Midwest Agriculture Conference: Who Owns Midwest Farmland? And Why?

DAVID: Thanks, Austan, for your great kickoff here. And we're going to have our first panel come up here in a minute. But I had just a few introductory slides I wanted to go ahead and have.

Just to key off of what was just shared by Austan, when you look at the region, you can see how big the drought was this year. This is the map from July 11 that overlays the drought monitor information, which is the slashed red lines in regions. And you can see there the center of the country was almost entirely in drought. And, certainly, our district-- I didn't try to calculate exactly what percent, but it looks like at least 90% of the district was in official drought this summer.

And so it's pretty surprising that when you had such a large share of our acres in drought, that we're still ending up with such a big crop of corn. And so that's been something that's a little bit of a conundrum. Thinking about that, you realize that we have a lot better genetics in some of the seed technology, and farmers have just found ways to do things better.

And we did have a good planting season, so that helped to get the grain in the ground and get it going well. So that's one thing to be thinking about here as we're thinking about land values. And the quality of the land has to be really good for that outcome as well, I think.

And here you can see how our district is really the heart of the Corn Belt. If you look at the left side, you can see the corn harvested for grain. On the right, it's acres of soybeans. And so if you add those together, that's the vast majority of acres in our region. Not entirely-- parts of Wisconsin and Michigan have a lot of other crops. But, certainly, Iowa and Illinois and a lot of Indiana are primarily corn and soybean country.

And then you add in looking at something like vegetables-- this is the 2017 data on acres harvested for sale for vegetables. And you do see a few hot spots for vegetable production in the Midwest. But, obviously, there are a lot out in the coasts and the South as well. But we do have some strong vegetable production similar to that pumpkin example that the president just shared.

And then, finally, leading into the first panel, thinking about what percent of land in our district is rented or leased, it's really a high percentage in many of the counties. Over 60% is the darkest color there for the counties in this map. And in Central Iowa as well as much of Illinois and even over into Indiana, there are a lot of counties with a very high percentage of rented land.

So the owners are not farming it themselves. They're offering it for rent out to neighboring farmers or others. And so that will be one of the themes today is thinking about the role of rented property because that ties many owners to the farm operator. And that's an important part of the discussion.

So I think that just gives a little background and helps to flesh out the context for today. And we will go ahead and begin the next session here with-- first we'll have Todd Kuethe, who's the Schrader Chair in Farmland Economics at Purdue University. And following him, we'll have Rabail Chandio, who's extension economist and assistant professor at Iowa State University. And so first we'll have Todd come up.

[APPLAUSE]

TODD KUETHE: Let me grab my water. I got separated from my water when the president was speaking. And I was like, I got to wait till he's done to-- I didn't want to walk in front of anybody. All right, well, thank you, David, for having me and everybody here at the Chicago Fed. This is always one of my favorite events every year, although the weather always makes me a little bit-- I like the afternoons a lot more.

So could you pull up my slides? Or do I-- oh. Oh, I guess I've got it. OK. Perfect. So as David mentioned, I'm a professor at Purdue University, and I study farmland economics and agricultural credit. And so I want to talk to you a little bit about the general land market, why it's important, and then what are the things that I watch when I think about how the land market behaves.

So this is from the balance sheet of the US ag sector, which those numbers are much smaller on these smaller screens. The key takeaway here is that farm real estate is a big component of the farm financial condition. So it's often considered the barometer or the simplest test for what is the long-run farm financial health of the ag sector.

The big part of that is-- so, traditionally, farmland accounts for about 80% of all of the value that's held by a farm in their assets. So in Indiana, for example, the most recent census that we have data for for Census of Agriculture, which goes back all the way to 2017, said that the average farm in Indiana owned $1.7 million worth of farmland.

So a lot of my work, I am the only ag economists in a room full of economists. And so I always point to this idea that we have over $3 and 1/2 trillion of farmland, or in a state like Indiana, the average farm owns $1.7 million worth of farmland. It covers almost 80% of the land base of the country. Throwing out these sort of giant numbers.

And if any of you drove here, I don't have to convince you of this because everybody's number one complaint about driving around the Midwest is there are so many farms. This is terrible. But to ag economists like us, we're like, this is great. So many farms here.

The flip side of that is farm mortgage debt has been increasing. But, traditionally, it's a very small share of our debt, which gives us this long-run solvency in the sector. So the principal issue of farming has always been and probably always will be relatively low and variable returns in an annual income sense, but the assets themselves appreciate quite a bit. So we end up with people who live poor but are wealthy is sort of the way we characterize farms, generally speaking.

And some of my colleagues are a little concerned that we're seeing rising debt in farmland-- or farmland accounting for a larger share of our debt. But I think of it as a way that farmers are reinvest. But at the same time, our debt-to-asset ratio has stayed relatively low and relatively stable.

And so part of what I do, I work in extension. So part of what I'm doing is telling farmers to not get so worked up when the ag media tells them, oh, this has gone up by whatever percent. And I'm like, well, small numbers grow by large percents. So we've stayed relatively stable. It's a big part of our financial condition.

So here is the long-run picture of farm real estate value. So the US government has tracked farmland prices since before the USDA existed. But I only showed you here back to 1950 for a couple of reasons. One, so if you look at the long history, up until the 1970s, farmland just appreciated at pretty modest rates other than we had a blip around the '20s and the Dust Bowl. And then we had this other period here in the 1980s, so farmland prices rose quite a bit.

And then through a combination of income and cost of borrowing and a bunch of other factors, farmland prices declined in the early 1980s. So as an extension economist, I always tell my students that I was born in 1980. I just went bald when I was 20. So to them, I look really old. I always tell them, I wasn't a farmer then.

