Not Your Father s Farmland Market (even if he still owns the farm.)

Transcription

1 Not Your Father s Farmland Market (even if he still owns the farm.) DTN Conference December 2016 Chicago, Illinois Bruce J. Sherrick, Ph.D. TIAA Center for Farmland Research, University of Illinois Advancing Farmland Markets through Research and Information

2 TIAA Center for Farmland Research Advancing Farmland Markets through Research and Information C o n t e x t Goals: improve accuracy and understanding of asset class, and to provide unbiased research and useful tools for those involved with farmland investments. Tools and articles at:

3 Balance Sheet of Ag Sector -- US ($ millions, except ratios - source ERS-USDA) Farm Assets 278,823 1,000, ,609 1,203,215 2,161,362 2,310,640 2,777,810 2,861,816 Real Estate 202, , , ,428 1,651,379 1,795,126 2,252,907 2,342,314 Non Real Estate 76, , , , , , , ,503 Farm Debt 48, , , , , , , ,261 Real Estate 27,238 85,272 67,633 84, , , , ,091 Non Real Estate 21,263 77,160 63,483 79, , , , ,170 Equity 230, , ,493 1,039,285 1,882,431 2,016,168 2,462,835 2,497,555 Selected Indicators Debt/Equity 21.1% 19.4% 18.5% 15.8% 14.8% 14.6% 12.8% 14.6% Debt/Assets 17.4% 16.2% 15.6% 13.6% 12.9% 12.7% 11.3% 12.7% Real Estate/Equity 87.9% 93.4% 87.3% 91.1% 87.7% 89.0% 91.5% 93.8% Real Estate/Assets 72.6% 78.2% 73.7% 78.7% 76.4% 77.7% 81.1% 81.8% Real Estate D/Total D 56.2% 52.5% 51.6% 51.7% 55.2% 56.8% 58.7% 56.3%

4 Ag Sector Balance Sheet -- US C o n t e x t Farmland represents 80+% of farm assets Farm real estate debt only 57% of total farm debt Low aggregate leverage (approx. 13% D/A) Growth rates , continuous compounding: Assets --5.3% Real Estate % Debt 4.2% Equity 5.6% Absence of active equity market. Some key efforts underway. Ag Balance sheet compared to corporate sector vastly different, especially in financial structure. Early stage financialization.

5 Yield Curve August 2001-October 21, 2016 (weekly) Sept. 19, 2008 Liquidity puddle Rate hike 12/15

6 Does the farmland market make sense? Historic comparison of implied cap rate and CMT-10 One period in 1980 s where conditions that might be considered bubble formation existed. Implied asset value from capitalization of income to q2:16. Recent asset values show that the market did not consider income levels in recent years to be permanent

7 Farmland Returns in context Annual Ave. Standard Coefficient Asset/Index Return Deviation of Variation Correlation US Ave Farm (all) 10.54% 6.41% S&P % 16.74% NASDAQ 9.71% 25.53% TCM10Y 6.67% 2.88% AAA 7.79% 2.50% Mort30F 8.35% 3.06% Gold 7.40% 23.04% All REITS 9.09% 20.34% CPI 4.00% 2.86%

8 Farmland Returns in context Annual Ave. Standard Coefficient Asset/Index Return Deviation of Variation Correlation US Ave Farm (all) 8.53% 5.27% S&P % 16.09% NASDAQ 9.71% 25.53% TCM10Y 6.44% 3.18% AAA 7.67% 2.79% Mort30F 8.22% 3.36% Gold 2.02% 16.29% All REITS 10.33% 17.31% CPI 3.14% 2.11%

9 Farmland Returns in context Annual Ave. Standard Coefficient Asset/Index Return Deviation of Variation Correlation US Ave Farm (all) 9.27% 3.70% S&P % 17.55% NASDAQ 9.23% 27.44% TCM10Y 4.85% 1.80% AAA 6.25% 1.51% Mort30F 6.50% 1.70% Gold 3.76% 14.54% All REITS 9.77% 19.04% CPI 2.44% 1.13%

10 Farmland Returns in context Annual Ave. Standard Coefficient Asset/Index Return Deviation of Variation Correlation US Ave Farm (all) 9.27% 4.54% S&P % 18.80% NASDAQ 1.30% 27.47% TCM10Y 3.71% 1.15% AAA 5.33% 1.06% Mort30F 5.48% 1.23% Gold 8.10% 15.45% All REITS 11.01% 19.77% CPI 2.15% 1.03%

