you can see this
[00:08:51.000]a little better in your handouts.
[00:08:52.670]It looks like we kind of have the eastern tier of Nebraska
[00:08:55.970]and maybe that southeast part of Nebraska
[00:08:59.380]has a higher percent of ground that's rented out.
[00:09:02.710]What do we have in southeast and eastern Nebraska?
[00:09:05.870]Omaha, Lincoln, Columbus, Grand Island, Norfolk,
[00:09:09.140]some of these things.
[00:09:12.300]If you look at the USDA data,
[00:09:14.130]we don't have quite as much cow/calf operations
[00:09:17.410]in southeast Nebraska relative to other part of the state.
[00:09:21.660]Northcentral Iowa, we have a ton of land rented out.
[00:09:28.960]My girlfriend, she's from Pocahontas County, Iowa.
[00:09:31.929]That's where you look there.
[00:09:34.520]And I'll give some dating advice,
[00:09:36.080]if anyone's single here, too, in a little bit.
[00:09:38.308](laughter)
[00:09:40.040]Well, when we look at Nebraska,
[00:09:42.670]we start seeing some of these things.
[00:09:46.060]Where did the youth of southeast Nebraska
[00:09:48.160]go for the last 20 years?
[00:09:50.740]Omaha, Lincoln, metro areas, right?
[00:09:54.380]To a lesser extent, maybe northeast.
[00:09:56.810]We see, when we get out in the sand hills,
[00:09:58.710]it appears to me, according to this information,
[00:10:00.900]there maybe isn't quite as much land that is rented out
[00:10:05.770]compared to our grow crop counterparts.
[00:10:09.550]Who's older, ranchers or farmers?
[00:10:13.810]Ranchers.
[00:10:14.980]Really, and I'm not joking,
[00:10:16.040]when you look at the USDA information,
[00:10:17.940]the census of ag which is being conducted right now,
[00:10:20.910]it will show up that the average age of ranchers
[00:10:23.314]is older than farmers.
[00:10:26.790]So, who's more pessimistic?
[00:10:28.100]Okay, no.
[00:10:29.098](laughter)
[00:10:30.760]But we have a changing face of what's happening.
[00:10:34.010]So, think about your situation.
[00:10:35.920]Your situation, maybe you have some kids returning.
[00:10:38.620]Whatever.
[00:10:40.000]Think about what's going on
[00:10:41.340]and what it takes to make this work.
[00:10:43.140]But I said there's a relationship between
[00:10:45.220]the percent of the ground that's rented out
[00:10:46.920]and something else.
[00:10:48.130]What?
[00:10:49.052]Crops.
[00:10:51.350]So, what we got here...
[00:10:52.630]Does anybody got any questions or comments?
[00:10:54.280]If you got any, I guess I'm supposed to
[00:10:57.120]throw this red ball around to you,
[00:10:58.560]because there's a microphone in it and they'll record you.
[00:11:04.690]This is kind of the context...
[00:11:06.750]I'm trying to set the stage.
[00:11:07.920]Economics is boring, so let's make it a little fun.
[00:11:10.570]So, what we have up here is this United States map,
[00:11:14.030]just like we did three slides ago.
[00:11:16.530]We have that....
[00:11:17.470]The right hand side right here's always the key
[00:11:19.660]on these first tier slides.
[00:11:21.930]Yellow is corn.
[00:11:24.218]Blue is rice.
[00:11:26.090]That light brown is wheat.
[00:11:27.600]Orange is sorghum and green is soybeans.
[00:11:30.480]I acknowledge you can't see it so well up there.,
[00:11:32.530]but, if you really would like to
[00:11:33.480]see this in higher resolution,
[00:11:35.350]I can send you these slides.
[00:11:37.730]So, what do we notice?
[00:11:39.540]Where that dark blue was before,
[00:11:41.330]we see a lot of yellow up there, right?
[00:11:43.370]Yellow and green.
[00:11:45.230]You zoom in a little bit farther.
[00:11:46.942]Lo and behold, we have quite a bit of yellow here.
[00:11:50.780]And we have some of that brown color out here
[00:11:53.600]where we raise wheat.
[00:11:56.010]So, we see a lot of that yellow and green right there
[00:11:58.670]and we see kind of a hole up here where the sand hills are.
[00:12:02.830]So, if you came to my talk before,
[00:12:04.560]what are the three Cs of the Nebraska economy?
[00:12:07.320]Anybody recall?
[00:12:10.300]Corn huskers, that's right.
[00:12:12.930]And we're down on all of them right now, right?
[00:12:16.310]But Mike Reilly was a nice guy.
[00:12:19.117]The end was covered...
[00:12:21.550]Mike...
[00:12:24.800]Corn, cattle, and corn huskers.
[00:12:26.830]When you think about what pushes us over
[00:12:29.140]or takes us under on state revenue projections,
[00:12:32.960]things that fund the State of Nebraska,
[00:12:35.490]things that pay the State of Nebraska employees right here.
[00:12:40.580]University of Nebraska employees are state paid.
[00:12:44.070]It's the ag industry.
[00:12:46.760]So, when I joke about this, we got corn.
[00:12:48.900]Yes, we have soybeans, too.
[00:12:50.720]But, when you look at this map relative to Iowa,
[00:12:53.390]it's pretty amazing to think
[00:12:54.770]we're number two in corn production,
[00:12:56.730]given we've got that big hole out there.
[00:12:59.000]Pretty cool.
[00:13:00.070]Soybeans, we're not quite as high.
[00:13:01.990]Cattle, guess what, we process more red meat in this state
[00:13:07.190]than any other state in the United States.
[00:13:10.090]We have the largest commercial grade live cattle
[00:13:13.320]processing facility in Dakota City in the United States.
[00:13:17.060]It distinguishes us.
[00:13:18.400]And take that amount of meat
[00:13:19.450]divided by the number of people here,
[00:13:21.050]it's about 9800 pounds a year.
[00:13:23.880]That's a lot.
[00:13:25.070]Obviously, we move that out.
[00:13:26.390]But, beef, beef moving over to China right now
[00:13:28.750]is important to keep us afloat.
[00:13:31.273]And then we got the corn huskers.
[00:13:33.250]And we all know what happened there this year.
[00:13:35.550]But things are looking up, right?
[00:13:37.630]We're always optimists.
[00:13:38.630]Perpetual optimists.
[00:13:40.230]You gotta be to be in our industry.
[00:13:43.500]But we zoom in a little bit further.
[00:13:46.480]Yellow's corn, green is soybeans, brown is wheat.
[00:13:49.550]Sorghum's kind of an orange color.
[00:13:51.190]Which some of that kind of creeps here in the souther tier.
[00:13:54.890]But it's pretty amazing to think about,
[00:13:56.780]when you go to meet these people at this conference here,
[00:13:59.050]what we have and what's going on with our ag industry here.
[00:14:02.750]We have issues with water.
[00:14:04.220]Challenges we're facing.
[00:14:06.190]What's our natural hedge against drought in Nebraska?
[00:14:09.620]Water.
[00:14:12.850]You know, so the girlfriend's from northcentral Iowa.
[00:14:16.890]And her dad owns three Tandem Discs.
[00:14:19.540]I had to explain to him what dry land corn was.
[00:14:24.610]That's an interesting conversation.
[00:14:28.200]But I always tell people...
[00:14:29.630]You know what, maybe I shouldn't say that.
[00:14:31.010]So, we think about what we have here.
[00:14:35.390]And I gave this talk on campus to
[00:14:37.480]an advanced farm management course.
[00:14:39.130]And I told these students they have a golden opportunity...
[00:14:41.987]Our cameraman's just frowning when I say this.
[00:14:46.432]When we think about family dynamics
[00:14:48.720]and the size of the operations that we have,
[00:14:51.680]do these things just start from nothing?
[00:14:53.960]Probably not.
[00:14:54.793]There's probably some critical link in someone's past
[00:14:57.200]that has made what they have today.
[00:14:59.770]So, I tell all the students here,
[00:15:01.480]when you're on the perspective market
[00:15:03.270]and you're on Farmers Only,
[00:15:04.950]you gotta be thinking about the fact
[00:15:08.400]you can marry more land than you can ever buy in a lifetime.
[00:15:13.090](laughter)
[00:15:14.940]But, when you think about the size of farms,
[00:15:19.320]think about the situations where
[00:15:20.920]you had that one uncle that never got married
[00:15:22.800]and he left a lot to someone.
[00:15:26.240]I also had an older widow once tell me
[00:15:28.260]you can lose more land through marriage
[00:15:29.860]than you can ever buy in a lifetime.
[00:15:31.424](laughter)
[00:15:33.548]So, the State of Nebraska.
[00:15:35.020]We look at this big state we have up here.
[00:15:36.810]We have 45 million acres
[00:15:38.790]of agricultural ground in the state.
[00:15:41.380]We're very diverse in what we have here.
[00:15:43.570]Very robust beef industry.
[00:15:45.380]Very robust crop industry.
[00:15:48.600]Compared to other states,
[00:15:50.870]Nebraska is ranked 7th in terms of
[00:15:54.370]the amount of cropland we have in the state
[00:15:56.390]relative to other states.
[00:15:58.727]What's amazing is, when you look at this,
[00:16:01.360]there's a big portion of our state
[00:16:02.870]that's really engaged in
[00:16:03.960]the cow, calf, and ranching industry.