But the way that I understand the farm crisis is because I spent time in extension. And I always have people telling me that I don't understand the farm financial crisis and how bad it was. And when we show it on this scale, it does look small. But this is the thing that people outside of the-- or inside the ag sector always think about. Farmers are still making decisions thinking about the 1980s.

And then we see a gradual increase through the '90s. And then mid-2007s is when we see farmland prices really take off. So this is at the US level.

Contrasting that here, this is, again, from the USDA. This is the I states here in the district to just show you that it follows the same general pattern, but it's just much more dynamic. It almost makes the US land prices look flat in terms of the increase in appreciation but also the declines when it starts to dip.

Currently, Iowa is just edging out Illinois. Those two always battle it out for the highest value per acre. In fact, I used to work at the University of Illinois. And the loudest cheer I ever got was when I said that Iowa's land prices were going down, and Illinois's still went up. And the farmers were like, say that again! I was like, this is great. I love this audience.

But then I had to go a year later and tell them that their prices went down or weren't going up as fast as Iowa's. And then they were upset with me. But Indiana generally hangs towards the middle, and that really just follows productivity differences. On a dollar-per-bushel yield, they stay relatively about the same.

So at Purdue, I also run the farmland price survey that our Department has done since the mid-1970s. And so the USDA, they survey farmers. They survey thousands of farmers around the country. And what we do is mostly survey farm real estate professionals, some lenders, people who interact with the land market every year.

And some of the differences-- the USDA reports one value, the average value. And we split it out into three different categories, so top, average, and poor because it's interesting to look at sometimes the dynamics across those three. But, again, you'll see that same general pattern that we've seen a decline in the early '80s, a rapid increase through the 2007s.

We had a little bit of a smile in the 2014 to '19. And then it really took off again around 2020. I've been telling my dean that as soon as I took over the survey, prices have gone up. But I've been told that's a bad strategy because I can't claim it if they start to go down.

So the question is, why is this happening? So also in our survey, we ask all of our respondents to rate 10 things that we associate with farmland prices. And we give them a scale from strong positive influence, which is up to 5, or a strong negative influence down to minus 5. So what we have here is just the average of those.

And, again, this is not what economists would think of as very hard data. But it gives us an idea of, what are they watching? What do they think is important out in the land market? And those range from income and commodity prices to other investments, exports, inflation, farm liquidity, and agricultural policy.

And you can see over the last-- if you go back to 2021, where we saw record depreciation in the state, everything that could be putting pressure on land values was positive. So everything was signaling prices should increase. Switching into 2022 and 2023, we still see a lot of positives out there, a lot of things that are pushing. Maybe some of those positive forces have moderated a little bit, so we're not seeing as strong of incomes or expected incomes.

The only difference there is interest rates. So we'll talk about interest rates a little bit more. Given that we're at the Fed, I'm sure we'll talk about-- there's a lot of interest-- interested in discussion of interest rates in general today.

But rising interest rates basically increase the cost of borrowing. So they're saying this is the one thing that's maybe keeping farmland prices for going up as high as they could. Or it could be an effect that could be strong enough maybe to put downward pressure in the coming year or two.

OK, so here's the outlook. I want to warn you-- I always have to warn extension audience, and so I assume you guys are similar. This next slide is going to have a an equation. So there's going to be some math.

I know it's been probably a long time since a lot of you have looked at math this time of day before. Others of you are ready to go. But I'll give you the reason behind it and give the explanation.

So this is how I think about farmland price outlook, which is just that the price follows that net present value. This is econ 101, finance 101. We have our expected returns. That's what we expect to get from owning farmland. And then we discount those because we would prefer money now to money in the future.

So I always have my undergrad students memorize the 4 reasons. The future may not happen for us. We get hit by a bus. We could invest the money in something else. I always have an enterprising student say, or we can invest it in something. You probably will, but the rest of these won't.

We also are impatient consumers. So my wife asked me a few weeks ago to give her a list of things I wanted for Christmas. I took my daughter shopping for Black Friday, and I bought half the things on my list for myself. So we want things now if we're going to consume it.

Anyway, we'll move on. You get the idea. So we discount those earnings in the future because we'd rather have the money now than later. So if we look at those factors, that should tell us what we'd expect for the price of farmland. So it should just be, what do we think we're going to get from owning it? What are the potential sources of return? And then also we need to discount those.

The other thing is we can outride that discount rate if we think there's going to be some growth. But then we start getting into some subjective arguments. But it just looks something like this, which is, what can we justify as a value to pay for land based on its income earning potential?

So if we think about cash rent as one measure or our development potential as another, we can think about discounting those based on our preferences for how likely those income streams are or what our other costs of that capital would be. OK, so I'll talk about income or farmland returns, and then I'll talk about discount rates.

So this is a busy graph. I should have warned you for this one, worked you up slowly. So the USDA produces a farm income forecast, so this is sector-wide farm income. It's a lot like when we think about things like measures of inflation or measures of employment. This is a broad, economy-wide-- so it doesn't really represent any farm. It's just the broader farm sector.

But it takes a long time to put together that kind of financial information. It takes the USDA about 8 months after the end of the year to be able to calculate it. So they forecast what that calculation will be, and they release that 4 times a year. So these dots are those various forecasts dating back here to 2000, and then the solid line, what they call the estimate, that's the realized outcome.

So a couple of things I want to draw your attention to, which is if you look over the last few years, really even going back to 2015, generally, the USDA forecasts have been lower than the realized value. So there's a downward bias in those forecasts.

So, again, in February, the USDA is going to release the first forecast of 2024. You can write this down. I think they're going to forecast that incomes will come down. All the ag media will blow up and say, this year, incomes are coming down. Then we fast-forward a year and a half later when we actually get the data, and incomes have been going up.