11 Annualized Return Buy (beginning of year) Farmland: time and holding periods Iowa Sell (end of year) % 16.3% 21.6% 23.0% 24.8% 26.8% 24.6% 24.1% 23.9% 22.8% 20.6% 18.2% 16.3% 12.8% 10.8% 10.0% 10.9% 11.5% 11.3% 11.3% 11.2% 11.3% 11.3% 11.3% 11.4% 11.5% 11.5% 11.4% 11.3% 11.2% 11.1% 11.0% 11.1% 11.4% 11.5% 11.7% 11.9% 11.5% 11.7% 12.0% 12.2% 12.4% 12.4% 12.0% % 26.0% 26.4% 27.8% 29.8% 26.6% 25.7% 25.3% 23.9% 21.3% 18.6% 16.6% 12.8% 10.6% 9.8% 10.8% 11.4% 11.2% 11.2% 11.1% 11.2% 11.2% 11.2% 11.3% 11.5% 11.5% 11.4% 11.2% 11.1% 11.0% 11.0% 11.1% 11.4% 11.4% 11.6% 11.8% 11.5% 11.6% 12.0% 12.2% 12.4% 12.4% 12.0% % 30.0% 30.7% 32.5% 28.0% 26.8% 26.2% 24.5% 21.5% 18.5% 16.3% 12.2% 10.0% 9.1% 10.2% 10.9% 10.7% 10.8% 10.7% 10.8% 10.9% 10.9% 11.0% 11.2% 11.2% 11.1% 10.9% 10.8% 10.7% 10.7% 10.8% 11.1% 11.2% 11.4% 11.6% 11.3% 11.4% 11.8% 12.0% 12.2% 12.2% 11.8% % 29.7% 32.3% 26.9% 25.7% 25.1% 23.4% 20.2% 17.0% 14.8% 10.5% 8.3% 7.5% 8.7% 9.6% 9.5% 9.6% 9.6% 9.7% 9.9% 9.9% 10.1% 10.3% 10.3% 10.3% 10.2% 10.1% 10.0% 10.0% 10.1% 10.5% 10.6% 10.8% 11.1% 10.7% 10.9% 11.2% 11.5% 11.7% 11.7% 11.3% % 34.9% 26.7% 25.3% 24.7% 22.7% 19.2% 15.8% 13.5% 8.9% 6.7% 6.0% 7.4% 8.4% 8.4% 8.6% 8.6% 8.8% 9.0% 9.1% 9.3% 9.6% 9.7% 9.6% 9.5% 9.5% 9.4% 9.4% 9.6% 10.0% 10.1% 10.3% 10.6% 10.2% 10.4% 10.8% 11.1% 11.3% 11.4% 11.0% % 24.1% 23.0% 22.9% 20.9% 17.2% 13.7% 11.4% 6.6% 4.4% 3.9% 5.6% 6.8% 6.8% 7.2% 7.3% 7.6% 7.8% 8.0% 8.3% 8.6% 8.7% 8.7% 8.7% 8.6% 8.6% 8.7% 8.8% 9.3% 9.4% 9.7% 10.0% 9.6% 9.9% 10.3% 10.6% 10.8% 10.9% 10.5% % 16.3% 18.3% 17.0% 13.4% 10.1% 8.0% 3.3% 1.3% 1.0% 3.1% 4.5% 4.8% 5.3% 5.5% 5.9% 6.3% 6.6% 6.9% 7.3% 7.5% 7.6% 7.5% 7.6% 7.6% 7.7% 7.9% 8.4% 8.6% 8.9% 9.2% 8.9% 9.1% 9.5% 9.9% 10.1% 10.2% 9.8% % 21.7% 18.8% 13.8% 9.7% 7.4% 2.1% 0.0% -0.2% 2.2% 3.9% 4.2% 4.8% 5.1% 5.6% 6.0% 6.3% 6.6% 7.1% 7.3% 7.4% 7.4% 7.4% 7.4% 7.5% 7.8% 8.3% 8.4% 8.8% 9.1% 8.8% 9.0% 9.5% 9.8% 10.1% 10.2% 9.8% % 