Land Value Trends

1. Land Value Trends ASFMRA National Meeting October 27, 2011 Phoenix AZ

2. Today’s Presenters • Dave GaNun, ARA • Farm Credit East ACA, Lebanon NJ • George Baird IV, AFM • Land Management Group, Collierville TN • Merrill Swanson, ARA • Dugger, Canaday, Grafe, Inc., San Antonio TX • Dennis Reyman, AFM, ARA • Stalcup Agricultural Service, Storm Lake IA • Robert G. Morrison, ARA • Robert Morrison Appraisal, Idaho Falls, ID • Steve Runyan, ARA • Runyan Appraisal Service, Bakersfield CA

3. Northeastern U.S. Farmland MarketDave GaNun, ARA • Market Area & Land Types • New York, New England States, New Jersey, Pennsylvania, Delaware and Maryland • Ranges from significant non-agricultural/suburbanization influences and specialty agriculture within 50-100 miles of metropolitan area to agricultural and recreational influences in the more rural areas. Specialty including nursery, greenhouse, vegetable, fruit, horses for riding and breeding (racing and riding). This would also include smaller, part-time, direct market-type operations. In the more rural areas the typical land use is for dairy, cash grain, hay, forage, produce vegetable crops, and recreation. • Within the region there is irrigation for some of the specialties products but the vast majority of the agricultural land is non-irrigated. Irrigation in some areas has increased to about 25% of the specific area. • An estimate of the entire northeast agricultural land would be: • 5% irrigated cropland; 70% non-irrigated cropland; 25% pasture

4. Northeastern U.S. Farmland Market • Quantity and Method of Land Sales over the past 3, 6, and 12 months: • In the metropolitan areas the quantity has been lower over the past four years, with the exception of agriculturally deed restricted sales, which have been quite constant. In the agricultural areas the trend has been steady to slightly up over the past twelve months. • The method of sale varies within the states. Some of the more rural areas report more public auctions. All areas have real estate listings playing an important role. Some report sealed bid auctions increasing in popularity. Some areas still have significant influence from private sales.

5. Northeastern U.S. Farmland Market • Trends in land price factors over past 3, 6, & 12 months: • No significant changes taking place in types of sales • Weather is not an issue at this time • Regional markets are influenced by development but this has been soft for past five years after significant declines in value from 2006 to 2009. • Agricultural areas have posted modest gains. • Agriculturally deed-stricted land has followed trend of fee simple ag land, but has exhibited greater stability. • Generally speaking, agricultural land is stable to strongly increasing while metropolitan land is somewhat increasing to somewhat decreasing.

6. Northeastern U.S. Farmland Market • Who Are the Sellers and Who are the Buyers? • Sellers include retiring farmers, smaller farmers, estate settlements, and financially distressed owners • Buyers include large farmers, investors, and some smaller farmers • Buyers are eyeing expansion, lifestyle, and buying at a low point in the market cycle • Most purchases are financed with a few being all cash purchases. Farm Credit is a strong player in farmland lending, with some bank financing. • Financing is not a limiting factor to land values.

7. Northeastern U.S. Farmland Market • How will 2011 crop yields and prices affect land values in your area? • In the agricultural areas the expectation is for small increases in land values even where yield predictions are off. • There is little impact on the metropolitan areas.

8. Northeastern U.S. Farmland Market • What return on investment (cap rate) do buyers expect for each land type in your area? • Cap rates reported range from 2% to 8%. • What is the trend in land rental in your area (types of leasing and rental rates per unit): • Agricultural areas – Rental rates have increased with the commodity prices. • Metropolitan areas where grain is grown – very little change and typically low rates.

9. Mid-South & Delta Land Value ReportGeorge Baird IV, AFM • Market Area & Land Types • The Mid-South or Delta Region includes SE Missouri, Eastern Arkansas, West Tennessee, Mississippi Delta and NE Louisiana. • This is a diverse area of the country which lends itself to a variety of crops. With the long growing season, ample water, and the ability to put together larger tracts, this area is quickly becoming recognized as the region for entity land owners and investors to seek out properties.