The other thing is if you look at how they're revising those forecasts, they get more optimistic throughout the year. So the other thing the USDA does is they talk about how their current forecast compares to what last year's said or what last year's forecast was but don't talk much about how their forecast evolves. And, generally, over the last several years, they've gotten rosier throughout the year.

Last year, there was a little bit of an exception that they over-forecasted farm income at the last forecast of the year or the next to the last. So although the USDA is saying farm incomes are going to come down, the data suggests that those forecasts-- if you factor in that pessimism, there's actually a good chance that aggregate-wide for the farm sector, incomes will continue to go up or at least will hang close to what we've seen over the last couple years.

OK, cash rents-- this also comes from our survey. The big takeaways here are cash rents generally move slowly. And they're also the hardest thing to measure. So I always say if you get tired of listening to a farmer talk, ask them what they pay in cash rent.

That's the one thing that everybody keeps close to the vest as their competitive advantage. They don't want their neighbors to know what they're paying because they don't want to get outbid. But they also work with multiple landlords, so they don't want the other landlords to know what they're paying another landlord so that they don't start to collude that way.

And so it's a very variable-- cash rents vary by quite a bit. And the places where we're able to capture actual data about cash rental agreements, it's way across the board high variance. But these measures of central tendency have been going up over the last few years but going up much slower than land values are.

And then the other way, the easiest way to make a lot of money with farmland is to turn it into something else. So we also track in our survey the average value for land that's currently being farmed that's sold to transition out of agricultural use. That's what this dashed line is. And that roughly translates to usually about twice the value of the top-level land used for agricultural purposes.

So I have that expressed as a premium, so that percentage difference as this dark line across the bottom. And the gold line are housing starts and construction in Indiana. So you can see that going into 2007 and 8, we had very high construction. And then it fell again. It fell drastically during the financial crisis, and we had the housing crisis.

So we saw construction plummet quite a bit until about 2009, and they've been rebuilding again. A little bit of a downturn in 2021 but generally been increasing. And you can see that that premium paid for the development pressure basically follows that line. They're highly correlated.

And so I use this slide a lot to talk to people around Indiana and say, you guys shouldn't worry so much about farm development. And now, granted, we still have places in the country and places in our state or here in this region where it seems like we're losing all the farmland. Everything's being developed. But, overall, the development premium is still not quite enough to really take a lot out of production.

OK, then the discount rate. So how do we discount those expected earnings? I'm going to show you 3 graphs. These are the 3 and basically the only 3 discount rates that I follow closely. So the first is the Fed funds rate. So this is the rate set by the FOMC.

When I work in extension, I always use these slides because farmers, as you probably know-- and if you're a farmer in here, no offense-- there we go. Good. We got a farmer here at least. There are some farmers that have some almost foil hat ideas of what the Fed is and how the economy works, and so I always have to start here to tell them, well, here's what we had.

So this is the FOMC, the Fed funds rate, which, when I talk to my students, I also show them this because it's been close to 0 as long as they could have possibly known about it and has only been increasing over the last couple of years, over the last year or two. And so we see the rates have been increasing pretty rapidly.

And I always have to remind a lot of the farmers that I talk to the reason that the Fed is increasing the rates is the same reason that I give my kids tablets or iPads. It's so I can take it away again later. So in the event that the economy starts to falter, and the Fed wants to encourage more lending or get banks to quit sitting on cash or just buying bonds, the best way to do it is to cut that rate. So we're building it up, intentionally slowing things a little bit. But the real reason, I think, is that you can get that cushion again when you need it.

So I look at the Fed funds rate, and then I look at the prime rate, which this one is pretty self-explanatory relative to the Fed funds rate. If you know one, you can get to the other. It's usually just about 3% higher. And this is the short-term lending rate that banks give to their best business customers. So we're looking at the short-run borrowing for business purposes.

I see my macroeconomist colleagues in the corner. And I'm used to only talking around farmers. And so I'm like, oh, maybe these guys know better than I do. Maybe I'll say something wrong here. But the reason I look at this as this gives us an idea of the short-run rate that we could get or is in the economy. And that gap between the two is really just a bank's cost of business right, turning on the lights and paying their employees.

And then I look at the farm mortgage rate. This is published here from David's surveys that were mentioned earlier as part of the AgLetter. And so this is farm mortgage rates here in the seventh district. And these are important for a couple of reasons.

So this is basically what I think is a more accurate measure for how we should think about discount rates as they relate to farmland prices. I think a short-run rate, like an overnight deposit rate, doesn't make sense to think about purchasing something over 10 years or 15 years or 30 years. The mortgage rates follow that a lot more. The other thing is mortgage rates also tend to be less driven directly by policy, and they capture a lot more about expectations. And they're more organically produced out into the market.

And then the other reason is if you look at the gap between the Fed funds rate-- or, sorry, the farm mortgage rate and the prime rate, that gives you some idea of what's the general risk of lending to the ag sector to purchase productive assets versus lending to businesses to fund short-run projects. And so, generally, when the farm mortgage rate is well above the prime rate, which it usually is, that says there's a little bit more risk in the ag sector than there is in the broader economy. And then when it switches, it says, well, there's a little bit more risk in the prime or in the general economy than there is in the ag sector.

So I talk to ag lenders a lot, and I talk to farmers a lot. And over the last year or two, farmers are complaining that there's a lot of risk out there. There's a lot of uncertainty. Everything's really nervous. And when I talk to bankers-- again, I assume there's probably a lot of bankers in the room-- they often tell me there's the perfect amount of risk because if farmers have no risk, they're sitting on a bunch of cash. They don't need their banker at all. They don't come in. You don't hear from them.