17.8% 11.6% 7.1% 4.9% -0.7% -2.7% -2.5% 0.3% 2.3% 2.8% 3.5% 4.0% 4.5% 5.0% 5.4% 5.9% 6.4% 6.6% 6.7% 6.8% 6.8% 6.9% 7.0% 7.3% 7.8% 8.0% 8.3% 8.7% 8.4% 8.7% 9.1% 9.5% 9.8% 9.9% 9.5% % 6.5% 2.4% 0.9% -4.8% -6.3% -5.6% -2.1% 0.3% 1.0% 2.0% 2.6% 3.3% 3.9% 4.4% 4.9% 5.5% 5.8% 6.0% 6.0% 6.1% 6.2% 6.4% 6.7% 7.3% 7.5% 7.9% 8.3% 7.9% 8.2% 8.7% 9.1% 9.4% 9.5% 9.1% % -2.6% -2.9% -8.9% -9.8% -8.5% -4.1% -1.2% -0.3% 0.9% 1.6% 2.5% 3.2% 3.8% 4.4% 5.0% 5.4% 5.6% 5.7% 5.8% 5.9% 6.1% 6.4% 7.0% 7.3% 7.7% 8.1% 7.7% 8.1% 8.6% 9.0% 9.3% 9.4% 9.0% % -4.3% -11.6% -12.1% -10.1% -4.8% -1.4% -0.3% 1.0% 1.8% 2.7% 3.5% 4.1% 4.7% 5.4% 5.7% 5.9% 6.0% 6.1% 6.2% 6.4% 6.7% 7.3% 7.6% 8.0% 8.4% 8.0% 8.4% 8.9% 9.3% 9.6% 9.7% 9.3% % -14.7% -14.3% -11.3% -4.7% -0.7% 0.4% 1.8% 2.6% 3.5% 4.3% 4.9% 5.5% 6.2% 6.5% 6.6% 6.7% 6.7% 6.8% 7.0% 7.3% 7.9% 8.2% 8.6% 9.0% 8.6% 8.9% 9.4% 9.8% 10.2% 10.2% 9.8% % -19.3% -13.8% -5.1% -0.2% 1.1% 2.6% 3.4% 4.3% 5.1% 5.7% 6.3% 6.9% 7.2% 7.3% 7.3% 7.4% 7.4% 7.6% 7.9% 8.5% 8.7% 9.1% 9.5% 9.1% 9.4% 9.9% 10.4% 10.7% 10.7% 10.2% % -7.7% 2.5% 7.1% 7.2% 8.0% 8.2% 8.7% 9.1% 9.3% 9.6% 10.1% 10.2% 10.1% 9.9% 9.8% 9.7% 9.7% 9.9% 10.5% 10.6% 11.0% 11.3% 10.8% 11.1% 11.6% 11.9% 12.2% 12.2% 11.6% % 11.6% 15.0% 13.1% 12.9% 12.3% 12.3% 12.3% 12.2% 12.3% 12.5% 12.4% 12.1% 11.8% 11.5% 11.3% 11.2% 11.4% 11.9% 12.0% 12.3% 12.6% 12.0% 12.2% 12.7% 13.0% 13.3% 13.2% 12.6% % 24.4% 18.5% 16.9% 15.3% 14.8% 14.4% 14.0% 13.9% 14.1% 13.8% 13.4% 12.9% 12.5% 12.3% 12.1% 12.2% 12.7% 12.8% 13.0% 13.3% 12.7% 12.9% 13.3% 13.7% 13.9% 13.8% 13.2% % 14.6% 13.8% 12.6% 12.6% 12.5% 12.3% 12.4% 12.8% 12.6% 12.2% 11.8% 11.5% 11.3% 11.2% 11.4% 12.0% 12.0% 12.4% 12.7% 12.0% 12.3% 12.8% 13.2% 13.4% 13.4% 12.7% % 9.8% 9.6% 10.3% 10.7% 10.8% 11.1% 11.6% 11.6% 11.3% 10.9% 10.7% 10.5% 10.5% 10.7% 11.4% 11.5% 11.8% 12.2% 11.5% 11.8% 12.4% 12.8% 13.0% 13.0% 12.4% % 10.7% 11.2% 11.5% 11.4% 11.7% 12.2% 12.1% 11.7% 11.3% 11.0% 