Farmland Real Estate Trends

Farmland Real Estate Trends Farmland Values and Leasing Trends December 15, 2017 F. Howard Halderman AFM

Who is Halderman?

Halderman Can Help! Since 1930, people have been turning to Halderman Real Estate and Farm Management for their farm management and farm real estate needs. All kinds of people farm owners, investors, tenants, bankers, lenders, trust officers, wealth advisors, attorneys, accountants in fact, anyone involved with a farm in any way. We ve provided services, from an occasional consultation to complete farm management and real estate brokerage, to thousands of clients throughout the U.S. If you have a farm-related problem or want to explore the investment opportunities in farmland, Halderman Can Help! We ve been doing it for three generations.

Halderman Companies Scope of Business Farm Management 675 farms; 250,000 acres in 19 states Real Estate Sales & Acquisitions 175 farms; 15,000 acres; $110 million in sales annually Farm Appraisals 650 appraisals annually

Halderman Offices

History and Staff Founded in 1930 3rd Generation Ownership 3 corporate managers 22 Area Representatives 11 Real Estate Associates Indiana, Ohio, Michigan, Louisiana, Arkansas, Texas & California 10 Support Staff Average tenure of staff >20 years

Halderman Farm Management National Coverage Area 36 Professionals Providing Services Across 19 U.S. Farmland Regions

Farm Land After Decline, Values Stabilize

Farmland Real Estate Market There were little outside drivers of farmland sales in 2013, 14, 15, 16 or 17. Therefore # of sales remains below normal especially large tracts. Some signs of improvement in recreational, timber and rural residential values. Cropland values decline 15-20% from the all time high, stable in 2017

Federal Reserve Bank of Chicago 7 th District 2 1 0 Illinois -1-2 Indiana Iowa Michigan -3-4 % change 7/17 to 10/17 % change 10/16 to 10/17 Wisconsin Seventh District

Price Per Acre Purdue Survey, Indiana Farmland Values 1975-2017 10,250 9,750 9,250 8,750 8,250 7,750 7,250 6,750 6,250 5,750 5,250 4,750 4,250 3,750 3,250 2,750 2,250 1,750 1,250 750 250 Top (198 Bu. Corn/Ac.) Average (166 Bu. Corn/Ac.) Bottom (134 Bu. Corn/Ac.)

Summary of HRES Sales Trend 2013

Summary of HRES Sales Trend 2014

Summary of HRES Sales Trend 2015

Summary of HRES Sales Trend 2016

Summary of HRES Sales Trend 2017

Summary of HRES Sales Trend 2013-2017

Who is Buying?

Institutional Buyers??? Sale/Leaseback opportunity Significant dollars Transaction size varies ($500K up) Specific return expectations Due diligence requirements Common vision is important

Farmland Real Estate Sales Sept. Miami Co., IN 271 ac. for $1,125,000 $4,106/acre $36/WAPI Sept. Wayne Co., IN 129 ac. for $780,000 $6,047/acre $45/WAPI Sept. Delaware Co., IN 56 ac. for $510,000 $9,107/acre $50/WAPI Oct. Johnson Co., IN 83 ac. for $845,000 $10,180/acre $75/WAPI Oct. Brown Co., IN 907 ac. for $1,967,000 $2,168/acre All timber Oct. Bartholomew Co., IN 361 ac. for $2,025,000 $5,609/acre $42/WAPI Oct. Rush Co., IN 135 ac. for $1,475,000 $10,868/acre $66/WAPI

Farmland Real Estate Sales Oct. Clinton Co., IN 69 ac. for $810,000 $11,739/acre $67/WAPI Oct. Clinton Co., IN 48 ac. for $345,000 $7,122/acre $46/WAPI Oct. Putnam Co., IN 256 ac. for $1,750,000 $6,850/acre $45/WAPI Nov. Blackford Co., IN 690 ac. $3,630,000 $5,260/acre $39/WAPI Nov. Cass Co., IN 211 ac. for $1,680,000 $7,962/acre $46/WAPI Nov. Grant Co., IN 105 ac. for $625,000 $5,952/acre $46/WAPI Nov. Miami Co. IN 126 ac. for $780,000 $6,178/acre $47/WAPI