10. Mid-South & Delta Land Value Report • Traditionally, the two crops focused on in the Mid-South were cotton and rice with some soybeans and wheat scattered about. • Over the last several years as cotton prices continued to pull back and other commodities like soybeans, corn and wheat pushed up, operators began to decrease those cotton acres and focus on other crops. It has only been in the last 5-10 years that the Mid-South has been able to fully realize our production capabilities. • Mid-South producers have embraced new technologies and advancements in farming which have tremendously helped our yields especially in crops such as corn and soybeans. • Today, you will see a mixture of not only cotton and rice, but also corn, soybeans, wheat, grain sorghum and other crops. • Some of these other crops that are beginning to emerge in isolated areas are melons, potatoes, and other vegetables. • Approximately 60-70% of the Delta region is irrigated and of that percentage, approximately 40% would be pivot-irrigated with the balance being flood irrigated.

11. Mid-South & Delta Land Value Report • Quantity and Method of Land Sales over the past 3, 6, and 12 months: • While the demand for land sales in this area has seen a dramatic increase over the last two to three years, it has really only been in the last six to twelve months that we have seen a noticeable pick-up in overall market transactions. • In looking at recent sales that have taken place, buyers are beginning to recognize the quality of the land. • By quality we do not necessarily mean soil type, but the quality of the improvements that have been made to the land. These improvements would include drainage, irrigation, fertility and other improvements such as grain facilities, shops and other attributes that owners, especially investment buyers, are looking to either purchase within a property or have the ability to add on at some future time. • The quantity of land sales may not necessarily have increased, but the overall size of each transaction continues to push higher.

12. Mid-South & Delta Land Value Report • Trends in land price factors over past 3, 6, & 12 months: • Most sales come are landlord-tenant transaction or private treaty. • Estimate that these sales make up approximately 80-90% of all transactions. • There are some public auctions in the extreme northern parts of Arkansas and Southeast Missouri; however, they would account for less than 10% of all sales. • In the past, one could buy undeveloped land at a discounted price and with time and additional capital inputs afford to make the additional investment in the property and bring it up to today’s standards. • However, that quickly changed over the last several years as development costs began to push higher at a rapid pace. At that same time, with increased demand sellers are simply not in the mood to discount prices. • That has begun to change as buyers continue to assess the quality of land and quality of improvements and are ultimately taking in the additional capital which will be needed for pricing in today’s market. • In those cases where sellers are interested in selling and not just putting their farms on the market, they will –and have begun to –adjust the prices accordingly to complete the sale.

13. Mid-South & Delta Land Value Report • Over the last several years we have seen some very wild weather swings, which have no doubt affected the cash rental market, as well as the overall land market as absentee land owners and investors are looking to maximize returns. • While there are exciting opportunities in the Mid-South, they do not come without additional risk. The mild winters, heavy rainfall and increased production costs, can and have shown dramatic impacts on the bottom lines. • This year’s unknowns leave producers and their lenders somewhat cautious in making bids. We must also keep in mind that many times these land transactions are much larger than those in the Midwest, which also tends to keep cash rental bids in check, and ultimately gets capitalized into the bottom line.

14. Mid-South & Delta Land Value Report • Who Are the Sellers and Who are the Buyers? • We continue to see a very even mix among sellers from individuals or families who are selling property because of the disconnect with the land they have today • Larger farmers are selling to take advantage of high land prices at this time and believe the prices they are getting cannot continue forever. • While investment groups tend to get more press and buy larger tracts, it is still the local farmers or landowners who have completed more land transactions over the last 6-12 months. These often do not come with the fanfare that the others do.

15. Mid-South & Delta Land Value Report • Investment buyers are looking to continue this play on ag as a long term investment, not only in real estate, but also as commodities and to diversify their portfolios. • Local buyers are also very pro-ag and very bullish long-term, but they are also looking to re-invest some of the profits they have made over the last several years and also control their holdings and not become dependent upon having to rent some or all of the property they farm forever. • As rental rates continue to shoot higher, many operators are seeing this as an opportunity to take advantage of the low interest rates and lock in long-term operating plans.

16. Mid-South & Delta Land Value Report • Most of the farmer/landowner buyers have been either utilizing 1031 Exchange monies, Farm Credit financing, or other local resources. • On the investor relations side, usually cash purchases; however, it should be noted that these are then leveraged with financing after the fact. • With dramatic weather fluctuations and risk producers have seen over the past several years, it may be starting to limit availability of financing on less desirable properties.

17. Mid-South & Delta Land Value Report • How will 2011 crop yields and prices affect land values in your area? • With strong commodity prices and solid yield reports coming out of the Mid-South, we expect to see land prices to continue to hold or push higher over the next six months. • We also expect to see the quality of land begin to segregate itself from that of lesser quality. This will continue to drive prices and strongest demand for the higher-quality parcels. • Barring some major outside market forces, we expect to see values for all land move up again over the next 6 months. • Undeveloped or partially developed +3% to +5% • High quality, developed tracts pushing 6% to 8% over six months and + 10% over the next 12month cycle.

18. Mid-South & Delta Land Value Report • What return on investment (cap rate) do buyers expect for each land type in your area? • Across the board, we are generally seeing cap rates quoted at 5% to 7% gross • What is the trend in land rental in your area (types of leasing and rental rates per unit): • Cash rental rates are still well below returns generated with crop-share arrangements; however, this is beginning to change. • We are also seeing a trend in flex leases or minimum cash lease arrangements with producers as buyers are trying to protect their downside, but also are interested in working with the producers in a shared type of arrangement to help capitalize on current grain markets.

19. Southern Plains Land Value ReportMerrill Swanson, ARA • Market Area & Land Types: • Texas, New Mexico, western Oklahoma • Texas ranges from coastal plain to high plateau. • Great variety, from corn, wheat, cotton, sorghum, rice, and cotton to 35-90% of the area in range lands. Considerable pivot irrigation. • New Mexico is high plateau on the east and mountainous central and west. 65% open range, 10% dryland crop, 10% pivot irrigated & 10% flood irrigated. • Quantity and Method of Land Sales over the past 3, 6, and 12 months: • Texas – fewer sales in the past year, mostly private treaty through brokers. Auctions perhaps 10% of total volume. • New Mexico – less activity in 2011 than 2010. Most sales are private treaty, very few public auctions.

20. Southern Plains Land Value Report • Trends in land price factors over past 3, 6, & 12 months: • Texas – steady to uneven for medium or lower quality. Some uptrend for better land quality with good water, but continued softening in certain areas. • Drought has stopped sales of cropland with weak irrigation water. • New Mexico – Herd liquidations in eastern NM. No “outside” influences on current market. • Who Are the Sellers and Who are the Buyers? • Many areas have limited land sales activity. • Sellers are typically 3rd generation owners or folks who bought land 5-8 years ago. • Buyers include investors diversifying assets, farmers with good recent profits, and oil profits looking for an inflation hedge. Some investment funds in Panhandle area.

21. Southern Plains Land Value Report • How will 2011 crop yields and prices affect land values in your area? • Despite drought, high commodity prices will likely offset production losses and keep land values steady to slightly higher, particularly if drought appears to ease. • Overall, the market appears to be somewhat increasing. • What return on investment (cap rate) do buyers expect for each land type in your area? • Cap rates on grazing land is quite low. • Cropland may range from 2% to 6.5%

22. Southern Plains Land Value Report • What is the trend in land rental in your area (types of leasing and rental rates per unit): • Strong demand for available grass or hay. None for sale. Expect stable to somewhat increasing rental demand. • Trending toward more cash leases but crop-share is still popular method. • Panhandle cropland leases: • $200-$220 per wet acre for pivot irrigated with good water • $150-$175 per wet acre for pivot with average water • $85-$125 for pivot with weak water (depending on equipment)

