Outlook for the Land Market

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Outlook for the Land Market

• American Bankers Association
• Agricultural Lenders Conference
• Las Vegas, NV
• November 14, 2006
• Michael Duffy

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Outline

• Current situation
• Ethanol
• Observations
• Discussions

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Farm Interest Rates, Chicago Federal Reserve
District
Interest rates charged on new farm loans in the
Seventh District                                
                                                  
                                                  
          
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Minnesota Federal Reserve Board
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Recent Estimates

• Chicago Fed reported a 1 increase in the 2nd
  quarter and a 9 increase July to July for the
  7th District
• Iowa Chapter of Realtors Land Institute reported
  a 2.9 increase from March to September.
  Approximately 5.3 increase Sept. to Sept.
• ISU Soil Management Conference participants
  estimated a 7.8 increase from Nov. to Nov.
• Ethanol demand is starting to be felt

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Bioeconomy and Ethanol
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Goal of the Bioeconomy
The bioeconomy is nothing less than a revolution
in the way society will obtain vital sources of
carbon and energy for growth and well being, in
the process sweeping away the petroleum economy. 
Agriculture will make this transformation
possible. Robert Brown, Director, ISU,
Biorenewable Programs
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U.S. Energy Consumption by Sector
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Ethanol Related Facts

• Americans use approximately 382 million gallons
  of gas a day (1.3 gal/capita)
• U.S. imports approximately 65 of the crude oil
  it uses
• Conversion of corn to ethanol is approximately
  2.6 gallons per bushel

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Iowa corn processing ethanol plants, current
planned, 10/26/06
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Figure 2.
8/30/06
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Questions

• What price ratios will it take to slow the
  planned expansion in ethanol production?
• How long will it take before substitutes are
  developed?
• What form will the substitutes take and will they
  use the same land and infrastructure?
• Will ethanol be an additive or a fuel?

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Ethanol Factors

• Can we get to 20M acres of corn in Iowa
• Do we have the storage capacity
• Do we have the infrastructure to handle the
  fertilizer use
• Do we have the ability to transport
• What will happen to the export and/or livestock
  sectors
• Environmental impact and reaction

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Factors to Watch

• The bioeconomy, especially corn based ethanol
• The government programs, new farm bill will be
  debated in the coming year outcome for level and
  type of programs is unknown more of the same but
  less of it major cuts? Regional differences
  could be a major factor Public sentiment

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Government Payments/NFI2000 - 2004
SourceUSDA/ERS
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Factors to Watch

• Overall performance of the economy, especially
  interest rates
• Recreational demand
• Performance of the housing market
• Aging farmland owners and what the second
  generation will do with the land

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Factors to Watch

• We are entering into a period of major
  uncertainty. How the ethanol situation will play
  out no one knows for sure.
• Land values will move with higher income and
  anticipation
• Are we setting ourselves up for another fall or
  is this a new plateau?

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Discussion
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THANK YOU