And then if they're absolutely a crazy amount of risk, then it becomes too much to want to lend to the ag sector. It becomes too risky, too expensive. So you want to have that optimal amount of risk.

So what this is telling us is that there's currently a little bit more risk in the general economy than we think about in the ag economy. And so that's how I think about it. And I'll turn it over to our next-- unless there's questions. What do we want to do?

DAVID: [INAUDIBLE] some questions.

TODD KUETHE: Oh, let's do some questions. Yes?

SPEAKER 1: What's your perspective on the carbon ecosystem services market and how it relates to farm [INAUDIBLE]

TODD KUETHE: To be honest, I think we haven't really seen it yet. There's no doubt that the benefits to carbon ecosystem services are currently captured in land values for people that are doing those practices. And maybe they aren't being paid directly.

Where it gets interesting is all of these contract or selling that to someone else, or someone else paying you to do those practices. And it just really hasn't matured enough that I think we're seeing it in the market generally. But it's one of those definitely frontier issues that I would watch.

DAVID: Just a little bit of admin here. When you ask a question in the room, if you could push the button in front of you to use the mic. And then we do have another way to ask questions using Pigeonhole. If you need one of these, they're around. And you can send it online, and we'll moderate that way.

TODD KUETHE: Yes?

SPEAKER 2: Was your cash rent slide, was that per acre?

TODD KUETHE: Yeah, that's per acre.

SPEAKER 2: Per acre. OK, thanks.

TODD KUETHE: Yes?

SPEAKER 3: Did you ever see or have to consider the impact of the pandemic or civil unrest on the price of land values?

TODD KUETHE: So the impact of the pandemic is pretty obvious. So in 2020 through 2021, we saw record appreciation in the state of Indiana in the survey that we collect, around 30%. I know Iowa State was seeing the same thing around at that time as well. Obviously, some of that is people being flush with cash or rates being very low.

Civil unrest I don't think I've seen. There's a lot of talk in the-- or a lot of research, I should say, a lot of research related to civil unrest in other parts of the world. So we think about unrest created by food prices and how that affects land. But, usually, any sort of unrest is just a sign of risk, and risk has negative effect on prices. Any other questions?

DAVID: Well, we can ask some at the end too, but let's go ahead and [INAUDIBLE].

[APPLAUSE]

TODD KUETHE: Thank you.

DAVID: --Chandio come up from Iowa State University, and she'll talk about some of the same sorts of things for Iowa.

[APPLAUSE]

RABAIL CHANDIO: Hello, I'm Rabail Chandio, and I joined Iowa State starting this fall in the same position where Wendong Zhang was before. And we'll be hearing from him later today as well. And like David said, I'll be talking about some of the same things that Todd mentioned and then a little bit more about the ownership of farmland.

And two of the surveys from which I will be primarily drawing are the Iowa Land Value Survey conducted every year and the Iowa Farmland Ownership and Tenure Survey conducted every 5 years. And both of these were done by Wendong, since I just joined. And before I begin, I'd really like to thank him for conducting these wonderful surveys, leaving all these resources which made it very easy for me to figure things out and then put together this presentation for today. So yeah.

[BEEPING]

Did I do something wrong? Oh, OK. Not me. Good to know. As Todd mentioned, we care about farmland because it makes up a significant portion of--

[BEEPING]

--the farm sector assets. I think that computer does not like me, but I'll continue. So it makes up a significant portion of the farm sector assets.

And when we're thinking about this huge asset which is increasing in value, which has been increasing in value for the last couple of years, we really want to see who is actually owning all of this land, who is bidding for this land. And with the rising, very strong land values, which have softened a little bit but still have not fallen this year, as David's AgLetter data shows, let's see what's happening in this terrain.

So some of the news that's been very catchy, very popular these days are that farmers are being priced out. Another thing we're seeing here is that private investors are buying the farmland, and they're, again, pricing out farmers. One more concept we've been thinking and hearing a lot about is the foreign ownership, and we'll hear more about that later as well. So the main concern in all of these news coverages is that it's not farmers who are owning farmland, and farmers are actually being either priced out or somehow not given appropriate access to the land.

One thing to note here would be that the record high sale that was in Iowa last year in November, $30,000 per acre of land, another very high sale in the vicinity in Nebraska, $27,000 per acre in land, they were both bought by local farmers. So I'd like to argue that farmers are still in the game. It's not like farmers are not owning or not allowed to own farmland for one reason or another.

In fact, when we're looking at the buyers of farmland, this comes from the annual Iowa Land Value Survey. And the survey shows that the highest category, the most recent purchases and historical purchases, the highest buyers of farmland are existing farmers. This past year in 2022, this was about 68%. And we're conducting the survey for this year, and we'll have the data out for this year next month as well. But it shouldn't drastically be different from this.

The investors category is on the rise. It's about 25%, 27%. But I'd like to point out that the investors do also include retired farmers. They also include normal people who are buying farmland to probably lease it out or just hold it as a hedge against inflation. It's not always Bill Gates or private equity firms or just the big bad foreign investors who are included in this investors category.

Farmers are buying farmland, but that is just a snapshot for one year. Who owns the farmland based on the most recent Iowa data we have? I'd like to begin with and focus on the age and the aging farmer demographic throughout this presentation.

So the first thing I'd like to highlight here is people aged 65-plus own 66% of Iowa farmland. So these numbers come from the Iowa Farmland and Tenure Survey, which is the state-mandated survey conducted every 5 years. And it is statistically representative of all Iowa landowners and Iowa farmland. Based on the statistically representative numbers, we see that farmers in the late-stage farming category, 65 to 74 and then above 74 combined, they're owning almost 2/3 of all Iowa farmland. And in terms of the concentration of owners and acres, this seems to be about 1 to 1. There's not a drastic difference between the percentage of owners who own this land and the percentage of acres who are owning this land.

Over the years, there has been a shift towards more late-stage ownership. Since the last 40 years, we've seen that the mid-stage farm ownership has decreased a little. The age category 45 to 54 owned about a quarter of all farmland in 1982. Now they own about 9%. 55 to 64, they also owned about slightly less than a quarter. They own about 20% now. And the late stage has increased a lot from owning about 30% of all farmland to about 66% now.

And one thing I'd like to highlight here is whenever we're thinking about aging farmers, we're also thinking about the anticipated land transfer or the transition of farmland to the next generation. So the reason that-- is there a clicker I can use, like a laser or something? I cannot. Can I? Is there a laser can I use?

DAVID: I think so, but I don't--

RABAIL CHANDIO: OK, since I don't how to operate that, I'll just highlight which row I want to point out to. So the row just above the late-stage farmers, 55 to 64, I want you to bring your attention to that and see that that number has not decreased very significantly. It was 22% in 1982. It increased a little, decreased a little, but stayed fairly stable at 20% even now, when we're seeing that the other mid-stage farmers are decreasing.

And my hypothesis when I'm looking at this or when I'm thinking about this is that some degree of land transfer is happening. It's just not happening from late-stage farmers directly to the early-stage farmers or the 35-year-old farmer. It's highly likely that the farmland is being transferred by parents who are 90 years old to their children who are 60 years old. So we're still seeing some transfer, but it's not as apparent or it's not as distributed in terms of age, which is probably why the 55 to 65-year-old age ownership category has not seen as drastic of a decrease as the others.

Another interesting phenomena specifically for-- so this data is for Iowa, but I presume this would be pretty similar for the rest of the Midwest as well-- is that young farmers are leaving farming. And a question I get whenever I talk about this is, are they leaving, or are they just not being replaced? It's a combination of both.

So look at the third category, the small farms. Over the last decade, there has been a decrease in the operators and the small farms in Iowa by 26%. And by farm operator category, the green block is the categories or the percentage of farms that are owned by 34 years old or younger farmers. If they were transitioning on to the next age bracket, we would see that the green under 0 is matched by a pink or a higher category-- 45, let's say-- orange category above the 0.

But we only see the younger demographics below the 0. They are leaving farming. And above the 0, the increase is more in the gray. They're not transitioning on to the category that's right above in age. So somewhere in the middle, there's a gap. These age demographics, these brackets, they are leaving the farming occupation, and that does pose a concern to some extent.

But with age, there's one more phenomena, financial stability, that comes. And we see that 84% of all Iowa farmland is owned debt-free as of the most recent data. This number has increased quite steadily since 1982. And if we're breaking it down by age, we see there's a fair distribution over there.

So most of the debt-free farmland is owned by people who are in 65 to 80 or above 80 category of age. And young farmers under 35, most of their land is mortgaged or under contract. The 17% of all land owned by land owners under 35 is free of debt.

And the land is free of debt. There's a huge category that is-- they own the land that is under contract or mortgage. I also want to bring attention to the amount of debt. And Todd had this up in numbers. This is the same graphic over here.

So this just shows that the real estate debt does make up a very significant number. It may seem like a small percentage. But in the magnitude of number, it's very important to consider that this requires financing. This may pose a lot of problems with interest rate changes. So we need to keep an eye on the amount of land that's owned with debt.

Another function of age is that more than 50% of Iowa land is owned by the same owner for more than 20 years. Now, this is the same person. This is not a father who has given the land to the son. This is the exact same person who owns the land for more than 20 years.

And more than half the land since the last decade as well is owned by the same person. If we're considering the land that stayed in the same family that was passed on from parents to children, this number would be even higher. We would see century farms, and there would be a lot larger number.

And if we're just limiting to the category of people who've held the same land for more than 40 years, the number is about 20%. 20% of all Iowa land has been in the ownership of the same person for more than 40 years. That's the top 2 rows in the table over here.

Iowa farmland is owned by aging farmers. Most of that is free of debt, but where do they live? We see that full-time Iowa residents own about 75% of all Iowa farmland, and 25%, a quarter, is owned by people who are either part-time residents or not Iowa residents. And the absentee ownership phenomena with more and more full-time owners-- with less and less full-time Iowa residents owning land is seen in this graph.

So in this table with-- in 1982, 94% of land was owned by people who were full-time residents. And now that number has decreased to 75%. And it has been a steady decrease. In the middle, there was a little bit of no change from 2012 to 2017. But we're still seeing this number on a decrease with the part-time ownership or the part-time residency or non-Iowa residents' ownership increasing.

In terms of whether they are farmers or not, most of the land is owned by people who do not farm. And we see that full-time farmers, they own about 28% of farmland in Iowa. Part-time farmers own about 17% of farmland in Iowa, and 55% of all farmland is owned by people who do not farm.

Now, when I say they do not farm, it does not mean that they're investors, or they're just private equity firms. It means they could be people who have leased out land, or they were retired farmers. And this table actually breaks it down a little bit.

People who do not farm, a lot of them have past experience. About half of them have some past experience in farming. That's the number 24% over there. And then all of the land that's owned by people who are not farming, half of them do not have any farm experience.

In terms of the residency, people who do not farm, some of them are full-time Iowa residents. But a smaller number are the ones who are either part-time or non-residents. Most of them are the ones that are still in Iowa. But they're just not actively farming on the land that they do own.

If they're owning the land, and they're not farming land, what is the primary reason for owning the farmland? Over the last decade, the three, 2012, 2017, and '22, these iterations of the survey, we see that the number of the percentage of farmland that is owned to support the farmers' current income has been on a decrease. It was 56% in 2012, decreased to 49%. Now it's 38%.

And the percentage of farmland that's owned for family or sentimental reasons has been on a slight increase, 22% to 29%. And, currently, it's almost as much as the farmland owned to support current income, which is 37%. So this year, they became almost equal. And quite a percentage of land, around a quarter, is owned as a long-term investment, while home and recreation make a very small portion.

And this family or sentimental land, this can also be correlated, or it is highly likely it's a function of the aging farmers that we're seeing. People are passing on land to the younger generation who may or may not live in Iowa, who may or may not be active farmers. But they're not really ready to sell the farm just yet.

And I've heard informally from colleagues that a reason that people are holding on to the land might also be for tax purposes. They don't want to just sell it just yet. But they're not active farmers on this land.

So since a lot of landowners are owning the land-- they're not farming-- what are they doing with it? They're most likely leasing it. Over the last two iterations, we see that there has been an increase in the leased out percentage of farmland in Iowa. Currently, 58% of Iowa farmland is leased out, and 42% is owner controlled.

The owner controlled includes the owner operated, where I own the farm, and then I farm it myself. It includes the custom farmed, where I might hire a management company. or I might hire people for specific jobs. That's a very small percentage, 3%. And then the government programs like CRP, et cetera, that makes up about 8% of Iowa farmland.

In the leased out acres, cash rent leases, fixed cash rent leases, are the most popular. 42% of all of the farmland is under those. Then cash rent, flexible cash rent leases also the second highest form of lease, 9%.

Crop share is not as popular, and it's been on a decline as well to 7%. And that relates somewhat to the risk or certainty. With crop share, it depends on what the yield is. It depends on how confident you are in your own knowledge of the farm, whatever operation is on the land, and whether you'd like to bet on the practices that the landowner is making. With the fixed cash rent, it's pretty guaranteed you're going to get $300 or something, like Todd mentioned in his survey as well, per acre of the farm. And that's just it.

Over time, the owner-operated land has decreased. It was 55% 40 years ago, and now it has decreased down to 35%. The cash rent leases have significantly increased from about 20% to 56% now.

The crop share leases have decreased as well. They're down to 8% now. And some of the reasons that attribute to this decrease is, like I mentioned, the risk, the level of familiarity. If you're not a previous farmer, you might prefer to just have a fixed cash rent rather than determine what is the expected yield and then decide whether you want to have a crop share on that land.

Yep, cash rent are the most dominant form. In terms of the leasing and Iowa residency, one would generally expect people are leasing out land because they're not there. They're not in the state. But what we see is most of the leased out land, 70% of all leased out acres, are owned by people who live in Iowa full time.

The people who live in Iowa part time or are not Iowa residents, 23%, about a quarter of the land, is leased out by them. So they're the out-of-state land owners who are leasing to people in Iowa. Their farming status, it makes sense. Most of the people who are leasing out land are the ones who do not farm it themselves.

And they may be full-time farmers on some other land, and they're leasing a specific tract. They may be part-time farmers on other land. They're leaving some part of their property. But most of the people who are leasing out the land are the ones who do not farm it themselves and who are not farmers.

When we're thinking about the aging farmers, their ownership, we see that similar relationship play out in the leasing as well. We're seeing about 70% of all leased acres attribute again to the same late-stage farmer category. All of the leased out land, 73% of that is owned by people who are 65 years or older, all of the leased acres.

Now remember, this 70%, half of these owners are the ones who have some farming experience. And half of those are the ones who have no farming experience. They're still in the same demographic of 65 years or older.

I also put together a few tidbits about conservation on here, which are not as organized. But they are just a few facts to just show what kind of information is collected in the survey and is available about conservation and land ownership in Iowa. We were talking about age, so let's begin with that.

We already know most of the farmland is owned by people who are in the later stage or the older years. And in terms of all of the farmland that's under conservation programs in Iowa, we see it's the same age demographic that has most participation in terms of farmland conservation programs like CRP, et cetera. And it has remained the same in 2017 and 2022 in terms of the distribution with some slight changes. The distribution has become more bottom heavy.

In the most recent iteration, the category 74 years or older, all of the farmland that's in conservation, 40%, is owned by that age category. So it is becoming more and more bottom heavy. And it's probably because these people are transitioning to the next age bracket in the iteration of the-- in the window that we're doing the next survey.

With age, land transfer is also a concern. Now, this survey also asked about the people who are willing to transfer their land in the next 5 years. Among those, the people who think their land will transfer within the next 5 years, let's just see how many of those have enrolled in conservation programs that offered different programs.

The main thing I want to highlight here is that if the owner thinks that the land is not going to transfer in the next year-- the answer is no-- 22% of the land is in conservation programs. If the land is already in a trust, 33% of the land is in conservation programs. But if the land transfer is yes, like it's going to happen, and it's going to happen in the next 5 years, the number is pretty low. It's at 11%.

And the reason I'm pointing this out here is because recently a colleague informed me about this phenomena that people are not willing to commit land to the government programs which will be a commitment of at least 10 years or so if they're planning on transferring it or selling it. So we're seeing higher conservation if there is a structural transfer plan already in place or if the land is not going to transfer. Then there is a lower enrollment in conservation if the land is going to transfer in the next 5 years.

In terms of all of the practices that are popular or that are done in Iowa, no-till and cover crops are the most popular, with no-till being the highest. About 30% of owners participate in it, and about 30% of Iowa acres are under no-till. A lot of others are just at the very, very initial stages, with very small fractions of land that are enrolled in, let's say, saturated buffers, bioreactors, et cetera. So these practices are still in their infancy and not very popular in Iowa just yet.