10.8% 10.7% 10.9% 11.6% 11.7% 12.1% 12.5% 11.8% 12.0% 12.6% 13.0% 13.3% 13.3% 12.5% % 10.7% 11.2% 11.2% 11.6% 12.2% 12.1% 11.7% 11.2% 10.8% 10.6% 10.6% 10.8% 11.6% 11.7% 12.1% 12.5% 11.7% 12.0% 12.6% 13.1% 13.3% 13.3% 12.6% % 12.3% 11.9% 12.2% 12.9% 12.6% 12.0% 11.4% 11.0% 10.8% 10.7% 10.9% 11.8% 11.9% 12.3% 12.7% 11.9% 12.2% 12.8% 13.3% 13.5% 13.5% 12.7% % 11.8% 12.2% 13.0% 12.7% 12.0% 11.3% 10.9% 10.6% 10.5% 10.8% 11.7% 11.9% 12.3% 12.7% 11.9% 12.2% 12.9% 13.3% 13.6% 13.6% 12.7% % 12.2% 13.3% 12.8% 11.9% 11.1% 10.7% 10.4% 10.3% 10.7% 11.7% 11.8% 12.3% 12.8% 11.8% 12.2% 12.9% 13.4% 13.7% 13.6% 12.8% % 13.1% 14.3% 13.3% 12.1% 11.1% 10.6% 10.3% 10.2% 10.6% 11.7% 11.9% 12.4% 12.9% 11.9% 12.2% 13.0% 13.5% 13.8% 13.8% 12.8% % 13.4% 11.8% 10.6% 10.1% 9.9% 9.8% 10.3% 11.6% 11.8% 12.3% 12.9% 11.8% 12.2% 13.0% 13.5% 13.9% 13.8% 12.8% % 11.3% 9.9% 9.1% 8.8% 8.8% 8.9% 9.6% 11.1% 11.3% 12.0% 12.7% 11.5% 11.9% 12.8% 13.4% 13.8% 13.7% 12.7% % 7.9% 7.9% 8.1% 8.4% 9.3% 11.1% 11.3% 12.1% 12.8% 11.5% 12.0% 12.9% 13.5% 13.9% 13.8% 12.8% % 7.3% 7.6% 8.0% 8.4% 9.4% 11.5% 11.7% 12.5% 13.3% 11.8% 12.3% 13.3% 13.9% 14.3% 14.2% 13.0% % 8.3% 8.7% 10.0% 12.3% 12.5% 13.3% 14.0% 12.3% 12.8% 13.9% 14.5% 14.9% 14.7% 13.4% % 8.8% 9.2% 10.7% 13.5% 13.5% 14.2% 14.9% 12.9% 13.4% 14.5% 15.1% 15.5% 15.3% 13.8% % 11.7% 15.1% 14.7% 15.4% 16.0% 13.5% 14.0% 15.1% 15.8% 16.1% 15.8% 14.2% % 13.7% 17.9% 16.4% 16.8% 17.3% 14.1% 14.6% 15.8% 16.5% 16.8% 16.4% 14.6% % 17.7% 17.9% 18.2% 14.2% 14.8% 16.1% 16.9% 17.1% 16.7% 14.7% % Sold 13.4% 15.7% 16.9% 12.3% 13.3% 15.2% 16.1% 16.5% 16.0% 14.0% 2007 Bought 18.2% 18.7% 11.9% 13.3% 15.5% 16.6% 17.0% 16.4% 14.0% -30% % 8.9% 11.7% 14.9% 16.2% 16.8% 16.1% 13.5% % 8.1% 13.4% 15.5% 16.2% 15.6% 12.7% % 21.1% 21.4% 20.9% 19.2% 15.1% % 23.4% 22.0% 19.6% 14.6% (Illinois ) % 20.6% 17.9% 12.2% %--20% -20%--10% -10%-0% 0%-10% 10%-20% 20%-30% 30%-30% 19.4% 15.9% 9.1% % 4.3% %