[00:16:06.930]So, that's what this chart right here...
[00:16:08.470]Texas is number one.
[00:16:09.740]Kansas, Iowa, Illinois, Minnesota, Nebraska, South Dakota.
[00:16:15.150]We have roughly 20 million acres,
[00:16:18.511]20, 21 million acres of cropland in the state.
[00:16:23.180]We have more irrigated cropland in this state
[00:16:26.290]than we do anywhere else in the United States.
[00:16:28.910]And that includes California and Texas.
[00:16:31.630]California has a lot and Texas has a lot.
[00:16:33.760]But we are number one in that.
[00:16:36.556]When it comes to the grasslands,
[00:16:39.870]the segment of the land industry
[00:16:41.970]that supports our cow/calf industry,
[00:16:46.410]we are ranked number 12.
[00:16:47.810]But you also have to start thinking about,
[00:16:49.790]okay, when we go west of here,
[00:16:51.350]we got Wyoming, Arizona, Utah, Idaho.
[00:16:54.870]A lot of those states, fairly barren compared to ours
[00:16:58.390]in terms of the crop industry.
[00:17:00.220]We're ranked number 12.
[00:17:03.500]We got around 23, roughly 23 and a half million acres
[00:17:08.029]in grasslands.
[00:17:10.350]Either grasslands or hay land or meadows, pasture.
[00:17:13.120]That kind of stuff.
[00:17:14.750]So, question.
[00:17:17.260]Who is the number one land owner in the State of Nebraska?
[00:17:21.200]Anybody know?
[00:17:24.740]No, no.
[00:17:29.230]School systems.
[00:17:31.320]The school land's trust.
[00:17:32.860]Anybody know that?
[00:17:34.380]The State of Nebraska is the number one land owner.
[00:17:37.540]And I'm excluding public roadways, highways, the interstate.
[00:17:41.792]That kind of stuff.
[00:17:42.625]The school land trust.
[00:17:44.410]I won't talk too much on that.
[00:17:45.500]But just an FYI.
[00:17:46.840]So, anyways, we set the stage here.
[00:17:48.570]This is what we've got going on in Nebraska right now.
[00:17:53.330]So, let's talk a little bit about
[00:17:55.470]what's happening in the United States.
[00:17:57.700]'Cause we always wanna know what our neighbor's doing.
[00:18:02.240]There are different places where
[00:18:04.100]we can gain insight on what is happening
[00:18:07.650]in the Nebraska, in the United States land industry.
[00:18:11.350]What we just highlighted came from
[00:18:13.220]a group called the Economics Research Service.
[00:18:15.936]Bunch of economists.
[00:18:18.270]Try talking to them on the phone.
[00:18:19.700]They're really a fun group of people.
[00:18:22.530]There's another group called
[00:18:24.300]the National Agricultural Statistics Service.
[00:18:27.749]Anybody ever hear of them before?
[00:18:30.970]They send you stuff in the mail.
[00:18:32.570]You throw it away.
[00:18:33.403]They call you.
[00:18:34.236]You hang up or block them.
[00:18:36.010]They send someone out.
[00:18:38.213]What do statisticians do?
[00:18:41.020]They take surveys.
[00:18:42.240]It's one of the things they do.
[00:18:44.040]One thing that they follow,
[00:18:45.540]in addition to the marketing year average prices,
[00:18:48.320]as well as crops, county crop yields,
[00:18:51.170]they keep track of land in the United States.
[00:18:55.890]This is a statewide regional outlook.
[00:18:58.640]What do we see here?
[00:18:59.473]So, this is for...
[00:19:00.530]Let me double check what I got.
[00:19:03.370]So, they term this as farmland.
[00:19:04.920]So this is taking into account
[00:19:06.380]both the cropland and the farmland.
[00:19:10.370]We notice Nebraska up there.
[00:19:11.980]They estimated, for 2017...
[00:19:14.760]And you probably can't see this on your slide,
[00:19:16.500]but this was estimated on August 3, 2017.
[00:19:20.360]They estimated the market value of land was down about 2%.
[00:19:25.430]Surrounding states up slightly, down slightly.
[00:19:28.480]But not a lot of movement.
[00:19:30.210]It's kind of like land doesn't know
[00:19:31.420]which way it wants to go.
[00:19:34.590]One other thing.
[00:19:35.900]What state had extreme drought
[00:19:38.640]for the last five, six, seven, eight years?
[00:19:41.230]And I think it's rescinded itself some.
[00:19:45.340]California.
[00:19:47.720]Anybody look...
[00:19:48.553]If you look through all this stuff,
[00:19:49.760]what state had the highest gain
[00:19:51.500]in ag land values in the United States?
[00:19:55.440]California.
[00:19:56.560]Very interesting.
[00:19:58.470]Where do we ever see that happen?
[00:19:59.750]Extreme drought.
[00:20:00.583]And we're setting record land prices.
[00:20:03.380]Nebraska.
[00:20:05.240]So, we have some things going on.
[00:20:07.970]When we go to the cropland side,
[00:20:10.720]the rate of decline is slightly higher.
[00:20:13.310]We're talking around 6% down in Nebraska.
[00:20:17.090]Neighboring states down a similar amount.
[00:20:20.870]Iowa, Iowa is up somewhere around one, two, 3%.
[00:20:28.600]But, when we start thinking about
[00:20:30.260]the outlook on what influences land,
[00:20:32.970]there's really two things that come to my mind.
[00:20:36.170]The value of what we're doing
[00:20:38.270]and the cost associated with financing those purchases.
[00:20:43.560]And we'll talk about those.
[00:20:46.000]On the pastureland side,
[00:20:47.667]we've seen a lot of slightly up numbers.
[00:20:50.880]Iowa was down just a little bit on that amount.
[00:20:53.350]But Iowa doesn't have very much pasture
[00:20:55.680]compared to what we have.
[00:20:58.380]We've seen a lot of these western tier states.
[00:21:03.430]No change, that means NC.
[00:21:05.330]So, there's not a lot of changes out there.
[00:21:11.550]So, let me kind of figure out where I'm at here
[00:21:14.720]so I don't get too far off pace.
[00:21:17.040]So, we're seeing things, according to different resources
[00:21:20.650]that you can find online,
[00:21:22.980]the value of land has changed a little in the last year.
[00:21:26.840]Probably down slightly, but not a lot of change.
[00:21:31.240]How many people think land's gonna be going up this year?
[00:21:35.790]Oh yeah, one person.
[00:21:37.660]Who thinks it's gonna be declining
[00:21:39.000]or kind of stagflation of what we see up here?
[00:21:41.300]Quite a few.
[00:21:43.270]What influences the value of land?
[00:21:46.090]The value of what we produce.
[00:21:48.370]Corn or cattle, soybeans, swine, those kind of things.
[00:21:53.110]The cost of financing a purchase.
[00:21:57.010]So, who remembers my pickup?
[00:21:58.770]Anybody?
[00:22:00.650]Old Faithful is still around this year.
[00:22:02.770]Alright, so here's the story.
[00:22:04.840]My pickup turned over 339,000 miles yesterday.
[00:22:10.120]It is the plight of my existence
[00:22:11.830]between my significant other and myself.
[00:22:15.560]I tell her she should just be glad
[00:22:17.080]I finally fixed the brakes on it.
[00:22:19.960]She says I need to be in the market for a new vehicle.
[00:22:23.440]She's an accountant, too.
[00:22:24.740]She's a CPA.
[00:22:26.380]Which, by the way, CPA's are not good people to date,
[00:22:28.830]because they are trained to know
[00:22:30.240]whether or not someone's lying.
[00:22:32.160](laughter)
[00:22:33.870]But she makes me stick to this budget.
[00:22:36.590]She's says I got so much money a month.
[00:22:39.430]Let's say it's $300 a month, no more, no less,
[00:22:42.130]I have to spend on a vehicle.
[00:22:44.440]Fixed payment, $300 a month.
[00:22:47.230]Can I afford to buy more vehicle,
[00:22:50.390]pay a higher sale price for a vehicle,
[00:22:52.300]if I'm paying 0.9% or 6.9%?
[00:22:58.350]If it's a fixed budget amount each month.
[00:23:01.040]Of course, you can afford to pay more for that vehicle
[00:23:05.210]if you're at a low interest rate or 0%.
[00:23:09.234]What are interest rates doing right now?
[00:23:14.010]Great resource comes from the Federal Reserve.
[00:23:16.720]They have a branch office in Omaha
[00:23:18.650]with a Kansas City division.
[00:23:20.680]We'll talk a little bit about that.
[00:23:22.110]So, think in the context of finance.
[00:23:24.290]What does this all mean?
[00:23:27.860]So, a couple things that we got going on up here.
[00:23:31.300]And here the economics slides start.
[00:23:33.220]And this is typically the portion of the talk
[00:23:35.000]where you should probably be falling asleep.
[00:23:37.961]So, we got two things going on up there.
[00:23:41.070]We start in the year 2000 on the far left hand side
[00:23:44.800]and we move to the year 2017 on the far right hand side.
[00:23:49.640]We got a couple things.
[00:23:51.010]That blue line that's sticking up
[00:23:53.150]what it's saying is, compared to the prior period,
[00:23:56.415]the prior year, is the percent of debt,
[00:24:01.470]the percent of what people are borrowing.
[00:24:04.010]Is that increasing or decreasing?
[00:24:07.160]That's what that means.
[00:24:08.800]So, if it's going up, that means,
[00:24:10.670]compared to the prior year in terms of a percent change,
[00:24:14.520]debt has been increasing.
[00:24:17.220]So, what do we notice up there?
[00:24:20.620]When did this whole mess kind of start taking off?
[00:24:23.030]About '12 and '13 and '14 when
[00:24:24.970]commodity prices were quite high.
[00:24:27.370]One thing that kind of took me back,
[00:24:28.950]when I sat there looking at this,
[00:24:30.654]people like to take on debt when times are good.
[00:24:34.260]What's that mean?
[00:24:35.860]They're borrowing money.
[00:24:37.380]They're borrowing money to expand,
[00:24:39.690]to avoid taxes, and buy new machinery.
[00:24:44.490]In recent time, the total farm debt,
[00:24:47.870]in terms of new debt coming onboard,
[00:24:51.120]it's been slightly higher.
[00:24:52.630]But what was interesting.
[00:24:53.830]The last time we had extremely high commodity prices,
[00:24:57.940]we were taking on a lot of debt
[00:25:00.400]compared to the prior year.
[00:25:02.890]I'm not yelling at everyone the sky's falling,
[00:25:04.800]the sky's falling.
[00:25:05.633]But let's think in the terms of finance,
[00:25:07.670]especially if you work in the financial industry.
[00:25:11.960]That yellow line up there is non-real estate.
[00:25:14.930]And the gray line is real estate.
[00:25:16.970]So, the percent changes in real estate
[00:25:19.560]has been pretty solid.
[00:25:21.020]About year after year, we're taking on...
[00:25:23.210]We, being the United States ag sector,
[00:25:26.510]is taking on a little more debt and land each year.
[00:25:31.790]Another thing we got up here.
[00:25:35.650]When it comes to real estate interest,
[00:25:41.080]as well as interest on non-real estate...
[00:25:43.150]So, that might be a loan on operating line of credit
[00:25:46.470]or a machinery loan.
[00:25:48.670]Something of that nature.
[00:25:49.890]And then we have real estate.
[00:25:50.960]Real estate would be land.
[00:25:53.610]In terms of the billions of dollars
[00:25:55.510]that are paid each and every year by the ag sector,
[00:26:00.950]that line up here is around 12 billion on land
[00:26:05.163]and it's around 7.8 billion on non-real estate.
[00:26:09.600]So, what would cause that line to be going up?
[00:26:13.570]If we're taking on more debt.
[00:26:15.850]Or if something else is increasing.
[00:26:19.590]Interest rates, right?
[00:26:22.310]So whose husband went to the dealership
[00:26:25.670]before December 31 to buy something new to avoid taxes?
[00:26:29.640]Anyone?
[00:26:32.780]I'm not a husband, but I was at a dealership.
[00:26:36.330]When it comes to the interest rates that are being paid
[00:26:41.630]on farm real estate, as well as machinery loans,
[00:26:45.270]it's slightly higher than it was a year ago.
[00:26:48.900]Here's the chart we have.
[00:26:50.070]On the left hand side,
[00:26:51.240]we have variable rate interest loans.
[00:26:54.180]On the right hand side, we have fixed rate.
[00:26:58.164]Did I lose anyone?
[00:26:59.510]Not quite yet.
[00:27:02.230]This off pink color up here.
[00:27:04.720]It's kind of showing as light purple or almost a pink color.
[00:27:08.380]On the far right hand side.
[00:27:10.380]Compared to 2016, which is that orange color
[00:27:13.620]or kind of an off brown color of some kind,
[00:27:17.637]they're all up a little bit.
[00:27:22.300]They're all climbing up a little bit.
[00:27:25.060]There wasn't any category,
[00:27:26.510]according to their information,
[00:27:27.860]that was down compared to the prior year.
[00:27:31.090]It's pretty interesting.
[00:27:32.060]And it's not that the sky's falling
[00:27:34.000]and we went up a percent.
[00:27:36.090]But you look at these things.
[00:27:37.860]0.4, 0.5%.
[00:27:41.040]Things have increased a little bit.
[00:27:44.536]When we went to go buy that
[00:27:46.800]next combine for our farm before Christmas,
[00:27:49.750]it was no longer 0% financing for the next three years.
[00:27:54.770]It was more.
[00:27:57.340]3%, 4%, 5%.
[00:28:00.320]So, things are changing a little bit.
[00:28:04.530]Some interesting things that come out of
[00:28:07.430]the Kansas City Federal Reserve Survey.
[00:28:11.210]They had some comments made to us...
[00:28:13.149]And I don't know if I should spend a ton of time on them.
[00:28:16.140]But some of the challenges that we're facing,
[00:28:18.620]if you're a co-farm manager with your significant other,
[00:28:22.460]is what are we seeing happen?
[00:28:26.200]And some of the comments...
[00:28:27.180]This first slide is kind of
[00:28:28.340]on the western half of Nebraska.
[00:28:30.550]And then the second slide is on the eastern half.
[00:28:33.810]But some comments that were made.
[00:28:36.050]They're doing some things with FSA.
[00:28:38.400]And, when it comes to farmland lending,
[00:28:41.330]if we're resorting to the FSA,
[00:28:43.200]that might be because of some issues
[00:28:45.112]with credit distress
[00:28:47.880]or we have people who are borrowing, too,
[00:28:50.930]that things might not be as good
[00:28:52.440]as what they were in prior years.
[00:28:56.560]So, these are some challenges we see right there.
[00:28:59.340]And many of the concerns that we're seeing...
[00:29:01.870]I would suspect on your operations, as well as mine,
[00:29:05.330]go to the point on commodity prices.
[00:29:11.450]So, these challenges we're facing,
[00:29:13.220]what does this all mean for us?
[00:29:18.850]So, you got any questions?
[00:29:23.520]How far am I?
[00:29:26.240]I think I'm doing okay on time.
[00:29:31.588]We're about halfway.
[00:29:38.140]So, when we talked about property taxes,
[00:29:46.340]it's on that thing called assessed values.
[00:29:50.933]Assessed values is this thing we're debating
[00:29:52.700]in the unicameral right now.
[00:29:54.040]How should we assess ag land in Nebraska?
[00:29:58.120]We also have this thing called market price of an asset.
[00:30:02.270]What's the market price of an asset?
[00:30:04.320]Anyone have any ideas?
[00:30:07.200]You have an auction.
[00:30:08.870]People have money.
[00:30:09.960]You have buyers.
[00:30:10.793]You have sellers.
[00:30:12.170]Think of a livestock sale.
[00:30:14.320]That would be market price.
[00:30:16.810]When we talk about assessed value,
[00:30:20.760]it's based off of a three year median ag land value.
[00:30:29.230]And I'll point this out again.
[00:30:30.750]Assessed value on agricultural ground,
[00:30:33.800]which is different than residential,
[00:30:35.480]as well as commercial property,
[00:30:37.750]is based off of a three year median ag land value.
[00:30:44.270]So, we got a...
[00:30:45.600]Look at this chart here.
[00:30:46.700]And I'll break this down so it
[00:30:47.810]maybe makes more sense for everyone.
[00:30:50.450]Left hand side,
[00:30:51.420]we have the market value of land in Nebraska.
[00:30:55.690]Right hand side, we have the price of what?
[00:30:58.590]Corn, that's right.
[00:30:59.680]Corn huskers, right?
[00:31:01.410]And, accordingly, I put that in red.
[00:31:03.090]Because it's corn.
[00:31:05.030]So, as I said before, two things that influence land.
[00:31:08.730]The cost of borrowing to finance
[00:31:10.620]a new purchase or a used purchase,
[00:31:13.750]as well as the value of what we're producing.
[00:31:18.450]So, many of us here might have had parents
[00:31:21.450]that were farming back in the '80s.
[00:31:23.620]We both know that there were some things that happened
[00:31:26.470]by Paul Volcker and the Central Bank
[00:31:28.410]that they did to combat inflation
[00:31:30.950]that we really haven't had to face in my lifetime.
[00:31:34.370]But we get into the 1990s
[00:31:37.030]and we get into this period of time,
[00:31:38.736]even up until about 2001,
[00:31:41.430]that the value of land, the changes in that asset,
[00:31:45.470]were fairly stable, right?
[00:31:47.810]I can tell you, when you're an economist,
[00:31:49.980]economists like this stuff.
[00:31:52.030]They don't like this,
[00:31:53.040]because the models we come up with get blown to crap.
[00:31:56.450]They don't work this way.
[00:31:58.137]We had something that happened in about 2006-7.
[00:32:02.740]President Bush signed it into law.
[00:32:04.770]Anybody know what it was?
[00:32:07.100]Ethanol, that's right.
[00:32:09.450]We created an industry in Nebraska
[00:32:11.820]that uses 35, 40% of this corn.
[00:32:14.820]And, yes, we have byproducts from it.
[00:32:17.290]But we created a new demand in the United States
[00:32:20.330]for that number one crop we grow in this state.
[00:32:23.860]We compound in there.
[00:32:25.660]Over time, we start building things.
[00:32:27.440]We start building the assets that we have
[00:32:29.720]that we make ethanol out of.
[00:32:32.522]And we also throw in there the 2012 drought.