23. Corn Belt Land Value ReportDennis Reyman, AFM, ARA • Market Area & Land Types: • Indiana, Illinois, Iowa, Minnesota, South Dakota, Nebraska, • Principal crops are corn and soybeans; vast majority is dryland east of the Missouri River. • Wheat in the western areas; some pasture and range land (lots of pasture has been converted into cropland east of the Missouri River in past three years) • Some recreational or timber land, perhaps 5%-10% of sales in some areas • Quantity and Method of Land Sales over the past 3, 6, and 12 months: • Number of land sales has been higher than normal. • Most are sold via public auction but that varies by area. Estimate 80% of arms-length transactions are conducted by public auction in Iowa. Many private sales are landowner-tenant.

24. Corn Belt Land Value Report • Trends in land price factors over past 3, 6, & 12 months: • Top-quality land in traditionally strong areas have sold exceptionally well. These are the sales that make the news. Most areas have exhibited gains of 2-3% per month over the past year. Exceptional areas have gained 4% or even 5% for brief periods. • Medium-quality land is also selling well but are not the type of sales that make the news. These sales have generally increased at lesser rates than the highest-quality land. • Low-quality cropland can still be a tough sell, depending on area. Mixed-use farms (i.e., cropland + pasture + significant CRP) will sell at a discount to all-tillable farms in strong corn regions. • Recreational properties are generally selling below the 2008 high. • Discounts for irregular field configuration or small field sizes are becoming more pronounced. These can range from 5% to 15% or more, depending on severity as compared to the neighborhood. • Land values are increasing at record or near-record pace in many areas.

25. Corn Belt Land Value Report • Who Are the Sellers and Who Are the Buyers? • Sellers are generally estates or multiple-family ownerships. Some non-farmer single retirees. • Large operators and landowners with a significant land base will be the most prominent bidders for additional land. • Retired locals with cash to invest; looking for better returns than bank rates. • Outside investors are generally individuals rather than large investment groups.

26. Corn Belt Land Value Report • How will 2011 crop yields and prices affect land values in your area? • Yields are quite variable due to summer heat, very dry conditions after 1st of July, and September 14th frost. • However, revenue per acre will be excellent and will put a lot of cash into farmer’s and landowners pockets. • Western Corn Belt has enjoyed a string of good years; eastern Corn Belt has had some downward variability with weather the past few years but land values are still increasing at a considerable pace.

27. Corn Belt Land Value Report • What return on investment (cap rate) do buyers expect for each land type in your area? • Cap rates on corn and soybean land has generally ranged from 3-4% for most of the 2000’s. • Exceptionally competitive areas may exhibit lower cap rates; problematic farms may exhibit 4-5% rates. • Lenders are mostly limiting leverage to 65% with a maximum of $4,500 to $5,000 per acre. • Many are all-cash or a considerable amount of cash going into the purchase

28. Corn Belt Land Value Report • What is the trend in land rental in your area (types of leasing and rental rates per unit): • Cash leasing is the predominant form of rental, but our August survey showed decline from 48% in 2010 to 46% in 2011 • Cash rental rates may increase by $50-$150 per acre for 2012, depending on the 2011 rate. • Flexible cash rent is gaining popularity. There are many ways to set up and calculate flex rents but most will set a minimum rent. • Crop-share leases continue to experience modified terms, including changes in percentage splits on income and expenses or cash + share of crop. • More owners are considering and converting to custom-farmed operations. ROI on production agriculture has an excellent track record. Our August survey indicated custom-farmed acres are expected to grow from 11% to 22% of our respondents managed acres

29. Mountain Region Land Value ReportRobert G. Morrison, ARA • Market Area & Land Types: • Montana, Idaho, Wyoming, Utah, Nevada • High percentage of pasture or rangeland. Most cropland is pivot irrigated. Less than 25% dryland crops. • Quantity and Method of Land Sales over the past 3, 6, and 12 months: • Mostly private treaty sales, few sold at public auction • Quantity of sales has been increasing, particularly in past 3-6 months for most areas • More sales of higher quality land, stable on medium-quality. • Fewer sales of recreational land as compared to pre-2008

30. Mountain Region Land Value Report • Trends in land price factors over past 3, 6, & 12 months: • Weather conditions have had little impact on recent values • Mineral rights are having impact on upper Great Plains • The more ag influence, the more stable the value • Recreational values generally soft, particularly soft for “scenic ranches”. • Who Are the Sellers and Who are the Buyers? • Sellers are mostly retiring farmers and those with financial distress • Buyers are mainly tenants or nearby farmers and ranchers driven by profits and expansion • Some long-term investors noted in southern Utah

31. Mountain Region Land Value Report • How will 2011 crop yields and prices affect land values in your area? • Crop and beef prices will have positive influence on land values. Milk prices were record-high earlier this year. • Most areas report stable to somewhat increasing markets for cropland; softer markets for ranches • What return on investment (cap rate) do buyers expect for each land type in your area? • Ranches about 1-2% • Irrigated or improved properties 3-4%

32. Mountain Region Land Value Report • What is the trend in land rental in your area (types of leasing and rental rates per unit): • Upper Great Plains reports mostly cash rent on irrigated, crop-share on dryland, and cash per AUM on pasture • Other areas are more crop-share and/or long-term leases; little arms-length current leasing activity reported in WY • Generally, rents are expected to increase due to higher commodity prices

33. Western Land Value ReportSteve Runyan, ARA • Market Area & Land Types: • California, Oregon, Washington, Arizona • Arizona – flood & pivot irrigated cropland • (vegetables, cotton, wheat) • Washington & Oregon – lumber, nursery, grass seed, fruit trees, row-crops • California – everything! • Quantity and Method of Land Sales over the past 3, 6, and 12 months: • Arizona – few sales in past two years but may be increasing in 2011 • Washington & Oregon – few properties are exposed to market, most are landlord-tenant. • California – increasing over last year, private party (not exposed to the market) and broker listings. No public auctions.

34. Western Land Value Report • Trends in land price factors over past 3, 6, & 12 months: • Arizona – prices are mostly stable after a decline in ‘08-’09. SW AZ seeing some pockets of strong increases. Weather has not affected the market. • Washington & Oregon – stable on most, rising market for orchard-quality irrigated land in WA. Prices up to $8,000 per acre. Fruit tree land market is expected to be strong. • Oregon land values are 10-15% higher than 2010 on very limited sales • Eastern WA slightly higher, Western WA slightly lower values • California – some significant price increases in most land types, including almonds, pistachios, open ground. Citrus is stable. Grazing land is down significantly. Some areas are 20%+- increase in last twelve months. • Who Are the Sellers and Who are the Buyers? • Sellers are estates, recent inheritances, local farmers and some land that was purchased 3-5 years ago speculating on development. • Buyers are mostly expanding farm operations, some investment group activity reported in Central AZ and in WA. CA buyers are mostly large expanding farm operations and a significant amount of investment fund activity.

35. Western Land Value Report • How will 2011 crop yields and prices affect land values in your area? • Strong commodity prices will support market, particularly row-crops and fruit tree. • Grass seed, nursery, and lumber markets are hurt by general economy. Exports for lumber are good. • CA – yields and prices having no affect on land values • What return on investment (cap rate) do buyers expect for each land type in your area? • Arizona – less than 2% to 2.8% • California – permanent plantings 9-15%

36. Western Land Value Report • What is the trend in land rental in your area (types of leasing and rental rates per unit): • Arizona – eastern & central are stable, SW is higher with rents of $750-$850 per acre • Arizona land market is reported to be stable in eastern AZ but with historical highs for irrigation districts, stable but soft in central AZ, & very stable to uptrend to new highs in SW AZ • California – open land has steady to very slightly higher rental rates.