One of the reasons why people may not enroll in these practices is their perceived effectiveness. So this reflects the answer of a question whether people think that the two practices, no-till or cover crops, are effective in preventing nutrient runoff in Iowa waterways. And we see that a lot of people do believe-- a lot of percentage of landowners do believe that these practices are effective, although we don't really see as high of an enrollment. About 60% of people believe it's somewhat effective to very effective, but the amount of land that's under no-till or cover crops is about 35%, 37% combined.

We see that people are willing to adopt these conservation practices if there is some cost share programs from the government. And they make about 30% who will consider this participation if there is-- some participation if there is a cost share program from the government. A large majority, 34%, will still not-- they're still not willing to adopt conservation practices.

A lot are willing to participate or willing to adopt conservation. Some are on the fence, which means they're on the fence. They're willing to consider it a little, not so much. Not at all, that's the highest category, 34%. But that still is a little promising because if the government is offering some programs, that shows there is an interest among the landowners in terms of adopting these conservation practices. So these are the main things I wanted to talk about today. Please let me know if you have any questions.

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DAVID: Do we have some questions in the room? There are a couple online, so maybe I'll start with one of those. With respect to historically low interest rates only 3 to 5 years ago, what behavior element explains why some farmers would not have used some of the land collateral to secure cheap debt to grow their land base? I guess we should bring Todd up too. That was a little more--

RABAIL CHANDIO: They would have. Yeah. They would have. They would most definitely have. I think Todd can also answer that. But we see the farm debt here way at the start. And the farm debt is-- this is farm sector assets.

The debt was also there. And the debt may also be rising because of the same phenomena that you've mentioned. It's not always that you'd secure the loan for purchasing more land. It's the loan against the land which could be used to finance some of the more operations of the farm and day-to-day things.

TODD KUETHE: So they took my mic away, so I'll sit here if that makes sense. The question is basically, why didn't farmers buy more land when it was cheaper to do so? I mean, that's always the case.

DAVID: [INAUDIBLE] why didn't they add higher leverage, I think, is the question.

TODD KUETHE: Oh, yeah, add higher leverage. I think there's a couple of pieces to that and that Rabail's presentation highlights, which is generally the people who are at the entry stage generally are already pretty indebted. The people that are at the senior stage are able to cash flow it with less debt or little debt.

And the other big missing piece-- I often show the population pyramid. There's not really a middle. And that's true for farmers and farm operators, but that's also true for hairdressers and restaurateurs. There's a lot of old people, and there's a lot of young people that are generally the kids of the older people. And there's that missing middle. So I think that they did use debt.

The other thing-- there are a fair amount of farms also that are just averse to debt. Particularly think about those older folks that maybe got burned by some financial investments either in the '80s farm crisis or 2009. And then the young people at least that show up on my campus, generally all they feel like is that there's just calamity after calamity. They don't ever want to own anything or whatever.

So I think that there was a lot of growth. I think the other thing too is just that if you look at it in terms of investing specifically in farms, there's just a very small set of the farms that go on for sale every year.

And when you're looking at localized markets, I mean, generally, farmers, when they're buying land, are looking at land that they can drive their equipment to or that they can see when they're driving around.

And so the fact that there's some land in Iowa for sale, nobody in Indiana really cares.

And so I think part of it also limits it is just it's hard to make big adjustments given the structure of how farmland is owned and then how it's allocated around the space. And so I would argue that they did make those adjustments. It's just that the ownership is so fragmented, and the farms have so limited access to land they can't make big swings. It's not like they can open up-- like Facebook can open up a whole office in another country when they see some opportunity there. Farmers are a little bit constrained that way.

DAVID: Any questions in the room?

RABAIL CHANDIO: Bruce has a question.

BRUCE: [INAUDIBLE] a question. Oh, thank you. That helps. 2 questions, if I can. One, I'd like you to comment on the impact of anti-corporate farming rules, the 9 states in the middle of the country, Iowa among them, that have limitations to some degree.

And to recycle the previous question, I think the question is really why the leverage didn't change. So debt went up, but it went up by less percentage than the asset values did. And I put debt on farmland so I could use that money to invest in other things as an example, I think, is the question-- why that wasn't a more prominent feature.

But there's something also very complicated about your statistic on debt because we have about 14% leverage. But you say 14% of the land is owned debt-free. Quite impossible unless that's 100% debt on that fraction.

So I think there's a difference between parcels that are debt-free and acres that are debt-free and that that distinction really matters because there's a very important size distribution for where debt should be used, frankly. And so starting with the institutional owner question or the anti-corporate farming, and then that leads to the cost of capital in a more complicated way, and who should own the land in a sense.

RABAIL CHANDIO: In terms of corporate ownership, I'll begin with that. And feel free to stop me if I'm not answering your question at some point. In terms of corporate ownership, I've developed an interest in that topic. And I'm starting to investigate it these days, actually.

And there's a very obvious loophole of the research category. So that doesn't necessarily-- that may not be hindering corporate ownership as much as we think. There is anti-corporate ownership laws. But John Deere owns very large tracts of farms just near Ames. And that is there. That is there for everybody to see because that is a research farm.

BRUCE: That's a different category. I mean, the true institutional, like a NCREIF member, would not venture into Iowa typically and buy at-scale investments because of that risk of there's a certain number of acres, a certain number of owners, all that. But it literally does impact who can buy. And do you think there's any impact-- a more direct question. Do you think there's any impact on land values or rental rates by who can own land?

RABAIL CHANDIO: I think so. It's the same thing as Todd said. If you're restricting it to local buyers, the corporations out of Iowa are not in the picture. Then the picture I put up at the very start with one tract selling for $30,000 an acre, that specific case was when 2 brothers were bidding up against each other. And there was the natural bidding process that bid up the land up to $26,000 per acre.

And then the $4,000 above that was just 2 brothers vying for that specific tract of land. So if local farmers are sitting on cash, and they are the ones that can buy farmland, they are the ones who are actually owning it. And in terms of whether it's driving up the price or not, it depends on the location. In the Northwest, I would think that this is where the very high record high tract was. There is a lot of auctions that sell the land that livestock farmers are buying that are smaller tracts. And they're willing to pay very, very high prices for it. But, again, it has to be in the vicinity. It has to be right next to it.

So in terms of whether external owners are coming in or not, I don't think that's making a lot of difference. Now, that's my opinion at this point based on what I understand. But I don't think that the land values will change drastically if the corporate ownership laws change and became the same as the one in Illinois because we see the land values are not as drastically different, while the corporate ownership laws are different. So I don't think that should be the major factor playing a role. And can you please repeat the second question you had?

BRUCE: So [INAUDIBLE] distribution I think just has to be more carefully described because aggregate leverage is around 14% on long-term assets. And so you indicate that only 14% of land is debt-free. I think you mean 14% of parcels, not of acres, because otherwise you would be implying that 100% debt on 14% for it to be distributed that way. So there's something important about who has debt and where it should be in terms of the impact on the cost of capital.

RABAIL CHANDIO: Let me think about that.

TODD KUETHE: Can I add one-- to Bruce's question, which I don't how many of you are maybe outside of the-- working in the ag sector is your primary focus. But I think, if nothing else, this ownership law idea is going to be a big issue politically. And it's one of those things, as Bruce alluded to and Rabail also, it's very difficult to measure. We don't have very many very clean cases of this is allowed here, and this is exactly like this other place. It's not done in a lab.

And there's a lot of argument in legislative issues. So there's at least one senator that has released a proposed legislation to outlaw corporate ownership nationally. And then we have a lot of states that are restricting foreign ownership.

And so I think the idea of who is allowed to own land or maybe a more important question, who you're allowed to sell your land to-- both of those constituencies show up to our land grant functions a lot-- I think could be a really big issue at least politically in the narrative. I don't know if economically it's going to be that big of an issue. But it's definitely a narrative that will be discussed.

SPEAKER 4: I'm a veterinarian, and so it's a little unrelated but, I think, has some relevance. In the veterinary profession, as we baby boomers that have been practicing for many years are retiring, it's become very hard to sell your practices to the 30-year-olds that already have a lot of debt. And what's happening is corporate ownership is now owning about 40% or 45% of veterinary practices. And as you look at the distribution of ownership of land and young farmers not able to buy out the older farmers, I think that's something that is on the horizon in agriculture as well just to allow people to retire. So that's an observation.

TODD KUETHE: Yeah, I think that's an important observation. I think we see that a bit in the ag sector. My view might be a little bit biased because I spend time at extension events with guys who are very old that don't look like they ever want to retire. They like being farmers or like doing parts of the farming. But, yeah, I think the idea of, what debt do those younger people have?

The other thing too is I think there's a misconception often when we think about the transition of farm ownership. People will say to me all the time, oh, yeah, when the son or daughter graduates from Purdue, and then they come back and take over the farm. And I was like, no, no, they're usually people in their 50s. So I know a number of young people who have left farming because they got tired of waiting for their chance to take over the ownership, and they shift into something else. I'm sure those of you who work in the ag sector do as well.

So, yeah, the demographics of this is really unusual. But I also think, part to your question, I think a lot of the things that we talk about in the agricultural sector are also true of the broader economy. And if we look at other small business ownership, we see a lot of those same sort of demographic challenges. RABAIL CHANDIO: And I'll just add a statistic we have from this survey to what Todd was saying and what you asked about. So among the landowners that are willing to transfer, willing to sell their lands, this survey asked, what is your main problem or main issue you're facing in terms of finding the young or beginning farmers? And a lot of people said that they are willing to sell, and they sometimes are even willing to sell below the fair market value of the farm. But they're having trouble finding hardworking young and beginning farmers.

Now, that's a very subjective definition. It depends on the person. There's no fixed criteria of what a hardworking young beginning farmer is. But that problem exists. And I think that is because there are so many programs that are starting to help them with credit. And there's a portal that Iowa State University has to connect the people looking for young and beginning farmers if they cannot find them within their vicinity.

That portal just-- you sign up young beginners. Young farmers sign up. And they have the option to be connected with a lot of other older farmers who are willing to sell and looking to retire, but they have nobody in their own vicinity. So as this problem is coming up, some solutions are also coming up. So I'm a very optimistic person in that regard. I think it should take care of itself because when there is a demand, there will be some supply.

DAVID: I guess, Rabail, I would like to ask one question about you in terms of the distribution of land ownership in other states in the region. Do you think they're similar to Iowa? You've got a lot of great data there. I know there isn't a lot of data about some of the other states at that level.

RABAIL CHANDIO: I would expect it would be similar. I would expect it would not be drastically different. At least in the Corn Belt, it shouldn't be drastically different because a lot of other things are very similar to things we're looking at in terms of land values, in terms of the soil quality, the landscapes. If those things are similar, if the debt structure is similar, I expect that this should also be pretty similar.

SPEAKER 1: What does the carbon ecosystem services market look like in Iowa?

RABAIL CHANDIO: So from what I've heard from my colleagues, it's not very developed. And in terms of the popularity, there is very strong for-carbon-credits groups, and there are very strong against-carbon-credit groups among the farmers. And I don't think there's a very conclusive evidence on where it's going. It's just the very beginning stages at this point. That's my understanding.

DAVID: There is one more question online, but I'm going to hold that one until the next group because it's asking about energy. And any final questions? If not, then we'll go ahead and have a break and start back at 10:40 here. Thank you.

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