[00:32:38.370]So, the value of the things that we're producing
[00:32:41.100]reached some record levels.
[00:32:43.400]Corn, soybeans, wheat.
[00:32:46.540]Cattle were roughly 12 to 16 months after that.
[00:32:49.840]But they raised to some prices
[00:32:52.910]that were near record setting levels.
[00:32:56.020]And land, land also followed that.
[00:32:59.590]And it peaked, depending on
[00:33:00.820]the type of land you're looking at,
[00:33:02.160]around '14 or '15, depending on the type of land.
[00:33:05.820]And I'm sure your property tax assessments followed suit.
[00:33:10.634]Okay, so, December of each year,
[00:33:13.240]we get something really nice in the mail
[00:33:14.850]from our county assessor.
[00:33:17.508]Property taxes.
[00:33:20.130]We said it was based off of what?
[00:33:22.640]Three year median ag land value.
[00:33:27.560]If you're sitting in your county assessor's office
[00:33:30.830]and you're looking for your quadrant of the county
[00:33:33.320]where you're looking at comparable sales,
[00:33:35.620]land that has sold in your area of the county,
[00:33:39.040]they're looking at the last three years of sales.
[00:33:42.370]And what's a median value mean?
[00:33:43.990]Anybody know what that means?
[00:33:48.430]Somebody said the average.
[00:33:49.910]And it's close to that.
[00:33:51.660]It's the number in the middle.
[00:33:53.010]That's right.
[00:33:54.980]Somebody was paying attention in high school algebra.
[00:33:56.880]And I didn't know what it was until I looked it up, either.
[00:34:00.800]We look at a median number.
[00:34:02.580]So, if you're looking at the last three years of sales,
[00:34:06.820]where the current market value of land
[00:34:08.830]might be relative to this three year median ag land value
[00:34:14.610]where assessments might be coming in at
[00:34:16.638]might be different than where
[00:34:18.900]the current market values are at.
[00:34:20.980]Does everybody kind of understand
[00:34:21.813]where I'm coming across from there?
[00:34:23.700]And there's various proposals...
[00:34:25.330]And I'm not advocating anything.
[00:34:27.010]But there have been proposals in the last couple of years.
[00:34:29.546]We look at a five year median ag land value
[00:34:32.840]or a seven year or just a one year.
[00:34:36.270]So, think about those dynamics
[00:34:38.070]and what's happening in the market versus assessed values.
[00:34:41.490]Hopefully, everyone here has a little bit more confidence
[00:34:43.322]in me in that I'm not full of you know what compared to...
[00:34:47.700]So, you gotta be aware of my training in life.
[00:34:50.320]I'm a farmer's son and I'm also an economist by training.
[00:34:54.440]Do you think that typically makes me a very joyous person?
[00:34:57.190]No.
[00:34:58.193](laughter)
[00:34:59.440]I'm not a bucket of fun sometimes
[00:35:01.390]and I question a lot of things in life.
[00:35:03.930]And, that being said, always be aware...
[00:35:06.270]Try to think, bigger picture, of what's happening
[00:35:08.270]outside of whatever you own.
[00:35:12.440]So, we take this chart.
[00:35:17.750]And what we're gonna do here...
[00:35:19.310]I'm sorry.
[00:35:20.143]I was flipping a couple of slides.
[00:35:21.040]I haven't looked at this for a while.
[00:35:23.850]Let's drop off that corn price
[00:35:25.560]and keep that blue line up there
[00:35:26.960]for land values for a little bit.
[00:35:29.960]The next thing that we pop up there
[00:35:32.300]is the 10-year Treasury yield.
[00:35:35.230]What is that thing?
[00:35:36.890]Anybody know?
[00:35:39.080]It's how the US government takes on more debt every year.
[00:35:42.660]Really, Treasury bonds.
[00:35:45.720]When it comes to our land industry in the United States,
[00:35:50.020]there is a relationship between
[00:35:52.780]where the Treasury bills are trading at,
[00:35:55.410]10, 20, and 30 years.
[00:35:57.140]10 years is most common traded.
[00:35:59.780]Versus the cost of borrowing associated
[00:36:02.870]with getting a fixed term loan for financing these assets.
[00:36:11.010]I'm not gonna trend into this area,
[00:36:12.520]'cause I don't wanna put anyone on the spot or something.
[00:36:15.818]There's a relationship between these numbers.
[00:36:19.720]And we're not making land loans at 3.5% for 10 years.
[00:36:23.750]There's some other differences.
[00:36:25.600]But the point is we almost had a perfect storm.
[00:36:29.280]What has happened?
[00:36:30.920]We set these record prices for these commodities.
[00:36:33.840]And, remember, I said there were two things
[00:36:35.310]that influenced land values.
[00:36:36.560]What were they?
[00:36:37.970]Corn price, cattle, corn, crop...
[00:36:40.560]The value of what we're producing and the cost of borrowing.
[00:36:45.310]Back in the 1980s, the 10-year Treasury yield
[00:36:48.920]was very high compared to where it's been now.
[00:36:51.860]And it's just been a general gradation over time
[00:36:55.270]to get to where we're at right now.
[00:36:58.870]And, in 2012 and '13, we were at the low
[00:37:04.300]or pretty darn close to it.
[00:37:07.270]One of our finance professors on campus
[00:37:09.490]that's a real specialist on this,
[00:37:11.100]he was thinking what's going on right now,
[00:37:13.765]we might see maybe a half,
[00:37:16.710]maybe a 3/4 of a percent change in this.
[00:37:19.710]And, more than likely, it's gonna trickle over
[00:37:21.710]to these loans that are going out in land.
[00:37:25.030]And remember that old truck that
[00:37:26.350]my significant other detests?
[00:37:29.768]She told me I was not supposed to talk about her
[00:37:31.800]if I was being recorded today.
[00:37:34.050]See how that goes.
[00:37:36.750]Well, hope she doesn't watch this.
[00:37:41.440]These things get influenced.
[00:37:43.040]They influence our decision making
[00:37:44.780]when we go and sign that loan contract.
[00:37:48.084]Not overnight.
[00:37:48.917]It's not gonna happen overnight.
[00:37:50.280]But, implicitly, I will tell you,
[00:37:51.730]these things get bid into the market over time.
[00:37:55.916]So, there's a relationship.
[00:37:57.730]The relationship being, when we started the Great Recession
[00:38:01.410]in the US economy with the crisis
[00:38:03.330]we had in the housing industry,
[00:38:05.440]they did some fiscal policy things that
[00:38:07.579]caused our interest rates to almost go
[00:38:10.480]as low as they've ever been.
[00:38:12.270]And, that being said, that has really trickled into
[00:38:15.409]the value of land.
[00:38:18.460]If you put all this stuff into some models,
[00:38:20.414]we're estimating, if we see some of these changes,
[00:38:23.450]land might be down, three, four, five,
[00:38:25.060]six, seven, 8% this upcoming year.
[00:38:27.070]We'll see.
[00:38:28.370]We'll see, because I have a big thing of surveys
[00:38:30.760]that came in in our land survey in my backpack right now.
[00:38:35.380]Maybe.
[00:38:37.600]Right, and I covered my red end when I said that.
[00:38:39.610]So, you can't...
[00:38:40.800]Okay, so, I summarize that.
[00:38:44.390]When it comes to new information on
[00:38:47.440]farmland real estate for Nebraska
[00:38:49.530]pertaining to land values, as well as cash rental rates...
[00:38:53.230]And I'm supposed to be done at 10:15, right?
[00:38:55.970]Okay.
[00:38:57.600]I wanna make sure I time myself so this all goes together.
[00:39:00.830]If you'd like to find additional information
[00:39:03.160]on where land values,
[00:39:04.690]especially where cash rent is going in the future,
[00:39:08.410]check out the website, second bullet point up there,
[00:39:11.080]agecon.unl.edu/realestate.
[00:39:15.790]We will have preliminary estimates
[00:39:17.650]published in the Corn Husker Economics article
[00:39:20.700]that will be published on March 14, 2018.
[00:39:24.830]And my staff member that helps me put these together,
[00:39:27.760]she's here today.
[00:39:28.593]So, she's got me on tape that
[00:39:31.230]we gotta be getting our gears moving
[00:39:32.730]when we get that done on time.
[00:39:34.550]If you'd like additional information,
[00:39:36.890]please check out that website.
[00:39:43.960]Sure, so the question is what is all in this publication?
[00:39:47.620]Let me make sure.
[00:39:48.453]I gotta see where I'm going.
[00:39:53.210]Alright, so...
[00:39:54.660]Oh, god.
[00:39:56.660]So, the question is where is cash land rents going?
[00:39:59.810]It depends.
[00:40:00.643]If you're a landlord, they're not high enough
[00:40:01.850]and, if you're a tenant, they're too high.
[00:40:04.540]No.
[00:40:06.240]The Nebraska Farm Real Estate Survey
[00:40:08.110]is an annual survey that has been conducted
[00:40:10.130]by members of the University of Nebraska-Lincoln
[00:40:12.101]for the last 40 years.
[00:40:14.070]This will be the 40th edition of the survey.
[00:40:16.660]Inside this survey, and I don't actually talk
[00:40:18.930]in anything on it explicitly,
[00:40:20.680]other than a few little things I had in the prior slides.
[00:40:23.730]We keep track, by regent of the state,
[00:40:27.760]on cash rental rates on a per acre basis
[00:40:30.740]for dry land cropland, center pivot,
[00:40:33.660]and gravity or flood irrigation,
[00:40:35.820]as well as pasture land on a per acre basis.
[00:40:39.170]In addition to cow/calf and stock or rental rates
[00:40:42.370]on a per month basis.
[00:40:43.790]So, times it by five to figure out
[00:40:45.610]a grazing season rate.
[00:40:47.660]On this website, in early March, mid-March,
[00:40:51.250]we'll have our preliminary estimates on
[00:40:53.420]where cash rental rates, in addition to land values,
[00:40:56.140]are going.
[00:40:57.430]In June, typically in mid-June or so,
[00:41:01.130]we have our final report that comes out
[00:41:03.880]that gives a lot more detail on things.
[00:41:05.970]Some of that stuff I've been talking about.
[00:41:07.670]Who's buying land, who's selling land,
[00:41:10.330]how's it being financed?
[00:41:13.220]That kind of thing.
[00:41:14.590]So, if you and your significant other
[00:41:16.620]are negotiating cash rents trying to figure out
[00:41:19.060]where this whole puzzle's going,
[00:41:20.544]this is where things are at.
[00:41:24.600]Where is cash rent going for 2018?
[00:41:27.720]I've become very good at providing answers
[00:41:30.460]that don't actually tell you anything on that question.
[00:41:34.800]What do the fundamentals of what you're renting support?
[00:41:39.220]Really, when you're...
[00:41:40.470]I always love these calls.
[00:41:41.720]You get a call at 9:35.
[00:41:44.150]You got a landlord that's gonna go have coffee with someone.
[00:41:46.880]He doesn't tell me much more.
[00:41:48.970]Then you go to lunch.
[00:41:49.950]And then you have a note from your staff member
[00:41:52.240]that takes calls if you're out.
[00:41:54.090]You need to call so and so back.
[00:41:56.890]You talked to the landlord before lunch.
[00:41:58.570]You wanna guess who called after lunch?
[00:42:01.000]The tenant.
[00:42:02.866]And I always tell folks,
[00:42:04.720]when it comes to negotiating cash rent,
[00:42:07.290]I don't care if you're landlord or tenant,
[00:42:08.760]I always tell people "Ask the other person what they want.
[00:42:11.660]Get them to lay their cards down.
[00:42:13.320]It's like playing poker.
[00:42:14.260]Gotta call the bluff."
[00:42:16.380]But, beyond that, what do the fundamentals support?
[00:42:20.847]Do you, as a landlord, do you, as a tenant,
[00:42:24.730]provide basic things?
[00:42:26.350]Crop yields, major expense categories
[00:42:29.780]for seed, fertilizer, and chemicals.
[00:42:33.773]Are those bills going down this year?
[00:42:36.100]Is your landlord aware that you have
[00:42:38.077]kochia or ragweed or pigweed
[00:42:40.720]or some of these issues out there that you can control?
[00:42:43.760]But it's gonna cost more.
[00:42:46.180]In the long run, if they kick you off the ground,
[00:42:48.390]having a good field that does not have
[00:42:50.130]significant weed issues will be a benefit to them.
[00:42:54.380]Do you, as a landlord or a tenant...
[00:42:57.840]So, here's a good story.
[00:42:58.870]I forgot this one.
[00:43:00.870]So, I talk about the crops.
[00:43:04.030]But what about the grazing lands side.
[00:43:06.120]What do we have around our grasslands?
[00:43:08.300]Fence.
[00:43:09.460]Whose responsibility is that to maintain, then?
[00:43:12.800]The landlord or the tenant?
[00:43:14.750]Well, it depends what you can negotiate in.
[00:43:17.963]Recently, a retired farmer/rancher
[00:43:19.620]may have the time or the interest in
[00:43:21.220]maintaining it themselves.
[00:43:23.350]I've never met an 85 year old landlady
[00:43:25.660]that's been widowed that's wanting
[00:43:27.130]to go out there and do that.
[00:43:29.180]Now, I will say, if you have a significant improvement
[00:43:31.630]made on the fence that...
[00:43:32.660]The landowner or the landowner entity would probably pay for
[00:43:36.190]a quarter mile of new post and barb wire
[00:43:38.360]and, if they weren't, they were gonna give
[00:43:40.822]a significant discount on the rent.
[00:43:42.260]Weeds.
[00:43:43.200]Who's taking care of the weeds?
[00:43:45.400]The better thing.
[00:43:46.233]Cedar trees.
[00:43:47.490]You know what county I'm from?
[00:43:49.120]Cedar County.
[00:43:51.495]Now, on our farm, we don't have significant issues
[00:43:55.660]on our grazing land with cedar trees.
[00:43:57.350]Why?
[00:43:58.640]Because my dad has me.
[00:44:01.720]And what do I have?
[00:44:05.480]Couples activity time.
[00:44:07.635](laughter)
[00:44:10.040]You find a girlfriend from Iowa
[00:44:11.370]and she doesn't know what cedar trees are.
[00:44:13.050]And you're good.
[00:44:14.190]But the process is we take old Green
[00:44:16.340]and the '75 Scottsdale or whatever it is.
[00:44:20.120]And the brakes don't work very good in it.
[00:44:22.120]And my job is to run around.
[00:44:23.780]We have a portable saw that I use.
[00:44:26.670]And I kind of throw them into bunches
[00:44:28.580]and my significant other, her job is to throw them
[00:44:30.700]in the back of the pickup and then we put them
[00:44:32.840]on the tree pile and burn them or whatever.
[00:44:35.810]And it's always...
[00:44:36.820]But, seriously, think about these things.
[00:44:38.340]If I go out and rent land
[00:44:39.550]and you have significant cedar tree issues out there,
[00:44:42.750]you would probably give a discount on the rent
[00:44:45.690]when you have someone that is willing to go out there,
[00:44:47.810]because, even if they vacate that property for 2019,
[00:44:51.580]that improvement will be better
[00:44:53.320]if there is less weeds, less whatever.
[00:44:58.470]So, the dangerous activity,
[00:44:59.690]when it comes to cutting cedar trees,
[00:45:01.770]is not me using the saw.
[00:45:03.490]It's being followed around by a 1975 Scottsdale
[00:45:06.880]with my significant other girlfriend driving it.
[00:45:10.610]And then she's mad at me,
[00:45:12.620]so she kind of bumps up against me.
[00:45:15.650]Okay, so, if you have questions on cash rent,
[00:45:21.070]come and find me.
[00:45:22.430]This is the last piece that we have today.
[00:45:26.100]And please do not put on your evaluations
[00:45:28.110]comments about my significant other or the vehicle I drive.
[00:45:31.320]Three people out of 57 did it last year.
[00:45:34.189](laughter)
[00:45:37.320]So, when it comes to renting ground,
[00:45:40.410]I'm gonna introduce an idea here that
[00:45:42.260]maybe you've seen in the past.
[00:45:44.510]If not, when it comes to negotiating rent,
[00:45:48.280]you're sitting across the table from
[00:45:49.680]your landlord or your tenant.
[00:45:52.010]I can guarantee the two of you probably have
[00:45:54.230]a rough range on where you think cash rent might be.
[00:45:57.900]Landlords are probably a little bit higher than the tenant.
[00:46:00.743]Their expectations for crop yields, crop prices, calf prices
[00:46:05.060]are probably a little bit different than a tenant.
[00:46:07.950]The tenant would know...
[00:46:09.300]If we were sitting in Iowa and we didn't have
[00:46:11.150]the extreme potential in crop yield,
[00:46:14.180]if we knew for sure that we were gonna be
[00:46:16.180]raising that whatever bushel per acre crop
[00:46:18.710]and we were gonna be getting whatever dollars
[00:46:21.790]for that crop per bushel,
[00:46:24.190]they would maybe agree to that rent.
[00:46:26.360]The landlord knew, if it got dry
[00:46:28.810]and the crop yields got hurt, prices were down
[00:46:31.980]because our president did something or said something
[00:46:35.054]to influence trade,
[00:46:38.320]that we would cut a little bit of rent off of that.
[00:46:41.340]That's kind of the idea behind a flexible rent.
[00:46:44.710]Now, let me double check where I'm at with this.
[00:46:49.807]Alright, so we got...
[00:46:51.900]Alright, what a flexible rent is...
[00:46:56.100]You sit down across the table from a landlord or tenant
[00:47:00.050]and you folks get some ideas on...
[00:47:03.930]You have an idea that you would
[00:47:05.910]maybe allow the rent to fluctuate within a range.
[00:47:10.860]Maybe the base rent is 150
[00:47:13.020]and you might allow it to go up $30 or down $30
[00:47:16.380]within a range.
[00:47:17.920]It's not unlimited potential.
[00:47:19.920]It can't go up to 500 and it can't go down to zero.
[00:47:23.260]What we're talking about here
[00:47:24.620]is a thing called flexible rent.
[00:47:27.580]I will step through this outline
[00:47:29.780]that we have right there
[00:47:31.030]and give you some examples on point C there.
[00:47:35.110]How do we adjust rent?
[00:47:36.550]In this last set of slides,
[00:47:38.120]the numbers are in your handouts.