12 Ave. Annual Return Average Annual return Farmland risk stability measures Holding period length: % 10% 8% 25 yr 20 yr 15 yr 10 yr 5 yr 3 yr 2 yr 1 yr 6% 4% 2% 0% 0% 2% 4% 6% 8% 10% 12% St.Dev. of Returns

13 Annualized Return Buy (beginning of year) S&P 500: time and holding periods S&P500 Sell (end of year) % -3.7% -15.7% -6.5% -2.1% -3.9% -3.2% -1.5% 1.0% -0.2% 1.0% 2.2% 2.1% 3.5% 4.2% 4.0% 4.5% 5.5% 4.8% 5.6% 5.6% 5.6% 5.3% 6.2% 6.7% 7.4% 8.0% 8.3% 7.6% 6.8% 5.5% 6.0% 6.1% 6.0% 6.2% 6.1% 4.1% 4.5% 4.7% 4.5% 4.7% 5.2% 5.3% 5.2% % -27.6% -12.6% -5.9% -7.2% -5.9% -3.5% -0.6% -1.7% -0.3% 1.1% 1.1% 2.7% 3.4% 3.3% 3.9% 4.9% 4.3% 5.2% 5.1% 5.2% 4.9% 5.9% 6.4% 7.1% 7.7% 8.1% 7.3% 6.5% 5.2% 5.7% 5.8% 5.7% 5.9% 5.9% 3.8% 4.2% 4.4% 4.3% 4.5% 5.0% 5.1% 5.0% % -9.2% -1.0% -4.0% -3.0% -0.7% 2.4% 0.7% 2.1% 3.4% 3.2% 4.8% 5.4% 5.2% 5.6% 6.7% 5.8% 6.7% 6.6% 6.6% 6.2% 7.2% 7.6% 8.4% 9.0% 9.3% 8.5% 7.6% 6.2% 6.7% 6.8% 6.6% 6.8% 6.7% 4.5% 4.9% 5.1% 5.0% 5.2% 5.7% 5.8% 5.6% % 22.4% 9.5% 7.4% 8.2% 10.5% 7.3% 8.1% 8.9% 8.1% 9.4% 9.8% 9.2% 9.3% 10.3% 9.1% 9.9% 9.6% 9.4% 8.9% 9.8% 10.1% 10.8% 11.3% 11.6% 10.6% 9.6% 8.1% 8.6% 8.6% 8.4% 8.5% 8.3% 6.0% 6.4% 6.6% 6.4% 6.5% 7.0% 7.1% 6.9% % 1.6% 1.4% 3.9% 7.4% 4.3% 5.6% 6.8% 6.2% 7.8% 8.3% 7.8% 8.1% 9.1% 8.0% 8.9% 8.6% 8.5% 8.0% 9.0% 9.4% 10.1% 10.7% 11.0% 10.0% 9.0% 7.4% 7.9% 8.0% 7.8% 7.9% 7.8% 5.4% 5.8% 6.0% 5.8% 6.0% 6.5% 6.6% 6.4% % -5.8% -0.3% 5.0% 1.8% 3.7% 5.4% 4.9% 6.8% 7.4% 6.9% 7.3% 8.5% 7.4% 8.4% 8.1% 8.0% 7.5% 8.5% 9.0% 9.8% 10.4% 10.7% 9.7% 8.7% 7.0% 7.6% 7.6% 7.5% 7.6% 7.5% 5.0% 5.5% 5.7% 5.5% 5.7% 6.2% 6.3% 6.1% % 6.2% 11.5% 5.6% 7.2% 8.6% 7.5% 9.4% 9.9% 9.1% 9.3% 10.5% 9.0% 10.0% 9.6% 9.4% 8.8% 9.8% 10.2% 11.0% 11.6% 11.9% 10.8% 9.6% 7.9% 8.4% 8.4% 8.2% 8.4% 8.2% 5.7% 6.1% 6.3% 6.1% 6.3% 6.8% 6.9% 6.7% % 17.1% 7.2% 8.8% 10.2% 8.7% 10.7% 11.0% 10.0% 10.2% 11.4% 9.7% 10.7% 10.2% 10.0% 