Farmland Real Estate Sales Nov. Allen Co., IN 37.5 ac. for $330,000 $8,800/acre $60/WAPI Nov. Marshall Co., IN 355 ac. for $2,400,000 $6,761/acre $53/WAPI Nov. Grant Co., IN 80 ac. for $445,000 $5,563/acre $40/WAPI Nov. Huntington Co., IN 159 ac. $1,100,000 $6,990/acre $47/WAPI Nov. Huntington Co., IN 140 ac. for $470,000 $3,357/acre CRP and woods (Private) Nov. Bartholomew Co., IN 81 ac. for $806,000 $9,843/acre $59/WAPI online only Nov. Decatur, Co., IN 186 ac. for $885,000 $4,758/acre $40/WAPI online only

Farmland Real Estate Sales Nov. Preble Co., OH 81 ac. for $285,000 $3,519/acre 55% wooded Nov. Wayne Co., IN 81 ac. for $460,000 $5,679/acre $47/WAPI Nov. Jackson Co., IN 9 ac. for $110,000 $12,000/acre Rural home site Nov. Rush Co., IN 100 ac. $555,000 $5,550/acre $46/WAPI Dec. Carroll Co, IN 150 ac. for $1,325,000 $8,833/acre $55/WAPI Dec. Montgomery Co., IN 405 ac. for $2,150,000 $5,308/acre $37/WAPI Dec. Delaware, Rush & Randolph Co., IN 405 ac. $2,360,000; $5,827/ac; $41/WAPI

Farmland Real Estate Sales Dec. Charlevoix Co., MI 160 ac. for $389,640 $2,435/acre All wooded Dec. Clinton Co., IN 100 ac. for $830,000 $8,300/acre $50/WAPI Jan. LaPorte Co., IN 143 ac. for $780,000 $5,416/acre $41/WAPI Jan. Tipton Co., IN 74 ac. for $830,000 $11,204/acre $74/WAPI Development Jan. Cass Co., IN 44 acres for $350,000 $7,865/acre $47/WAPI Jan. Henry Co., IN 52 acres for $305,000 $5,845/acre $42/WAPI Feb. Starke Co., IN 654 acres for $3,950,000 $5,489/acre $49/WAPI

Farmland Real Estate Sales Feb. Wabash Co., IN 320 acres for $1,425,000 $4,440/acre $40/WAPI Feb. Carroll Co., IN 90 acres for $600,000 $6,667/acre $45/WAPI Feb. Grant Co., IN 133 acres for $630,000 $4,503/acre $38/WAPI Feb. Wells Co., IN 85 acres for $460,000 $5,400/acre $49/WAPI Feb. Mont. Co., IN 274 acres for $1,225,000 $4,470/acre $40/WAPI March Ottawa Co., OH 107 acres for $525,000 $4,906/acre $40/WAPI Mar. Washington Co., IN 100 acres for $165,000 $1,650/acre All timber/recreational

Farmland Real Estate Sales March Wabash & Huntington Co., IN 202 acres for $1,280,000 $6,336/acre $46/WAPI March - Scott Co., IN 91 acres for $130,000 $1,429/acre All woods sold post-auction March Fulton Co., IN 152 acres for $700,000 $4,601/acre $40/WAPI March Clinton Co., IN 196 acres for $1,910,000 $9,744/acre $56/WAPI March Carroll County., IN 49 acres for $345,000 $6,984/acre $45/WAPI March Fayette Co., IN 151 acres for $595,000 $3,935/acre $38/WAPI April Miami Co., IN 168 acres for $1,565,000 $9,288/acre $64/WAPI

Farmland Real Estate Sales May Madison Co., IN 40 acres for $216,000 $4,595/acre $32/WAPI May Jefferson Co., IN 99 acres for $190,000 $1,928/acre All woods May Johnson Co., IN 84 acres for $670,000 $7,938/acre $51/WAPI June Huntington Co., IN 232 ac. for $1,692,000 $7,261/acre $51/WAPI June Jasper/Newton Co., IN 571 ac. for $2.95 MM $5,161/acre $45/WAPI June - Carroll/Howard Co., IN 160 ac. for $1.135 M $7,091/acre $44/WAPI August Wabash Co., IN 793 ac. for $6.157 MM $7,850/acre $49/WAPI

Farmland Real Estate Sales Sept - Cass Co., IN 75 ac. for $315,000 $4,200/acre $30/WAPI Sept Newton Co., IN 140 ac. for $850,000 $6,070/acre $46/WAPI Sept Champaign Co., IL 20 ac. for $225,000 $11,250/acre $58/WAPI Sept Tippecanoe Co., IN 197 ac. for $1,305,000 $6,625/acre $44/WAPI Sept- Iroquois Co., IL 475 ac No Sale, Sold post auction. Sept Huntington Co., IN 82 ac. for $635,000 $6,471/acre $49/WAPI

Farmland Real Estate Sales Oct - Fountain Co., IN 158 ac. for $1,350,000 $8,528/acre $52/WAPI Oct Wabash Co., IN 60 ac. for $645,000 $10,750/acre $61/WAPI Oct Wabash Co., IN 66 ac. for $540,000 $6,633/acre $45/WAPI Oct Henry Co., IN 21 ac. No Sale Partial Home plus limited road frontage Oct - Montgomery Co., IN 550 ac. for $3,655,000 $6,639/acre $46/WAPI Nov Howard Co., IN 74 ac. for $655,000 $8,767/acre $54/WAPI Nov Madison Co., IN 73 ac. for $360,000 $4,932/acre $33/WAPI

Farmland Real Estate Sales Nov - Cass Co., IN 52 ac. for $490,000 $9,093/acre $51/WAPI Nov White Co., IN 321 ac. for $2,650,000 $8,250/acre $64/WAPI Nov Delaware Co., IN 286 ac. for $1,700,000 $5,939/acre $41/WAPI Nov Clinton Co., IN 121 ac. for $750,000 $6,193/acre $41/WAPI Nov - Wabash Co., IN 565 ac. for $5,762,050 $8,865/acre $57/WAPI Nov Huntington Co., IN 23 ac. for $178,200 $7,500/acre $52/WAPI Nov Miami Co., IN 73 ac. for $400,000 $5,437/acre $54/WAPI

Farmland Real Estate Sales Nov Clinton Co., IN 127 ac. for $1,130,000 $8,877/acre $53/WAPI Nov St. Joseph Co., IN 30 ac. for $180,000 $6,000/acre $40/WAPI Nov Benton Co., IN 80 ac. for $800,000 $10,000/acre $60/WAPI Dec Hancock Co., OH 77 ac. for $475,000 $6,169/acre $43/WAPI Dec Howard Co., IN 390 ac. for $2,880,000 $7,384/acre $47/WAPI Dec Washington Co., IN 160 ac. for $560,000 $3,500/acre Mixed use farm Dec Highland Co., OH 170 ac. No sale. Dec Tippecanoe Co., IN 340 ac. for $1,355,000 $3,985/acre $35/WAPI

Farmland Real Estate Sales Private Sale: Jan. Jasper Co., IN 527 acres for $4.1 MM $7,780/acre $55/WAPI Purdue Ag index barometer jumps to 132 in Dec., 153 in Jan., 138 in Feb., 124 in March, 130 in April, 130 in May, 131 in June, 139 in July, 132 in Aug & Sept. and 135 in Oct Fell off in November to 128. Started in 2015. General economy is optimistic based on election results will this have a halo effect for some time??

Number of Real Estate Sales Compared to Previous Years

Is the Land Market Stronger or Weaker than Last Winter?

Farm Sale Methods Used

Percent Change in Farmland Values Sept. 2016 Sept. 2017

Dominant Purchasers in the Land Market

Sales Volume is Down! Farm Credit Services of America no sales as percent of all sales 2016 3,604 131 3.6% 2015 4,099 147 3.6% 2014 4,416 160 3.6% 2013 4,424 164 3.7% 2012 5,925 130 2.2% 2011 4,816 149 3.0% 2010 4,701 116 2.5%

IA/MN Farm Sales Data Farm sales in Iowa were in excess of 2,500 in 2008 and 2012. The past three 3 years a decline to 1,500 sales in 2015. 2016 registers as a 6 year low in number of farm auctions in IA. Primary reason for selling is an estate or life transition. SW MN sales average 200-250/year. 2015 and 2016 averaged 75.

Farm Land Debt Creeping Up!

Real Farm Debt Near 1980 High Debt shown in 2009 dollars Source: Agricultural Economic Insights August 14, 2017,

History of US Farm Real Estate Debt

History of US Farm Real Estate Debt Debt:Income Ratio = Trouble signs!! Source: Pro Farmer Landowner Vol. 37, Issue 23 Published December 13, 2016 Source: Landowner, March 9, 2017, Farm Journal Publications

Fed Loan Repayment Rate

Working Capital Declines! Source: Agricultural Economic Insights August 14, 2017,

Farm Land Where Do Values Go from Here?

Where are Land Prices Going? Depends on Farm Incomes Interest Rates Supply Farm Incomes 07-13 Golden Era Interest Rates STILL historically low Farms for sale 3/4 s of typical 2%

Real US Net Farm Income

Value of Farm Real Estate

Value of Production/Real Estate

Value of Net Income/Real Estate

Net Farm Income Continues to Slide!

Gross Revenue Projections Are Down!

Rent As Percent Of Land Value IN Farmland Cap Rate 1975-2017 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Year Top (198 Bu. Corn/Ac.) Average (166 Bu. Corn/Ac.) Bottom (134 Bu. Corn/Ac.)

Cap Rate vs Treasury Rate 7.50% Net Cap Rate vs 10 Yr Treasury 6.50% 5.50% 4.50% 3.50% 2.50% 1.50% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net Cap Rate 10 Yr Rate

The Trump Effect? Trade Agreements (TPP, NAFTA, etc.) Cabinet/Advisors ties to Heritage Foundation (new Farm Bill concerns) Ag subsidies Crop insurance subsidy Financial Impact inflation, interest rates, value of dollar, alt. investments Renewable fuels

Farmland Leases Farmland is Worth What it Earns!

Farm Leases Competition for leasing land remains high! Input costs hit a five year low! Output Opportunities Remain! IL ASFMRA says 2013 - $396, 2014 - $375, 2015 - $350, 2016 - $325/acre and 2017 - $300/acre. U of IL study indicates farmer ability to pay rent in 2018 = $185-$221/acre. Farm incomes like 2003 (rents were $147 and $120) but in 2017 rents are $253 and $205. Cash rents down 5-8% throughout the Seventh District of the Federal Reserve Bank.

Rent Per Acre Purdue Survey, Indiana Farmland 330 Cash Rents 1975-2017 280 230 180 130 80 30 Year Top (198 Bu. Corn/Ac.) Average (166 Bu. Corn/Ac.) Bottom (134 Bu. Corn/Ac.)

HFMS Sept Lease Projections Competition for leasing land remains Input costs continue to move lower Majority predict steady rents for 2018 40% predict slightly lower ($5 - $10/acre) Leases in excess of $300 more susceptible to pressure 50% say more land for rent than in 17 Steady to slightly lower demand for land to rent Michigan situation

Farm Land Values Forecast

Farmland Real Estate in 2017? Long-term world demand fundamentals remain bullish for agriculture and therefore land prices. UN FAO report shows we need 100% more food by 2050! Farm income records leave cash in the countryside Interest rates still favorable = 4.84% RE mortgage rates in 7 th District 27 bps above LOWEST EVER! Supply of farms for sale remains low

Middle Class Boom Middle class population growth in millions Source: Pro Farmer Annual Land Report 2015 Published December 8, 2015

Farmland Real Estate in 2017? All time high values for prime farmland peak in 3/2014 still in 80 th percentile Foresee strength continuing in Timber (# of sales up, # of bids up, prices improved but still behind high in 2004) Recreational (spotty results) Rural residential - Average to below farmland/hassle farms are still less desirable.

Expectations for Land Values September 2017 March 2018 Farmland Higher: 1 (2%) Lower: 12 (-2% to -10%) Same: 8 Rural Residential Lots Higher: 8 (1% to 10%) Lower: 0 Same: 13 Recreational Land Higher: 5 (3% to 10%) Lower: 0 Same: 16

Where From Here? Land Value Bulls Say... Low amount of debt in agriculture ¾ s D/A <50% and 75% fixed Low interest rates (Fed made 3 rd increase) - World population growth - Bio Fuels demand remains steady BUT Trump factor? - Potential for Inflation - Water resources & competition - Low supply of farms for sale

What is the Trend (Fall 2017) Land Value Bears say What if? US and global production is a record = lower commodity prices (and they continue) Must cut costs by $100/acre. Worldwide economic woes worsen = lower demand (Chinese GDP below 7% & EU concerns) Trump s trade policy?? Biofuels RFS mandate Trump s policy?? Interest rates increase due to inflation concerns

What is the Trend (Fall 2017) Other asset classes returns improving! Liquid treasuries and CD s Stock market Commercial RE Residential Bubble Similarities Develop Theme in 2017 loan renewals most all renewed, but it was difficult Will more debt go on land to generate working capital for 2017?

Why Invest in US Farmland? 1920 - A US farmer fed 19 1970 A US farmer fed 26 50 years and a 37% increase. 2013 A US farmer fed 155! 43 years = 496% increase

Questions? F. Howard Halderman President Halderman Real Estate & Farm Management PO Box 297 Wabash, IN 46992 800.424.2324 howardh@halderman.com or halderman.com