[00:47:40.290]There's many ways we can set up flexible lease arrangements,
[00:47:43.350]but the one example I have up here,
[00:47:45.080]in my opinion, is a little bit easier to
[00:47:48.850]attach in your mind kind of think through
[00:47:51.330]than what some of the other things might be.
[00:47:54.400]When it comes to cropland,
[00:47:56.850]what are the two elements of risk?
[00:48:00.330]I did this in my thesis.
[00:48:01.680]You can actually search my name, Jim Jameson thesis
[00:48:04.520]and find a 200 page document I wrote.
[00:48:07.170]Believe it.
[00:48:08.347]I can actually write something.
[00:48:09.650]When we talk about cropland risk,
[00:48:11.720]what are the two things we're concerned about?
[00:48:14.930]Yield and price.
[00:48:17.900]When we talk about risk with cattle production,
[00:48:20.320]what is our risk?
[00:48:21.940]We don't have a yield on our cattle.
[00:48:23.490]We might have an influence on our rate of gain.
[00:48:25.430]But price.
[00:48:27.400]So, when we talk about flexible lease,
[00:48:29.840]how do we intertwine those elements of risk,
[00:48:32.460]those things that we're concerned about,
[00:48:34.900]into the lease arrangement?
[00:48:36.330]We'll talk about that.
[00:48:40.650]At the base level, you and whoever
[00:48:44.250]you're negotiating cash rent with
[00:48:46.830]needs to figure out a base rent.
[00:48:51.540]I mentioned, if you and the landlord
[00:48:53.250]are negotiating cash rent
[00:48:55.730]and, if your landlord thinks it should be 200
[00:48:59.290]and you, as a tenant, think it should be 150,
[00:49:02.440]and you both kind of agree,
[00:49:03.530]if things would actually turn out good,
[00:49:04.980]maybe it will be 200.
[00:49:06.750]And, if things aren't that good,
[00:49:07.960]maybe it should actually be 150.
[00:49:10.520]Maybe you pick the middle ground between it.
[00:49:12.760]The average.
[00:49:14.360]This is not gonna work if you wanna pay 50
[00:49:16.096]and your landlord wants 250.
[00:49:17.820]But, if you're in within 50, $40, $50 an acre,
[00:49:22.400]that might be one idea.
[00:49:24.440]There is other ways.
[00:49:26.637]And, if you've come to my talks before, we talk about that.
[00:49:29.660]You can find the University of Nebraska information.
[00:49:32.040]You can find information from the USDA.
[00:49:34.810]If you'd like more information on that,
[00:49:36.340]send me an email and I'll send you some stuff.
[00:49:40.240]But the basic question is
[00:49:41.661]what is the minimum the landlord is willing to accept
[00:49:44.560]and what's the maximum the tenant would be willing to pay.
[00:49:46.970]So, that 150 to 250 might be an idea.
[00:49:50.280]But you have to have a range.
[00:49:51.830]You don't have unlimited downside
[00:49:53.450]and unlimited upside potential.
[00:49:57.850]Basic idea of what happens here.
[00:50:01.230]Depending upon what you're flexing the rent on,
[00:50:05.621]if that thing was yield, price, crop revenue,
[00:50:10.040]livestock revenue per head,
[00:50:12.070]if things are better than you folks had anticipated,
[00:50:15.880]there will be more rent paid.
[00:50:18.260]If things are tight, things are down,
[00:50:20.440]if you get hail in your area
[00:50:22.940]and prices are only 325 this year or something,
[00:50:26.650]in those cases, us, as tenants,
[00:50:29.690]would have a little bit of a break.
[00:50:31.300]Now, there's a range though, recall.
[00:50:33.150]We said 150, that was the minimum.
[00:50:36.610]200's the maximum.
[00:50:38.313]So, that's the idea behind how lease will be flexed
[00:50:44.490]is based upon, when things are better than expected,
[00:50:47.870]we pay a little bit more in rent.
[00:50:49.370]When things are worse off than we expected,
[00:50:52.040]we pay less in rent.
[00:50:55.650]Am I confusing anyone yet?
[00:50:58.120]I'm starting to get this look I've seen before.
[00:51:02.883]I'm not talking from crowds.
[00:51:04.040]It's from someone I've seen yesterday.
[00:51:06.610]And I knew I was in trouble
[00:51:07.660]when I said something I shouldn't of.
[00:51:16.800]Right, so, somebody said,
[00:51:18.990]"My biggest concern would be,
[00:51:20.200]if I try some of this stuff, I want to get it in writing."
[00:51:23.580]I'll give you a website where you can
[00:51:24.790]find a lease you can plug this into.
[00:51:28.250]So, when it comes to doing a flexible lease,
[00:51:33.330]one, I would encourage you to
[00:51:34.620]get anything in writing, as always.
[00:51:37.130]And the second thing I would encourage you to look at is,
[00:51:40.740]relative to that base rent,
[00:51:42.890]if the base rent is 175 an acre,
[00:51:46.390]where is the minimum price gonna be?
[00:51:48.350]Maybe 150 an acre?
[00:51:50.610]Where is the maximum price gonna be?
[00:51:52.496]200.
[00:51:54.430]You have to limit the risk exposure
[00:51:56.260]for both parties involved.
[00:51:58.580]Everyone has to get something out of this deal.
[00:52:00.810]It can't be just give and take.
[00:52:04.490]So, if I got you confused before, here's another example.
[00:52:11.940]We, in this case, we have a range here
[00:52:15.300]in which our flexible lease rent can range.
[00:52:20.220]The base rent, when we sign the contract, it's 175 an acre.
[00:52:25.830]If prices improve, if yields improve,
[00:52:27.940]if crop revenue improves, whatever we flex upside on,
[00:52:31.080]the most we can ever be on the hook for is 210 an acre.
[00:52:37.100]And, if things get bad, for whatever reason,
[00:52:40.890]the minimum amount, the lowest rental rate
[00:52:45.110]that can be paid is 140.
[00:52:47.890]This is the range inside of which the rent has to stay.
[00:52:54.570]I love doing this talk.
[00:52:56.180]I did a talk like this in central Nebraska.
[00:52:58.707]And I had a mole at it.
[00:53:01.240]Does anyone know what a mole is?
[00:53:03.180]Besides they dig up your lawn.
[00:53:04.820]There used to be an old TV show called The Mole.
[00:53:07.330]They're disruptors, right?
[00:53:09.250]They're there to cause havoc.
[00:53:11.520]So, we did a two part workshop.
[00:53:13.100]Alan and I did the first morning session
[00:53:15.100]and then that kind of led to an afternoon session.
[00:53:16.900]And I talked on this stuff for an hour,
[00:53:18.500]which gets to be a little bit long.
[00:53:21.380]The guy that came came for the morning session.
[00:53:24.130]Didn't say anything.
[00:53:25.370]Probably was really there for the free lunch.
[00:53:28.690]But he stayed until I started on the flex lease slides.
[00:53:32.590]And you got Alan sitting on the back
[00:53:34.380]playing Candy Crush, like he usually is.
[00:53:36.370]If you know Alan, that's what he does.
[00:53:38.240]And I'm up there talking.
[00:53:40.310]But this guy...
[00:53:41.490]I start talking about flexible cash leases.
[00:53:43.760]He stands up during my talk.
[00:53:45.410]It's bad enough trying to get people
[00:53:46.650]to talk during these things.
[00:53:48.620]He stands up and he hits the table.
[00:53:51.730]"I followed the University of Nebraska recommendations
[00:53:54.870]and they were terrible."
[00:53:55.860]He actually said something worse than that.
[00:53:57.318]Mind, we're being recorded.
[00:53:59.220]"They are terrible.
[00:54:00.480]This flexible lease, you're gonna get taken advantage of."
[00:54:03.910]And then he got his stuff.
[00:54:05.130]And, after he got his stuff, he stormed out.
[00:54:07.990]And then Alan finished his round of Candy Crush
[00:54:09.930]he was playing, he got up,
[00:54:10.900]and he tried to find the guy outside,
[00:54:12.220]but he was just walking.
[00:54:14.810]What did he forget in his flexible lease arrangement
[00:54:17.470]that I have to give an example on?
[00:54:21.450]This individual had a corn crop, an irrigated corn crop.
[00:54:25.070]I don't know what happened out there,
[00:54:26.470]but this field had consistently raised
[00:54:29.771]two hundred and some bushel per acre.
[00:54:31.980]And, this particular year, there was something not right.
[00:54:34.450]Something didn't get sprayed right.
[00:54:35.860]The crop variety wasn't right.
[00:54:37.810]Whatever it was, he only raised 80 bushel per acre.
[00:54:45.460]When it came to this, he did not have
[00:54:49.200]a minimum rental rate in the contract.
[00:54:52.940]He had unlimited downside and unlimited upside.
[00:54:57.043]If you ever do think about these things for your crops,
[00:55:00.920]your cow/calf pairs, remember,
[00:55:02.410]you gotta have a range in there
[00:55:03.878]to make these things work in
[00:55:05.640]the event something doesn't go our way.
[00:55:08.120]Now, why do we have a minimum rent
[00:55:10.060]even if we raise zero bushel per acre?
[00:55:13.190]Crop insurance, farm programs.
[00:55:15.580]We have safety nets available to us as producers.
[00:55:19.100]There are safety nets available on the livestock side,
[00:55:21.750]Livestock Forage Disaster Program,
[00:55:23.753]that help us make payments.