9.3% 10.3% 10.8% 11.6% 12.2% 12.4% 11.2% 10.0% 8.2% 8.7% 8.7% 8.5% 8.7% 8.5% 5.8% 6.3% 6.5% 6.3% 6.4% 6.9% 7.0% 6.8% % 5.0% 7.9% 9.8% 8.1% 10.5% 10.9% 9.8% 10.0% 11.3% 9.5% 10.6% 10.1% 9.9% 9.1% 10.3% 10.7% 11.6% 12.2% 12.5% 11.2% 9.9% 8.0% 8.6% 8.6% 8.4% 8.6% 8.4% 5.6% 6.1% 6.3% 6.1% 6.3% 6.8% 6.9% 6.7% % 1.1% 5.8% 4.7% 8.2% 9.1% 8.0% 8.5% 10.1% 8.3% 9.6% 9.1% 9.0% 8.2% 9.5% 10.0% 10.9% 11.6% 11.9% 10.7% 9.4% 7.4% 8.0% 8.1% 7.9% 8.0% 7.9% 5.1% 5.6% 5.8% 5.6% 5.8% 6.4% 6.5% 6.3% % 14.8% 10.2% 13.3% 13.4% 11.4% 11.5% 13.0% 10.6% 11.8% 11.1% 10.7% 9.7% 11.0% 11.5% 12.4% 13.1% 13.3% 11.9% 10.4% 8.3% 9.0% 8.9% 8.7% 8.8% 8.6% 5.7% 6.2% 6.4% 6.2% 6.4% 6.9% 7.0% 6.8% % 8.4% 13.2% 13.3% 10.9% 11.1% 12.8% 10.2% 11.6% 10.8% 10.5% 9.4% 10.8% 11.4% 12.3% 13.0% 13.3% 11.8% 10.3% 8.0% 8.7% 8.7% 8.5% 8.6% 8.4% 5.4% 5.9% 6.1% 5.9% 6.1% 6.7% 6.8% 6.6% % 11.8% 12.4% 9.7% 10.1% 12.3% 9.4% 11.0% 10.3% 9.9% 8.8% 10.4% 11.0% 12.1% 12.8% 13.1% 11.6% 10.0% 7.6% 8.4% 8.4% 8.1% 8.3% 8.1% 5.0% 5.5% 5.8% 5.6% 5.8% 6.4% 6.6% 6.3% % 18.4% 12.7% 12.4% 14.7% 10.8% 12.5% 11.4% 10.9% 9.6% 11.3% 11.8% 12.9% 13.7% 14.0% 12.2% 10.5% 8.0% 8.8% 8.8% 8.5% 8.7% 8.4% 5.1% 5.7% 5.9% 5.7% 6.0% 6.6% 6.7% 6.5% % 7.7% 9.0% 12.6% 8.4% 10.8% 9.8% 9.5% 8.2% 10.1% 10.9% 12.1% 13.0% 13.3% 11.5% 9.7% 7.2% 8.0% 8.0% 7.8% 8.0% 7.8% 4.4% 5.0% 5.3% 5.1% 5.4% 6.0% 6.2% 6.0% % 6.7% 12.2% 7.1% 10.2% 9.2% 8.9% 7.5% 9.7% 10.6% 12.0% 12.9% 13.3% 11.4% 9.5% 6.8% 7.7% 7.7% 7.5% 7.7% 7.5% 4.0% 4.7% 5.0% 4.8% 5.1% 5.8% 5.9% 5.7% % 17.7% 8.9% 12.4% 10.7% 10.1% 8.3% 10.7% 11.6% 13.0% 14.0% 14.3% 12.1% 10.0% 7.1% 8.0% 8.1% 7.8% 8.0% 7.8% 4.1% 4.8% 5.1% 4.9% 5.2% 5.9% 6.1% 5.8% % 7.6% 12.6% 10.5% 9.7% 7.8% 10.6% 11.6% 13.2% 14.2% 14.5% 12.2% 9.9% 6.8% 7.8% 7.9% 7.6% 7.8% 7.6% 3.7% 4.5% 4.8% 4.6% 4.9% 5.7% 5.9% 5.6% % 7.2% 6.3% 6.4% 4.8% 8.5% 9.9% 11.9% 13.1% 13.6% 11.1% 8.8% 5.5% 6.7% 6.9% 6.6% 7.0% 