1. Examining Land Values, Cash Rents, Crop Input Costs & Potential Crop Profitability in 2015
Barry Ward
Department of Agricultural, Environmental and Development Economics,
The Ohio State University

2. What is Driving Land Value?
>> Crop Net Income has been excellent but will be lower in ’14 &’15 >> Higher or Lower interest rates? – 10 Year T-Bill – 2.2% >> Farmer’s (crop) equity still solid but will likely not increase in 2015 U.S. Farm Sector Debt to Asset Ratio ~ 11% (D/A Ratio in 2002 was 14.8%)
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Barry Ward, AED Economics

3. Ohio Cropland Values Source: NASS
8.9%
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Barry Ward, AED Economics

4. Land Survey Data - % Increases
OSU AEDE (collected Jan. 2014) Projected Decrease for 2014 – 4.0 to - 5.4% Purdue (Indiana) (collected June 2014) Yearly Increase June 13-June to + 7.1% Half Year Decrease – Dec 13 – June14 – 0.9 to - 2.3% Chicago Fed (Collected July 1, 2014) Indiana - Northern 3/4 – “Good” Farmland Yearly Change July13 – July14, +3% (District 7, -2%) 3rd Quarter Change, +3% (District 7, 0%)
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7. U.S. Treasuries – 10 Year T- Bills
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8. Interest Rates
>>Geopolitical Risk >>Foreign Demand for Treasuries >>Demographics – Shifting Investment to Treasuries and Corp Bonds >>Stalling World Economy
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Barry Ward, AED Economics

9. Farmland Values: Outlook
Competing Fundamentals: -Crop Net Income will be lower or negative -Steady Interest Rates? versus -Farmer equity positions are healthy
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11. What has Driven Rental Rates?
>Crop Net Income has been good
>Farmers balance sheets have strengthened
+ Larger pool of tenants
+ Rental bids highly competitive - tenants understand that once land is leased there is a greater likelihood of retaining the land –
transaction costs to the landowner to change tenants
>Property tax increases
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13. Barry Ward, AED Economics
+3.6%
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Barry Ward, AED Economics

14. Williams
Fulton
Lucas
Ottawa
Defiance
Henry
Wood
Sandusky
Paulding
Putnam
Hancock
Seneca
Wyandot
VanWert
Allen
Hardin
Mercer
Auglaize
Logan
Darke
Preble
Butler
Hamilton
Clermont
Brown
Shelby
Miami
Montgomery
Warren
Clinton
Champaign
Clark
Greene
Adams
Highland
Scioto
Pike
Lawrence
Gallia
Jackson
Meigs
Hocking
Athens
Vinton
Washington
Ross
Fayette
Madison
Pickaway
Franklin
Union
Delaware
Marion
Monroe
Noble
Morgan
Licking
Fairfield
Perry
Muskingum
Guernsey
Belmont
Jefferson
Harrison
Tuscarawas
Coshocton
Knox
Morrow
Crawford
Richland
Ashland
Holmes
Wayne
Stark
Carroll
Columbiana
Mahoning
Trumbull
Portage
Summit
Medina
Huron
Erie
Lorain
Cuyahoga
Lake
Geauga
Ashtabula

15. Land Values/Cash Rents 2014 – Northwest
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Barry Ward, AED Economics

16. Rental Rates: Outlook
Competing Fundamentals: Crop Net Income will be lower versus Farm balance sheets are healthy Higher property taxes
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Barry Ward, AED Economics

17. Managing Rents in a Period of “Normalizing” Profit Margins
Strengthen Balance Sheet to survive a reversal
Communicating with Landowners of the reality for lower to negative “returns” and the need for rents to decrease…
Communicate the value of non-cash benefits to the landowner
Consider flexible cash leases
9/19/2018
Barry Ward, AED Economics

18. Energy Information Administration November 2014 Estimates
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19. Energy Information Administration
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20. Energy Information Administration
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21. Current Ohio Fertilizer Prices
NH3 $755 ($ )
UAN(28%) $328 ($ )
MAP $600 ($ )
Potash $470 ($ )
Source: DTN Fertilizer Index
November 20:
NH3 – 427
UAN28 – 212
DAP – 367
MAP – 399
K2O – 603
Urea - 382
9/19/2018
Barry Ward, AED Economics

22. General Fertilizer Fundamentals
Lower Crop Prices
Fertilizer Manufacturing and Mining Profit Margins have led to generally more global fertilizer production
Consolidation in the sector
Farmers have had a wait and see attitude
This may impact short term fundamentals and prices as a relatively empty supply chain may create shortages and price increases in late winter/ early spring
Global fertilizer fundamentals suggest flat to lower prices
Logistical issues may create ongoing bottlenecks…
Short term retail fertilizer fundamentals may differ…
9/19/2018
Barry Ward, AED Economics

23. Nitrogen
Factors that may lead to N price decreases: - Lower crop prices leading to tighter margins and potentially lighter demand - More domestic N production online - More domestic N production being built or in planning stages Factors that may lead to N price increases: + Strong crop farm balance sheets +Production issues have led to limited supply. The issues are short gas supplies (Trinidad, Egypt), plant turnarounds (Russia, Australia), and political unrest (Russia, Libya, Ukraine)
Domestic margins are high
2010 US Demand – 11.8 million tons
Flat to lower natural gas prices in the next 5 years
Nitrogen – Continued uncertainty about whether NH3 producers are at operating at full capacity
CF Industries Holdings Inc and Terra merger – world’s largest N fertilizer manufacturer in the world among publicly traded companies.
U.S. fertilizer use will be up in FY 2011, with N approaching
13 MMstons.
 All fertilizer prices are up, significantly correlated to crop
prices. Major suppliers appear to be sticking with a strategy
of supplying/taking orders for one or two months only at a
given price, seems more prevalent than in past marketing
programs.
 So, in a scenario where crop prices (especially corn) keep
ramping up, suppliers will have not “oversold” at “current”
prices (below opportunity). Or, if crop prices (corn) seriously
retreat for some reason, suppliers have the option to drop
prices so as to continue to move product. Lessons were
actually learned in 2007, 08, 09.
 With corn harvest occurring relatively early, demand for P,
K, and ammonia for Fall application is/has been pretty
strong. Re P&K, though, the uncertainty becomes: if a lot
goes down now, to what degree will that impinge on Spring
demand?
 In absolute terms, we see no basic, inherent shortage of N,
P & K supply capability for both the domestic and
international market. The principle issues are, as always,
supply at what price, and is it/will it be in the right place at
the right time?
9/19/2018
Barry Ward, AED Economics

24. Nitrogen - Greenfield Developments
Domestic margins are high
2010 US Demand – 11.8 million tons
Flat to lower natural gas prices in the next 5 years
Nitrogen – Continued uncertainty about whether NH3 producers are at operating at full capacity
CF Industries Holdings Inc and Terra merger – world’s largest N fertilizer manufacturer in the world among publicly traded companies.
U.S. fertilizer use will be up in FY 2011, with N approaching
13 MMstons.
 All fertilizer prices are up, significantly correlated to crop
prices. Major suppliers appear to be sticking with a strategy
of supplying/taking orders for one or two months only at a
given price, seems more prevalent than in past marketing
programs.
 So, in a scenario where crop prices (especially corn) keep
ramping up, suppliers will have not “oversold” at “current”
prices (below opportunity). Or, if crop prices (corn) seriously
retreat for some reason, suppliers have the option to drop
prices so as to continue to move product. Lessons were
actually learned in 2007, 08, 09.
 With corn harvest occurring relatively early, demand for P,
K, and ammonia for Fall application is/has been pretty
strong. Re P&K, though, the uncertainty becomes: if a lot
goes down now, to what degree will that impinge on Spring
demand?
 In absolute terms, we see no basic, inherent shortage of N,
P & K supply capability for both the domestic and
international market. The principle issues are, as always,
supply at what price, and is it/will it be in the right place at
the right time?
9/19/2018
Barry Ward, AED Economics

25. Nitrogen - Brownfield Developments
Domestic margins are high
2010 US Demand – 11.8 million tons
Flat to lower natural gas prices in the next 5 years
Nitrogen – Continued uncertainty about whether NH3 producers are at operating at full capacity
CF Industries Holdings Inc and Terra merger – world’s largest N fertilizer manufacturer in the world among publicly traded companies.
U.S. fertilizer use will be up in FY 2011, with N approaching
13 MMstons.
 All fertilizer prices are up, significantly correlated to crop
prices. Major suppliers appear to be sticking with a strategy
of supplying/taking orders for one or two months only at a
given price, seems more prevalent than in past marketing
programs.
 So, in a scenario where crop prices (especially corn) keep
ramping up, suppliers will have not “oversold” at “current”
prices (below opportunity). Or, if crop prices (corn) seriously
retreat for some reason, suppliers have the option to drop
prices so as to continue to move product. Lessons were
actually learned in 2007, 08, 09.
 With corn harvest occurring relatively early, demand for P,
K, and ammonia for Fall application is/has been pretty
strong. Re P&K, though, the uncertainty becomes: if a lot
goes down now, to what degree will that impinge on Spring
demand?
 In absolute terms, we see no basic, inherent shortage of N,
P & K supply capability for both the domestic and
international market. The principle issues are, as always,
supply at what price, and is it/will it be in the right place at
the right time?
9/19/2018
Barry Ward, AED Economics

26. Crop Input Costs
Energy – Lower Fertilizer – Flat to Modestly Lower? Seed – Modestly Lower to Modestly Higher Chemical – Modestly Lower to Modestly Higher Depending on the Product Machinery/Equipment Depreciation - Higher
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30. Management Challenges
Low to negative margins in light of lower crop prices Sticky cash rents and other input costs Farm Bill Signup Section 179 Expensing / Accelerated First Year Depreciation
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Barry Ward, AED Economics

31. Cost Saving Ideas
1.Re-evaluate crop production inputs - re-examine ROI with $4 Corn Specialty fertility products, Prophylactic fungicide usage, Consider generic crop production products, seeding rates 2.Re-evaluate P and K Fertilizer Applications (Where possible according to soil tests) 3.Re-evaluate seed technology investment - re-examine ROI with $4 Corn 4.Re-evaluate Machinery and Equipment line, sizing and add-ons Machinery costs (fixed, ownership not including repairs or fuel,oil,grease) per acre target < $55/ac 5.Renegotiate cash leases – lease decreases may decline in symmetry with the manner in which they increased 6.Reconsider hired labor and purchased service - consider more self repair and services (equipment repair, spraying, soil sampling etc.) 7.Consider Enterprise crop insurance 8.Re-evaluate farm yield ratios together with price ratios when determining crop mix 9.Re-examine family living expenses
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Barry Ward, AED Economics

32. OSU AED Policy & Outlook
Fall 2004
Barry Ward (614)
9/19/2018
Barry Ward, AED Economics
Matthew Roberts