[00:55:25.450]And they may not cover everything,
[00:55:26.867]but they help us make payments
[00:55:28.770]in the times when prices are low.
[00:55:31.290]Or in some event that causes a really bad problem.
[00:55:34.630]So, don't be a mole at my meeting.
[00:55:37.000]I really enjoyed it that day.
[00:55:38.210]This stuff gets boring when you do
[00:55:39.500]about 15 of these meetings in the fall.
[00:55:42.900]So, question for everyone.
[00:55:45.890]When should cash rental payments be due?
[00:55:50.350]When you sign the lease?
[00:55:54.450]I can tell you, if I signed a cash contract with someone
[00:55:59.200]and they demanded the cash rent up front on March 1st
[00:56:02.460]and I signed it,
[00:56:03.930]the second person I would probably be calling,
[00:56:06.100]unless the girlfriend's through law school, is my banker.
[00:56:10.350]The capacity of an individual to make the payment
[00:56:13.330]is going to be reflecting on their equity.
[00:56:15.400]Their net worth.
[00:56:16.810]For some people, it's a very big number.
[00:56:18.640]If you're a very experienced producer.
[00:56:20.246]Other people, it's probably negative.
[00:56:23.150]So, when we talk about timing of payments,
[00:56:27.880]regardless of if it's
[00:56:29.040]a traditional cash lease arrangement or a flex lease,
[00:56:32.780]we're probably going to think about that
[00:56:34.180]in terms of installments.
[00:56:36.450]Remember, flexible leases, we set this base rent
[00:56:39.596]and we're probably gonna pay
[00:56:40.990]a little bit higher or a little bit lower
[00:56:43.140]than the actual cash rent that's paid
[00:56:45.200]based upon some factor of something happening.
[00:56:48.810]So, you probably can't demand all the cash rent
[00:56:51.260]up front on March 1st.
[00:56:53.070]And I wouldn't think that that's
[00:56:53.990]a very equitable way to do things.
[00:56:56.440]You might ask, maybe, for a third of the cash rent
[00:56:59.460]at the time when the lease is signed
[00:57:01.690]to ensure the continuity of that lease.
[00:57:04.460]Continuity of that contract.
[00:57:07.320]Maybe you have a second installment
[00:57:09.270]around planting or the first or second time
[00:57:11.610]when the crop is sprayed.
[00:57:13.930]Maybe you pay the second third then.
[00:57:17.700]And maybe, when things are settled up,
[00:57:21.130]harvest is done, crops in the bin,
[00:57:24.322]if you're flexing based off of price,
[00:57:26.830]your prices that you're basing
[00:57:28.480]the flex off of are calculated,
[00:57:30.920]you finalize and you settle everything up at harvest time.
[00:57:35.300]So, we're spreading it out over the duration of this flex.
[00:57:38.290]And I think it'll make a little more sense
[00:57:40.280]once I go through two or three examples.
[00:57:44.370]And, if you go through my slides,
[00:57:49.510]when I give this in italics,
[00:57:51.080]what this means is you might see an element of the lease.
[00:57:53.369]Something in writing like this.
[00:57:55.990]When you get to the lease when it's wrote.
[00:58:00.230]So, you know, a minimum payment is due on March 1st
[00:58:02.900]with the final payment due the following January.
[00:58:05.380]Or the second payment is due July 1st
[00:58:08.000]and the final payment's due December 1st.
[00:58:10.360]Whatever.
[00:58:13.260]So, let me...
[00:58:21.010]I'm gonna move to this right here,
[00:58:22.360]given the amount of time we have left.
[00:58:24.870]There are different ways we can flex leases.
[00:58:28.450]And, if you ever come to our talk before,
[00:58:30.210]we've given some different examples.
[00:58:32.270]The main thing being it's based off of some factor.
[00:58:36.970]Price, yield, crop revenue.
[00:58:39.450]Those might be three pretty common ones.
[00:58:41.100]And I think those are the examples
[00:58:42.490]we're gonna be stepping through.
[00:58:46.530]One basic idea is using this thing called percent change.
[00:58:51.740]You know, did we produce 10% more crop revenue
[00:58:54.890]than we had anticipated when we signed the lease?
[00:58:58.510]So, this will be the basic idea here.
[00:59:01.330]So, here's our percent change.
[00:59:04.500]Remember, back to math class,
[00:59:06.000]let's make sure we get this all right.
[00:59:08.300]Everyone's on the same page.
[00:59:10.731]Let's say, in March...
[00:59:12.570]And I know these prices aren't reflective
[00:59:14.270]of what's gonna happen this year.
[00:59:15.560]This is just an example.
[00:59:18.070]Let's say, back in March, this upcoming March,
[00:59:22.420]we think that soybeans are gonna be
[00:59:24.140]$9.50 a bushel this fall.
[00:59:27.340]This is not accurate.
[00:59:28.320]I'm not a marketing person.
[00:59:30.630]During the season, demand picks up.
[00:59:33.310]We start moving more soybeans to China
[00:59:35.440]to feed to their livestock industry or something over there.
[00:59:38.820]Prices rise.
[00:59:40.210]The prices climb up to $12 per bushel
[00:59:42.610]after a November rally.
[00:59:44.690]What's the percent change between those two numbers?
[00:59:48.210]Nine and a half to 12?
[00:59:50.290]Remember back to the old math class.
[00:59:52.051]We take 12 off of nine and a half
[00:59:54.700]and divide it by nine and a half.
[00:59:57.180]The percent change between these two numbers,
[00:59:59.840]prices increased about 26%.
[01:00:03.320]Usually, we don't see prices go that high
[01:00:05.880]in that short of a period of time.
[01:00:08.000]But, remember, we start with what actually happened.
[01:00:11.770]We take off...
[01:00:12.750]We subtract what we had initially anticipated.
[01:00:16.480]And we divide it by what we had initially anticipated.
[01:00:20.470]Percent change.
[01:00:21.820]You can do this for yield.
[01:00:23.010]You can do it for price.
[01:00:23.970]You can do it for crop revenue.
[01:00:25.660]I just wanted to make sure everyone's on the same page.
[01:00:31.640]So, here, we're gonna do a flex lease
[01:00:34.430]and we're gonna look at the percent change
[01:00:37.020]if yields are higher or lower than we had anticipated.
[01:00:42.500]So, let's...
[01:00:44.520]Let me double check.
[01:00:47.040]Alright, so we're gonna go through the numbers here.
[01:00:49.180]And we saved this till the last, 'cause it gets...
[01:00:53.120]Let's break down what we got.
[01:00:57.490]When we signed this lease on this round,
[01:00:59.960]we had anticipated the base rent to be at
[01:01:02.200]about $175 an acre.
[01:01:05.360]In these examples, I always kind of set up
[01:01:07.360]the base scenario or base expectations
[01:01:09.920]up on the top part of the slide.
[01:01:12.540]Then we have something happen in the middle.
[01:01:15.400]And then we settle up with the cash rent on the bottom.
[01:01:18.790]That's kind of how we step through this.
[01:01:21.140]So, we initially anticipated on a flex lease.
[01:01:24.510]We're gonna be flexing off of yield in this example.
[01:01:27.650]We had anticipated we were gonna raise
[01:01:29.360]150 bushel per acre.
[01:01:31.570]And we signed a lease at $175.
[01:01:34.300]And these are just made up examples.
[01:01:37.310]Something happens.
[01:01:38.350]We actually get rain.
[01:01:39.500]It rains in August when rain is really critical
[01:01:43.580]during pollination and the reproductive phase of a plant.
[01:01:48.040]The difference between 160, what we actually produced,
[01:01:53.810]versus that 150, what we had anticipated
[01:01:57.010]we were gonna be raising,
[01:01:58.300]we produced, in this example,
[01:01:59.990]10 bushel more per acre than we had anticipated.
[01:02:02.910]That's about 6.7%.
[01:02:05.180]Not quite 7% higher than we had anticipated.
[01:02:09.583]In this example, cash rent is about $12 an acre higher,
[01:02:17.600]because, if you take 6.7% of our base rent
[01:02:23.940]and you add that on...
[01:02:24.980]So, 6.7% of 175.
[01:02:27.865]You add that onto $175.
[01:02:31.290]The final rent is $187.
[01:02:35.573]Second example.
[01:02:38.220]Instead of raising 150 bushel or 160,
[01:02:42.750]we actually only raise 140.
[01:02:46.080]If we raise only 140 bushel instead of 150,
[01:02:50.050]in this example, we raise 6.7% less than we had anticipated.
[01:02:56.040]If that's the case, we're gonna discount the rent
[01:02:58.650]by about that amount.
[01:03:02.150]Final rent we pay is gonna be about $163.
[01:03:06.500]Anybody have any questions?
[01:03:07.640]I'm getting that concerned look.
[01:03:10.290]Extension really taught me well
[01:03:11.700]to deal with my significant other.
[01:03:13.280]You can read people pretty well after you do this job.
[01:03:16.310]We discount rent when yields are
[01:03:18.670]lower than we had anticipated.
[01:03:20.440]We add a premium on when they're a little bit better
[01:03:22.890]than we had anticipated.
[01:03:24.250]Remember, the minimum, in this example, was at 140.
[01:03:29.450]Minimum, the floor price, the lowest price we can go.
[01:03:33.040]Remember, we can't go any lower than that floor, right?
[01:03:36.660]140.
[01:03:37.500]And we can't go any higher than the ceiling.
[01:03:39.690]210.
[01:03:41.090]So, if yields would bottom out,
[01:03:43.410]yields only raised 40 bushels per acre,
[01:03:46.150]the minimum that we'd pay the landlord would be 140.
[01:03:54.040]What about if we'd, instead of flexing on yield,
[01:03:57.410]we flexed on price?
[01:03:59.954]One price that a lot of folks take a look at
[01:04:04.680]is our planting time price guarantees
[01:04:08.070]with a particular crop that we have.
[01:04:10.470]Remember, for corn, it's a 30 day average.
[01:04:13.400]The December futures contract in February
[01:04:16.260]and then they do it again, in what,
[01:04:17.330]November or something like that.
[01:04:19.110]I always forget.
[01:04:20.468]If we're gonna flex on price,
[01:04:23.000]we don't want to be basing it off of just one day.
[01:04:26.600]We wanna look at it over a period of time.
[01:04:30.390]Every Friday in the month of February
[01:04:32.310]versus every Friday,
[01:04:33.690]the average of every Friday in December.
[01:04:35.870]We wanna look at it over a period of time,
[01:04:39.300]because something might happen in the news.
[01:04:43.010]Whatever.
[01:04:43.843]And, if something happens,
[01:04:45.090]we don't wanna be taken up really high or really down
[01:04:48.040]just because of one little unrelated thing in the news.
[01:04:53.280]So, we got two examples here.
[01:04:55.550]And it's gonna be a little harder to see these.
[01:04:57.350]And I apologize for that.
[01:04:59.140]On the left hand side, we have a case with
[01:05:02.570]our base rent at 175 an acre.
[01:05:05.450]On the right hand side, we have that same case.
[01:05:08.430]When we plant the crop,
[01:05:09.530]we're anticipating the planting time price guarantee
[01:05:12.140]to be about 330 a bushel.
[01:05:17.010]Left hand side is the case where
[01:05:18.730]prices are higher than we had anticipated.
[01:05:22.270]The right hand side is a case where
[01:05:25.160]prices are lower than we had anticipated.
[01:05:29.800]If you work through the math...
[01:05:31.690]I don't wanna get us lost in the math and in a bad mood,
[01:05:34.160]because you came to one bad economics talk.
[01:05:36.940]It trickles through.
[01:05:38.410]On the left hand side,
[01:05:39.530]prices were not quite 14% higher than we had anticipated.
[01:05:44.100]We get a little bit of a bonus on that rent.
[01:05:47.240]And, on the right hand side,
[01:05:48.960]prices are lower than we had anticipated.
[01:05:54.650]So, we discount the base rent.
[01:05:58.640]What good does a flexible lease arrangement
[01:06:01.350]based on price do us if we have
[01:06:03.820]a year like 2012 and you only raise
[01:06:06.850]10, 20% of what you'd really anticipated?
[01:06:09.660]Not very good.
[01:06:11.290]If we'd consider a flexible lease off of price,
[01:06:14.690]we'd be looking at an area where
[01:06:16.330]we have very low yield variability.
[01:06:19.560]Which would be irrigated cropland
[01:06:23.650]85 miles north of Aimes, Iowa.
[01:06:27.377]We kind of do this idea almost in a flexible...
[01:06:31.550]Excuse me.
[01:06:32.383]In a crop share lease arrangement.
[01:06:34.290]That's the classic flexible lease.
[01:06:37.210]We're gonna have...
[01:06:39.830]We got a little left here.
[01:06:40.770]But this one is the last one.
[01:06:43.210]I'm gonna...
[01:06:44.060]A couple points here
[01:06:45.010]and then we're gonna open it up for questions.
[01:06:48.190]Just because prices are good
[01:06:50.260]doesn't necessarily mean we have a profitable year.
[01:06:52.890]And, just because we have high yields,
[01:06:54.890]it doesn't mean that we're gonna have
[01:06:56.000]a profitable year, either.
[01:06:58.200]Traditionally speaking, in the United States,
[01:07:00.580]there's an inverse relationship between
[01:07:02.430]the yield and prices.
[01:07:04.070]National yields.
[01:07:06.740]If we tie those together,
[01:07:08.260]if we marry these two things together,
[01:07:11.120]we have crop revenue.
[01:07:16.010]Yes, my yields are down a little bit,
[01:07:17.650]but prices were better than we anticipated or vice versa.
[01:07:22.066]So, in this case here...
[01:07:23.450]I won't step through everything.
[01:07:26.000]We go through our base expectation on the top.
[01:07:30.180]And then we have some things happen here
[01:07:32.500]related to yield and prices.
[01:07:35.410]The crop revenue was 9% higher on the left.
[01:07:38.620]But, on the right hand side, crop revenue was down 5%.
[01:07:44.960]So, that's kind of what's going on there.
[01:07:46.810]What we're doing here and what I was trying to prove to you,
[01:07:49.100]everyone, is, just because yields are good,
[01:07:51.220]doesn't mean we have good revenue and vice versa.
[01:07:54.420]We might have a lower yield,
[01:07:55.730]but the price compensates for it.
[01:07:57.508]And we could still...
[01:08:00.330]But, anyways, it trickles through, in the bottom hand here.
[01:08:03.640]And I try to give all my work in the slides
[01:08:05.830]so you can kind of piece things together a little bit.
[01:08:08.750]But, in the right hand side, cash rent's down 5%.
[01:08:12.020]On the left hand side, cash rent's up 9%.
[01:08:15.670]There's a few last slides here.
[01:08:21.410]You can read these at your leisure.
[01:08:23.270]I just wanted to give a little time,
[01:08:24.400]if we had any questions.
[01:08:27.000]I think we could maybe do one or two questions.
[01:08:29.050]Does anybody got any concerns or anything?
[01:08:33.530]A couple things.
[01:08:34.560]If you don't have a lease in writing,
[01:08:37.140]the website that you wanna look at is aglease101.org.
[01:08:44.510]And, two, if you've got a question, here's the microphone.
[01:08:47.970]They said you can't drop it.
[01:08:50.470]Alright, you said, on your chart,
[01:08:53.780]that this does not include
[01:08:55.750]safety net payments or crop insurance indemnity.
[01:08:58.640]So, I'm just curious.
[01:09:00.060]Do you ever work especially
[01:09:01.610]the crop insurance proceeds into that?
[01:09:04.210]So, the question is, and she wasn't supposed to ask it.
[01:09:07.610]I put it in my notes.
[01:09:08.500]And then I go home at night.
[01:09:11.320]Why would we not include proceeds or indemnity payments
[01:09:15.910]from crop insurance or our federal disaster payments
[01:09:19.610]from the Farm Service Agency into these flex leases?
[01:09:24.580]The reason we would not...
[01:09:27.900]You wanna answer it?
[01:09:30.200]Did you wanna answer it or do you have another question?
[01:09:39.560]So, the comment that was made...
[01:09:40.960]And they can't hear you when you say that.
[01:09:44.810]One, the timing of the disaster payments.
[01:09:47.070]And that is true.
[01:09:48.300]But the other reason,
[01:09:49.430]the reason we do not calculate those things into
[01:09:52.170]some of these rental rates is because us,
[01:09:55.290]as producers, the reason we are
[01:09:57.320]getting these disaster payments,
[01:09:59.880]we have to satisfy our contractual requirements
[01:10:02.890]with making our cash payments.
[01:10:05.210]Paying the seed company, paying the fertilizer company,
[01:10:07.760]paying the spraying service, herbicides, pesticides.
[01:10:12.380]We get those payments
[01:10:13.520]not just because they like giving out money.
[01:10:16.000]We get those payments because something has happened
[01:10:18.570]on our operation that is not good.
[01:10:25.260]That helps us pay the base rent.
[01:10:26.760]And I agree with that.
[01:10:27.593]And it also helps to pay whatever amount
[01:10:29.730]for seed corn and fertilizer expenses.
[01:10:32.460]Alright, any other questions?
[01:10:40.684]How does FSA recognize that flexible lease?
[01:10:44.201]How does the FSA recognize flexible lease arrangements?
[01:10:47.920]The only thing I would tell you,
[01:10:49.084]they don't judge them yay or nay.
[01:10:51.710]What they need to see in that lease is that
[01:10:54.380]you, as a producer, are burying production risk.
[01:10:58.460]They won't say yay or nay.
[01:11:00.580]They just need to see a copy of the contract.
[01:11:03.000]I didn't tell you.
[01:11:03.833]Any time you're running around,
[01:11:04.860]probably should check with the FSA
[01:11:06.270]to make sure you're kosher with
[01:11:07.470]the farm programs to begin with.
[01:11:09.440]But they have to make sure that you, as a producer,
[01:11:10.973]you and your husband or whoever,
[01:11:13.470]are burying production risk.
[01:11:15.550]Meaning, if something good or bad happens...
[01:11:20.070]The reason you're getting those payments
[01:11:21.540]is to help cover those things.
[01:11:22.930]So, we're out of time.
[01:11:24.430]And, if you wanna come visit with me,
[01:11:26.370]I'll be here until I don't have any other questions.

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Trends in Nebraska Farm Real Estate and Flexible Lease Arrangements 2017-2018 by Jim Jansen

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