6.8% 2.7% 3.6% 4.0% 3.8% 4.2% 5.0% 5.2% 5.0% % 13.5% 11.2% 7.9% 11.9% 12.9% 14.8% 15.9% 16.1% 13.1% 10.3% 6.6% 7.8% 7.9% 7.6% 7.9% 7.6% 3.3% 4.2% 4.5% 4.3% 4.7% 5.5% 5.7% 5.5% % 5.6% 3.2% 9.2% 11.0% 13.5% 14.9% 15.2% 12.0% 9.1% 5.2% 6.6% 6.8% 6.5% 6.9% 6.7% 2.2% 3.2% 3.6% 3.4% 3.9% 4.8% 5.0% 4.8% % 2.5% 10.8% 12.7% 15.4% 16.7% 16.9% 13.0% 9.6% 5.3% 6.9% 7.0% 6.7% 7.1% 6.9% 2.1% 3.1% 3.6% 3.4% 3.8% 4.8% 5.1% 4.8% % 12.8% 14.7% 17.6% 18.8% 18.7% 13.9% 10.0% 5.2% 6.9% 7.0% 6.7% 7.1% 6.9% 1.8% 2.9% 3.4% 3.2% 3.7% 4.7% 5.0% 4.7% % 23.8% 24.8% 24.5% 23.2% 16.7% 11.8% 6.0% 7.8% 7.9% 7.5% 7.9% 7.5% 2.0% 3.2% 3.7% 3.5% 4.0% 5.0% 5.3% 5.0% % 18.5% 22.7% 23.0% 21.7% 14.4% 9.1% 3.1% 5.4% 5.8% 5.5% 6.1% 5.9% 0.2% 1.5% 2.2% 2.1% 2.7% 3.8% 4.2% 3.9% % 25.3% 22.8% 13.4% 7.3% 0.7% 3.7% 4.3% 4.1% 5.0% 4.8% -1.2% 0.3% 1.1% 1.1% 1.7% 3.0% 3.4% 3.2% % 23.6% 20.7% 9.2% 2.9% -3.9% 0.2% 1.4% 1.6% 2.8% 2.8% -3.4% -1.6% -0.6% -0.6% 0.3% 1.7% 2.2% 2.0% % 2.6% -3.3% -9.7% -3.9% -1.9% -1.2% 0.4% 0.8% -5.8% -3.6% -2.4% -2.2% -1.2% 0.4% 1.0% 0.9% % -10.7% -12.3% -17.4% -8.7% -5.4% -4.1% -1.9% -1.2% -8.1% -5.5% -4.1% -3.7% -2.6% -0.8% 0.0% -0.1% % -20.5% -8.0% -4.1% -2.7% -0.3% 0.2% -7.8% -5.0% -3.4% -3.1% -1.9% 0.0% 0.8% 0.7% % -26.6% -4.8% -0.5% 0.3% 2.7% 2.8% -6.9% -3.8% -2.1% -1.9% -0.7% 1.3% 2.0% 1.8% % 15.8% 11.3% 11.7% 10.0% -3.1% 0.0% 1.5% 1.3% 2.4% 4.3% 4.8% 4.4% % 8.6% 5.7% 8.0% 6.9% -7.7% -3.4% -1.3% -1.2% 0.3% 2.6% 3.3% 3.0% % 7.8% 6.3% -11.4% -5.6% -2.9% -2.5% -0.7% 1.9% 2.8% 2.5% % Sold 12.8% 8.0% -15.7% -7.7% -4.0% -3.4% -1.2% 1.8% 2.8% 2.4% 2007 Bought 3.5% -27.1% -13.6% -7.8% -6.3% -3.4% 0.3% 1.6% 1.3% -30% % -21.1% -11.3% -8.6% -4.7% -0.2% 1.3% 1.1% % 16.5% 10.7% 11.2% 14.0% 13.4% 11.3% % 5.8% 8.0% 12.3% 12.0% 9.7% % 6.1% 12.3% 11.9% 9.3% % 19.1% 16.2% 11.7% %--20% -20%--10% -10%-0% 0%-10% 10%-20% 20%-30% 30%-30% 25.9% 18.1% 11.5% % 4.9% %

14 Ave. Annual Return Average Annual return S&P 500 risk stability measures Holding period length: % 7% 6% 25 yr 20 yr 15 yr 10 yr 5 yr 3 yr 2 yr 1 yr 5% 4% 3% 2% 1% 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% St.Dev. of Returns

15 Farmland: Low Equity correlation, positive CPI and Inflation effects C o n t e x t (US Farmland 26 State Returns 3-year rolling holding periods, )

16 Number of Farms 1960-present ERS-USDA

17 Acres per farm increasing ERS-USDA

18 Distribution by Sales Class - - Million Acres - - Ave Farm Sales from up to Farmland '15-'14 Size Ac. % Farmland 1,000 10, % 10, , % 100, , % 250, , , % 500,000 1,000, , % 1,000,000 >1,000, , % Total or ave million %

19 Farm Numbers and Acreage

20 Distribution by Sales Class

21 Size concentration and movement

22 Distribution by farm type and size % of farms % acres % Production # Farms Small Family 89.4% 45.3% 21.5% 1,856,318 MidSize Family 6.1% 23.4% 20.5% 125,760 Large Scale Family 3.4% 27.5% 47.6% 70,930 Non-Family 1.1% 3.8% 10.4% 23,266 Small Type # Farms % farms Retirement 281, Off-Farm 942, Farming low sales 522, Farming med. sales 109, Total Small 1,856, Family Farms comprise 99% of farms and 90% of production. Nearly 90% of farms produce less than $350k per year (Small) Non-family farms only 1% of farms but over 10% of production Source: USDA EIB, Hoppe McDonald (HM)

23 Age (it s complicated ) Slope =.48

24 More complex ops than ownership

25 Ownership and Operations Increasingly separable, but risk profile changes Tax advantaged asset to own into estate Crop Insurance and farm program incentives mixed and increasingly targeted Most corporate farms are family farms age of stockholders may not be meaningful number 2032a and 1031 not ag-specific Fairly concentrated relative to most other sectors Degrees of separation may matter

26 Today s Ag Tech Landscape from Granular s perspective PRECISION AG MACHINE TELEMETRY BENCHMARKING FARM MANAGEMENT SOFTWARE A B G U R S O I N AG ACCOUNTING LIVESTOCK MANAGEMENT SOFTWARE N O E M S Y S 26

27 On-line Comps (free.)

28 Parcel-level attributes (free )

29 Soil map units and acreage (free ) (I actually wondered how to compare to the others in the area that I knew )

30 Crop Histories (free )

31 Valuation app. (free )

32 Common to be asked about future path Is this time different? yes, I think

33 Aggregate US Debt Ratios, US Ag Sector

34 Farm mortgage interest rates and funding relationships 1980s loans could include: 80% LTV, 40-year amortization Ave Spread = 1.29% = 2.53% (-q2:2016)

35 What rates does Fed impact?

36 Interest rate market relatives

37 Percent Acres Insured, U.S.

38 Crop Insurance as Subsidy. Expected 2016 Corn Net Cost Insurance RP85 $/Acre -32 to to -6-6 to 0 0 to 9 9 to to 54 No data

39 Area or Group products Expected 2016 Corn Net Cost Insurance ARP90 $/Acre -84 to to to -4-4 to 7 7 to to 77 No data

40 Probability Impact on lower tail of revenue McLean Co. Illinois -- Corn Enterprise Unit 0.5 Probabilities of Revenue With Insurance $/acre $200 $300 $400 $500 $600 $700 $800 Revenue ($/acre) No Ins. YP85 RP-HPE85 RP85 AYP90 ARP90 ARPHPE90

41 Structural Issues in changing ownership Very low turnover about 1% per year at arm s length in row crop regions Restrictive Farmland Ownership Laws still exist Increasing compliance cost, increasing opportunity Rapidly advancing technical sophistication Future Policy - Farm Bill or Food Bill Institutional interest fits extremely well, but still de minimus scale

42 Changing consumer attribute demand Farm to fork movement - many channels Natural, local, fresh, low impact, etc. competing with certification programs (Organic, GMO-free, gluten free) Lack of standardization in measure of importance (healthfulness, toxicity, taste) and proxy production characteristics

43 Futurecasting Financialization likely to continue for the sector. Equity & indexing vehicles very positive developments Rationalization of recent incomes, lower cap rates Attribute Demand (e.g., non-gmo) becomes more direct public signal, but marginally impacts production key Some positive outcomes for capital providers likely, balance sheet effects unlikely to trigger bubble, low cap rates remain for some time (economy wide, not ag-specific) What asset would you rather own remains important

44 Questions/Discussion Bruce J. Sherrick Find us on the web at: