Articles

    Here is what you need to know about today’s farmland values

    Both Todd Slock, regional manager appraisal at Compeer Financial, and Eric Wilkinson, accredited farm manager, real estate broker, and auctioneer at Hertz Farm Management, Inc., agree that farmland values have changed little during 2018 and they see a similar situation going forward. The two men were the guest speakers at The Chicago Farmers’ April 8th meeting. Compeer is a Platinum Sponsor of TCF and Hertz is a Gold Sponsor.

    “There has been little change in farmland values in 2018,” said Wilkinson, whose territory covers the northeast quadrant of Illinois. “Excellent quality land is up about one percent, and good quality is down about one percent. The data show average quality land up eight percent, but that is because larger, better quality land with more irrigation sold in 2018 than in 2017. We’ve seen that the primary buyers of good farmland during 2018 were current farmers. Recreational land is up seven percent, with land values highest for plots near metropolitan areas. Transitional land values are spotty and there is a wide variety of values.” The majority of Wilkinson’s information was provided by the 2019 Illinois Land Values and Lease Trends Report by the Illinois Society of Farm Managers and Rural Appraisers.

    Regarding sale prices per acre, Wilkinson said that excellent farmland had an average sale price of $10,722; good farmland, $8,200; average farmland, $7,400; fair farmland, $5,000; recreational land, $3,500; and transitional land, $11,000 across the state of Illinois.

    A long-term view on land sales indicates an increase in the value of average and fair quality land, said Wilkinson. He added that overall, more sales of higher quality property sold in 2018 versus 2017. “We sold a number of bigger farms,” he noted. “A lot of the value comes from the larger, more efficient farms.”

    Wilkinson observed that some investors are seeking second tier and third tier quality land because excellent quality land does not always post the best returns. “These investors believe that the lower quality land can generate a better return on their money in the long-term,” he said.

    Among the buyers involved in the sale transactions, survey results indicate that 59 percent are local farmers, 12 percent are non-local farmers, 15 percent are local investors, and seven percent are institutions.

    Regarding the sellers, 55 percent are estate sales, 13 percent are retired farmers, 14 percent are individual investors, 11 percent are active farmers, and seven percent are institutions.

    “The reasons for selling vary,” said Wilkinson. “Many are settling estates. Some use the money for things other than farming, while others pay down debt with the proceeds. It remains to be seen if active farmers in 2019 will be involved in sales to pay down debt.”

    He said a lot of people are interested in buying farmland, but not as many are interested in selling, unless they are forced into a situation, such as an estate sale.

    “Farmland is a great diversification tool in a portfolio. It is a great long-term, conservative asset class that is difficult to mimic. There is uncertainty in paper assets, but land is tangible and it produces yearly,” said Wilkinson.

    He went on to say that factors that contribute to the current stability of farmland values are farmers and investors willing to compete to control land that is near them or touching their land and they are willing to pay a premium; buyers’ confidence on yields; and the Market Facilitation Program, the federal government’s aid to farmers to help cover losses caused by the trade wars. “A lot of money went to farmers this year through this program,” Wilkinson added. “Farm income increased slightly in 2018, which propped up the land market.”

    Wilkinson shared that survey results show a slightly higher lease turnover rate due to retirements. Overall, operators are willing to take some losses in the short-term to grow their operations in the hopes that something will turn the corner, he said.

    “For land owners and tenants, we suggest avoiding long-term leases so that you are able to capture the current market,” related Wilkinson. “If you are not getting the rent up front, secure a second payment with some kind of irrevocable letter of credit or UCC-1.”

    Slock, whose area includes northern Illinois and parts of Wisconsin and Minnesota, noted that Compeer tracks the benchmark farms that it appraises each July 1st. He said that farmland values have aligned with corn prices. He noted that from 2010 to 2014, the peak in land values was driven by low interest rates and strong commodity prices. From 2016-2018, the benchmark farms range from an increase of 17 percent in land values to a decrease of seven percent. There are 19 benchmark farms in Slock’s Illinois territory, one of which is recreational land.

    In discussing cash rents per acre, Slock noted that on Class A farms, they range is $240-$350; Class B, $220-$328; and with Class C, $215-$300. “We anticipate these ranges to be fairly consistent from last year to this year,” said Slock.

    While land values did not surge ahead during 2018, Slock said prices were fairly steady from 2017 into 2019. “A lot, of course, depends on location,” he said. “Additionally, commodity prices will keep downward pressure on land values in 2019. There was an increase in interest rates in 2018, but this had a minimal affect. Generally, things were not as bad as we had anticipated.”

    During a panel discussion moderated by David Oppedahl, a TCF director, Slock and Wilkinson responded to questions posed to them by audience members. Their responses included:

    • If there is an increase in the real estate tax rate, which has been discussed, it could put land values under a lot of pressure.
    • Both Slock and Wilkinson said that the occurrences of farmland auctions are down. They noted a lot of emotion is involved in the auctions and a straight real estate sale dealing with one buyer is preferred. They saw a downward trend for auctions in 2019.
    • The value of turbines on farm property varies on how the leases are structured. The income is derived from the turbines and can range from $6,000 to $12,000 per year. If the wind turbine does not adversely affect production on the land, then there is minimal impact on the land value. The size of the access lane could be an issue.
    • Regarding trade with China, anything that disrupts the United States’ relationship with China will have an impact on commodities. China will seek cheaper soybeans, which South America can provide. More influx of cash for American farmers from the Market Facilitation Program is not expected. On the other hand, there are other markets for U.S. soybeans and the demand is still there, which is why prices are not significantly lower.
    • Regarding the aging of the American farmer, Slock said there was an even trend in estate sales of farmland; he did not see a significant shift. However, the age of the average farmer is increasing and it is harder for younger people to get into beginning farmer programs. Wilkinson commented that the floodgates of available land could open eventually through estate sales and the concern is that there will be a greater supply of land that can be handled.
    • In discussing the recent legal battles involving Round-Up, it was noted that Round-Up does not have the impact on farming that it once had due to the appearance of many resistant weeds. If unable to use Round Up, progressive farmers would work around it, although it could be a concern for some farmers because of their wide use of the product.
    • A question regarding drainage was addressed. It was noted that tile contractors are busier than ever. “It is not hard to see how one can improve a farm and pick up gains by properly draining the property,” said Wilkinson. Added Slock, “Tiling and irrigation systems are very cost effective because you are spending money on something that will add bushels to your production.”

    McDonald’s rolls out the red carpet for TCF

    McDonald’s sleek new headquarters on Randolph Street in the Fulton Market district was the setting for The Chicago Farmers’ March 11th meeting. TCF visited McDonald’s to learn about the important role that sustainability is playing in the company’s operations. The visit was in order because TCF had presented its Distinguished Service to Agriculture award to Ray Kroc, McDonald’s founder, in 1979.

    In 2018, McDonald’s kicked off its “Scale for Good” program, which addresses sustainability, said Townsend Bailey, of McDonald’s North America Sustainability. He served as TCF’s co-host along with Tess Mattingly, of McDonald’s U.S. Public Affairs. “The value that McDonald’s offers is high quality food at affordable pricing that is accessible to the public,” said Townsend. “We are able to do this due to the efficiency of our system and how we work with our franchisees and suppliers.”

    Townsend pointed out that this is not a fad, but has been part of McDonald’s focus since its inception. Making this point, Townsend played an audio portion of a presentation given by Kroc in 1957. At that time, Kroc said that McDonald’s had to be “ethical, truthful and dependable.”

    Townsend added that Kroc’s focus was restaurants that served safe food and were litter-free and clean. Over the years McDonald’s has maintained this focus and eliminated such things as styrofoam containers and replaced them with paper. The Alaskan Pollock fish used in the fish sandwich is caught wild and meets the standards for sustainability. The double cheeseburger? The only ingredient is beef, with salt and pepper added as it cooks.

    Townsend said, “There are a lot of efficiencies that come with being big. McDonald’s has 37,000 restaurants in more than 100 countries and these restaurants serve 69 million people per day. We are using our scale for good.”

    The Scale for Good program was built on answers from consumers to McDonald’s question: What issues are important to society? The answers:

    • Beef sustainability
    • Commitment to families
    • Packaging and recycling
    • Climate action
    • Youth opportunity

    McDonald’s has adopted the concept that sustainability means to continue into the future indefinitely in ethics, the environment and the economy, said Townsend. The roof of the downtown headquarter building features a vegetable garden and composting. Crops from the garden are donated to charities.

    The Scale for Good program includes commitments such as:

    • By 2025, 100 percent of McDonald’s packaging will come from renewable, recycled or certified sources
    • By 2025, all McDonald’s restaurants will recycle guest packaging (Townsend noted that this is challenging because every municipality has different regulations and infrastructure, but McDonald’s plans to be a part of the solution and help influence powerful change.)
    • Continue on its food journey

    *McDonald’s USA is committed to only using eggs from cage-free chickens

    *by 2022, 50 percent of Happy Meals will be 600 calories or less, 10 percent of the calories will be saturated fat, will contain 650 milligrams of sodium, and only 10 percent of the calories will be from sugar

    • In further commitment to families and in support of education, McDonald’s has distributed 370 million books in its Happy Meals
    • To further beef sustainability, McDonalds will engage with the beef industry, NGOs (non-government organizations) and the U.S. Roundtable (The vast majority of McDonald’s USA’s beef comes from North America, said Townsend.)

    Townsend went on to say that many of McDonald’s suppliers have been with the company since 1955. He noted, “If a supplier doesn’t meet our expectations on foundational aspects, it is out; however, our position has always been to partner with our supply chain on our shared goals.”

    Following the presentation, the attendees were divided into groups and led on a guided tour of the McDonald’s facility. The nine-story glass and steel building, located at 1045 W. Randolph St., was designed by Gensler Architects and developed by Sterling Bay. It was designed to blend in with its surrounding buildings, which were largely meatpackers at one time. McDonald’s leases its space from Sterling Bay. While a McDonald’s restaurant is on the ground floor, there are no large golden arches, just signs bearing small golden arches.

    About 2,000 people are employed at the site, although the number varies daily because each employee is given the opportunity to work from home one day a week. When at the Randolph Street location, employees work in open spaces. They are not assigned a specific space and may move around to a different location each day. This is called “hoteling.”

    As our guide, Megen DiSanto, of McDonald’s Public Affairs, led us through the building she pointed out the wall of toys from Happy Meals of bygone days, displays of McDonald’s memorabilia such as the original malted milk equipment that captivated Kroc and the packages of food items that are no longer on the restaurants’ menus,  the Quiet Rooms that are located on each floor for employees to work in silence, sans cell phones, and the culinary lab where McDonald’s employees are able to use old and new equipment and create and taste test new recipes. Hamburger University is onsite for the training of owners/operators.

    The building also houses a Work Café on the sixth floor for global presentations and includes a dining area in conjunction with a McCafe. A feature of the Work Cafe is a stadium-like seating area that is designed to inspire more collaboration among employees, Megen explained. It faces a wall of windows with a stunning view of Chicago. Another gathering spot for employees is on the ninth floor and provides socializing and after-hours cocktails on select evenings that can be purchased by the employees. A terrace adjacent to the space has seating in nice weather and is available for short vitamin D breaks. McDonald’s also offers a gymnasium for fitness classes. In summer months, yoga classes are conducted on the terrace.

    Denise Faris, Chicago Farmers Editor

    Financial panelists share their expertise on land ownership with TCF audience

    Roger Clark, senior vice president, Real Estate Division at Northern Trust, and Mary Jane Rozypal, senior vice president, Specialty Asset Regional Manager- Farm and Ranch Services, at Bank of America, N.A., have some 60 years of experience between them and they have gleaned a lot of knowledge in their dealings with land investors. The two shared their thoughts during a panel discussion with Mark Thorndyke, Chicago Farmers president, who served as moderator, at the February 11th meeting.

    Following is an overview of the discussion with Mark posing questions and Mary Jane and Roger responding:

    Mark: Why would one consider farmland as an investment?

    Roger: It offers good long-term appreciation. Farmland is an easy, simplified asset versus an apartment building or shopping center where such things as roofs and heating and air conditioning systems are concerns.

    Mary Jane: We have clients who are pure investors who are seeking a good, solid investment that brings diversity to their portfolio. Farmland has a good return. Investors use it to reduce volatility and hedge against inflation. There also are accounts that have been held a long time, “heartstring” or “legacy” assets. After a number of years, the landowner realizes that the property has increased in appreciation a great deal.

    Mark: What should a client consider when investing in farmland?

    Roger: I focus on the client’s overall need and what the personal family structure is. I have a number of successful clients who are seeking second, third and fourth generation investments for the long-term. The farmland ties up the money for the younger generation and still keeps working for them.

    Mary Jane: Purchases of farms should be considered long-term investments, at least a 10 year hold. The client has to understand that there are ups and downs in cash flow; it will follow the commodities market. Farmland is never worthless; there always is someone who will lease the land. People who want really big returns and no risk are not the right purchasers.

    Mark: Over the years, what changes have you seen in farms?

    Roger: Change is in all forms and it is fast. Farming is more complicated today and more sophisticated. These are not negatives, just factors. I am amazed at the level of financial and technical sophistication that the operators have today over those of 40 years ago.

    Mary Jane: I agree that the change in technology has been amazing. It has supported the collection of tremendous amounts of data that make farming more efficient and more productive.

    I am not seeing farmers buying as much farmland as they did in the past. They are more likely to lease land. Farmers can’t afford to buy a lot of land and still have money for equipment.

    Regarding ranches, the value of the ranchland has outpaced its productivity. Legacy ranchers are still doing the traditional things, but they are diversifying. They are using wind and solar where it is feasible. Many of the people are learning that a lot of money can be generated from having a hunting license for their property. Instead of doing things like the older generation, they are embracing ways to turn the ranch into a modern business.

    Mark: What are the biggest concerns that farm investors have today?

    Roger: They are concerned about unpredictability and government influence. In the 1980s, the Russian grain embargo played havoc with farms for years. Last summer, the China and soybean situation impacted farmers. If an event is on your radar, you can plan for it. Surprises are the biggest obstacles. They tend to be out of your control and have a significant impact on the operation.

    Mary Jane: The trade wars are a concern, but I believe the government will do what it can to resolve the situation. On the positive side, I think that farmers are getting more adept at dealing with their lenders. Also, technology is on the side of the farmers. They have to be able to produce more yields, get more off of less and less land. The world depends on the American farmer.

    Roger: I see more people trying to manage their risk portfolio by not being highly leveraged. You can weather a year or two of uncertainty when you are not highly leveraged.

    Mary Jane: The percentage of leveraged farmland is at a historic low. The age of the farmer is at a historic high. In instances where there is no family to take over the farm, farmers have taken a young person, often with a college degree in agriculture, under their wing, then turned the operation over to them when the farmer is ready to retire. This enables young farmers an opportunity to build a successful farming operation.

    Mark: What have you seen in succession planning?

    Roger: Some people use a trust instrument, but many use LLCs as ownership vehicles because they can put rules and formulas in the operating agreement and a plan for being bought out of the farm. When it is written into the LLC, it is easier to get out of the farmland and the angst and emotion are removed. One does not have to start a conversation about succession because it is detailed in the LLC.

    Mary Jane: Many people have gone away from trusts and have moved to LLCs, which can be a good choice if there are competent people to run them. A trust can hold shares of the LLC, so keep this in mind as well. If there is family drama, consider the worst things that can happen and plan for that. Be honest with your advisor and inform them of potential challenges.

    Roger: Have conversations with family members about the plans for succession and have a good advisor.

    Mark: When hiring a farm manager, what questions should be asked?

    Roger: Hiring a farm manager is like a job interview. Learn what the person’s track record is, their history, and ask about other properties they have taken care of. Ask questions; it’s your life and your assets.

    Mary Jane: Institutions like Northern Trust and Bank of America operate under a fiduciary platform. We have high standards that we have to abide by. We have to look out for your best interests whether managing assets as trustee or an agent. The people involved in financial institutions like ours have Ag backgrounds and experience and education in agriculture. When an asset manager leaves, we have someone that can step in and manage your asset, not always the case with a smaller farm asset management company. Consider the safety of the asset when selecting a farm manager.

    Roger C. Clark
    Senior Vice President | Real Estate Advisory Services | Wealth Management
    Northern Trust
    50 South LaSalle Street, M-7, Chicago, Illinois 60603 USA
    (312) 444-3353 | rc28@ntrs.com
    Mary Jane Rozypal
    Senior Vice President | Specialty Asset Regional Manager – Farm & Ranch | Investment Solutions Group
    Bank of America | Global Wealth & Investment Management 
    TX4-213-06-16, 700 Louisiana St., 6th Floor, Houston, TX 77002
    (713) 247-7504 | mary.rozypal@bankofamerica.com

     

    Founder of Tillable talks about technology that helps the landowner

    Technology is becoming an important part of farming and is moving forward at a rapid pace; however, its functions are not taking into account the needs of the landowner, according to Corbett Kull, the guest speaker at the January 14th meeting of The Chicago Farmers and the founder and CEO of Tillable, an ag tech company that is designed to help landowners become wiser about their holdings.

    “Tillable’s goal is to help the landowner become better at what he is doing,” said Kull, who also is a founder and a principle of 640 Labs, a Chicago-based technology company (acquired by The Climate Corporation in 2014) that collects, stores, and visualizes agricultural data to help growers improve their operations. “Tillable is able to guide the landowner through several considerations that will strengthen a landowner’s position.”

    Kull said a landowner must:

    • Pick the best grower for your farm
    • Establish a fair rent
    • Sign a lease, do not conduct business with a verbal agreement
    • Ensure you are paid on time
    • Acquire data about the farm, such as yield maps and the fertilizing schedule (Tillable works to get this data in an easy manner and provides it to the landowner)
    • Reduce “headaches” associated with managing farmland investments

    Kull said that agriculture is changing, but the tools that can help landowners have not kept pace with the times as they have for growers. He noted that there have been tremendous productivity gains in farming--outputs are up by 107 percent during the last several years and yields on corn and soybeans are up. Kull also shared that the amount of land being farmed today is down from previous generations. Much of the best land is taken out of production due to subdivisions, he said.

    “As we move forward, the greatest gains in agriculture will be due to automation,” said Kull. “There is more professionalism in farming. The young people who are coming out of college have more tools and capabilities at their disposal than their grandparents did.”

    Kull commented on the development of autonomous tractors and showed a brief video of the tractors in action on a farm in Iowa. While not in widespread use now, the tractors will be in the near future and landowners will then have more options available to them. “In the future, there will be less labor and more data; landowners need to be more sophisticated. Landowners have to know what their land is worth and Tillable is making sure that landowners know that worth,” he said.

    Major problems facing landowners are how to connect with effective and efficient growers and how to set the rent. Tillable works to bring the landowner and the grower together and provides the data necessary to set a fair market rent.

    Through accumulation of data, Tillable is able to make a landowner aware of the worth of the farm. At the same time, it works to ensure the landowner gets the most qualified grower for the farm. Kull said Tillable gives the landowner access to information about a potential grower that indicates if the grower will be a good steward of the land based on past performance.

    Kull stressed the importance of obtaining several growers’ offers and setting up electronic payment schedules. He said that landowners who have worked with Tillable have received more offers from growers and have increased rent proceeds by 35 percent. “Think of Tillable as Airbnb plus Zillow plus a farm manager on a digital platform,” related Kull.

    Currently, Tillable’s client base includes 500 landowners and 4500 growers. It operates across 10 states. Kull said that Tillable receives a two percent fee from both the landowner and the grower on a transaction. He said there is no obligation for a landowner to change their grower, but Tillable provides access to a wider network of area farmers.

    Kull said that Tillable collects data from leases and taxing bodies and creates a report that is available to landowners. It also obtains prior yield data, soil test results, and proof of fertilizing that is available to the grower. A grower creates a profile that contains his farming practices, references, and banking references.

    “Typically, the leases are for one year so there is flexibility for the landowner and the grower,” said Kull. “At times, rent rates need to be raised or decreased. The important question to ask yourself is, ‘does my farm meet my expectations?’ Tillable is designed to give you the answer.”

    Former secretary of agriculture is keynote speaker at Chicago Farmers’ December meeting

    Tom Vilsack, who served as secretary of agriculture from 2009-2017, stressed the importance of the combined industries of agriculture and food in today’s economy during remarks he made at the Chicago Farmers’ December 10 meeting at the Union League Club of Chicago,

    “It is very important to reeducate the public about agriculture’s and food’s contributions to the United States economy,” said Vilsack, president and CEO of the U.S. Dairy Export Council. “The two really comprise one industry; an industry that employs 43 million Americans or 28 percent of the workforce, has a $6.7 trillion impact on the American economy, and enjoys a trade surplus with other countries. In short, it is a really important industry.”

    He pointed out that the strength and productivity of the agriculture and food industry ensure that the United States is capable of feeding itself. “All the nations that are causing us problems don’t have the security of being able to feed themselves; they rely on others. We are a more secure nation thanks to farmers and ranchers,” remarked Vilsack.

    Vilsack pointed out that many of the troubled countries around the world don’t have a functioning agriculture industry. As a result, those countries have a lot of hungry and unemployed people.

    He noted that the agriculture and food industry has a keen understanding of the significance of trade: 20 percent of all agricultural products in the United State is exported. The exports include 50 percent of soybeans, 40 percent of wheat, 21 percent of corn and pork, and 16.3 percent of dairy.

    Vilsack shared that the dairy industry’s experience is instructive and reflective of trends regarding trade. He said that the American dairy is the best in the world and the most productive.

    “In 1950, the average cow in the United State produced 5,500 pounds of milk. Today, it produces 23,000 pounds,” he said. “The reason for the increase is due to more efficient farmers who are more technically savvy and have a keener understanding of a cow’s digestive system. Additionally, cows are equipped with fitbits that are providing important data.”

    While productivity has increased, consumption has not. Vilsack said that there are more alternatives available, such as energy drinks and carbonated and caffeinated beverages. As a result, not as much milk is being consumed as is being produced. Additional challenges are the “alternative” milk products that do not have the nutritional value of natural vitamins that milk has, but still use the name milk.

    This lower consumption in the United States makes exporting a key factor in the viability of the dairy industry. However, it also has its challenges:

    • United States has a strong dollar
    • There is an oversupply of dairy in Europe
    • The European dairy industry is heavily subsidized by the government

    However, noted Vilsack, while the European dairy farmer has years of experience, he does not have the natural resources that the United States farmer has. The European farmer is more constrained geographically than we are and knows that at some point he will be unable to compete with the United States, said Vilsack. To combat this, the Europeans put protections in place that prohibit use of identifications of certain cheeses, for example, that are made in the United States and not in Europe.

    Trade policies also are a hindrance. Vilsack related that the United States buys more from China than it buys from us. Additionally, China puts a number of conditions in place for trade to take place. “For example, the Chinese want the technology that comes with the production of many items, but they are unwilling to let us know the identity with whom they might share that technology. The administration has a point to ask China to change its policy, but, I believe, it will be a long and protracted discussion,” said Vilsack. “It is hard for a country to acknowledge that it has to change its way of doing business.”

    Vilsack said that another trade problem is that the United States also enters into trade discussions by itself and does not encourage others to join it when it is renegotiating trade agreements.

    Also, the thought that the United States could “out-tariff” China is a mistake. “China owns a portion of our debt and can use that to possibly impact interest rates,” Vilsack said.

    Regarding the exporting of United States soybeans to China, Vilsack said that China knows it is over-reliant on one supplier, so now it is turning to South America, despite the fact that our soybeans are superior. China also is asking its livestock industry to look at other kinds of animal feed and it is turning to Russia for support.

    But there is good news. The United States has a story of innovation that will encourage domestic consumption and increase exports; it is not constrained by natural resources; and its cheeses are winning international competitions.

    “We also have a new and emerging opportunity for sustainability; there is a product in development that will reduce the emission of methane from cows,” Vilsack said.

    Vilsack noted that the United States’ regulatory system is not keeping pace with change. “The government has to understand that it needs to keep pace with change and not just be reactive,” said Vilsack. “We over-test and over-examine things. We make the process slow. We have to have systems in place that will let us test, but get the product to market sooner.”

    Vilsack suggested that responsible marketing has to be encouraged and consumers have to be educated to be more skeptical of claims. Additionally, better branding has to be in place in the export markets and alliances have to be promoted with organizations in other countries so that the United States is aware of the tastes of foreign consumers. For example, the dairy industry is producing lactose free milk for Asians and adjusting the taste. “We’ve learned there is not just one way of doing something. We have to adjust to other countries’ tastes. The dairy industry is partnering with universities in other countries to help us with this,” Vilsack shared.

    What’s in store for agricultural markets

    Tariffs, threatening trade wars, droughts, and global politics are affecting our agricultural markets. Steve Freed, vice president of Grain Research for ADM Investor Services, was the guest speaker at The Chicago Farmers’ November 12 meeting and he shared his opinion on what the future holds for agriculture.

    Factors affecting prices, according to Freed:

    • Weather, the 2018 droughts in Argentina, Brazil, Europe, and former Soviet Union created a premium in pricing.
    • macro-economic conditions such as tariffs, which began taking the premium out of the market place.
    • effects on the Chinese economy are causing volatility in the stock market.
    • algorithm trading (90 percent of trading is done with algorithm trading).
    • balance of payments and trade deficit; the United States exported a lot of production to
      China in the 1980s and today the U.S. does not have the labor or the ability to replace it. China has to buy $200 billion worth of goods from the U.S. to balance trade.

    Freed noted that the global demand for grain increases each year and grain production increases to meet this demand. In November, the price of wheat was $5, corn was at $3.60, and soybeans were at $8.60. “Regionally, farmers should use these prices,” said Freed.

    He noted that the Chinese will continue to consume grain at a record pace. At the same time, world wheat and corn stocks are at a record high.

    Freed said that the world is eating more meat, which means there is a need for more protein, such as soybean meal, to feed that situation. Additionally, wheat production is growing.

    “The bad news is that the United States is losing its share of the corn and soybean markets and this will continue into 2019,” said Freed.

    He said that it is forecast that Argentina and Brazil will bounce back to record production in 2019. Brazil already has planted soybean crops that could be ready to ship in January. “It is possible that we might be able to sell soybeans to China in January if there is a resolution to the trade problem,” said Freed.

    Freed noted that with the drop in soybean prices, it is expected that farmers will switch to corn. It is anticipated that 93 million acres will be devoted to corn in the United States versus the current 89 million acres.

    He went on to say that he did not think there would be a deal between the United States and China at the G20 meeting on November 30; however, if there is, beans could be at $9.00, if not $7.75.

    Russia has taken over the wheat market and has produced 80 million tons of wheat. Freed noted that agriculture is 17 percent of the Russian GDP. In the United States it is less than two percent. “The Russian’s goal is to increase its wheat production to 100 million tons. If they do, we don’t need to produce as much,” related Freed.

    He noted that China’s economic growth is slowing. It will try to stimulate its economy, which would happen through a deal with the United States. “The Chinese economy is slowing. China may need a deal in 2019 to help its economy.”

    Regarding soybeans, Brazil ships 77 million tons of soybeans a year and the United States ships 52 million tons. China is the biggest buyer of soybeans in the world and the government is attempting to reduce its need for soybeans by encouraging the Chinese people to eat fish. Last year, the United States shipped 28 million tons of soybeans to China.

    Freed said the market does not forecast an increase in farms’ net income in the United States. Costs are increasing and farmers are not seeing the returns on their yields.

    Freed said the 2030 farm structure will change. “The farmer will have to be a CEO and have a strong grasp of technology to be successful. I think we will see more of a connection between farmers and the companies that will benefit from the farms’ output,” he said.

     “The United States farmer is the best farmer in the world, but Brazil is catching up,” said Freed. “Outside of the United States there is a lot of growth in yield technology and costs are less in other countries.”

    Freed said that growth for agriculture is flat. He noted, “I don’t see substantial growth for at least the next 10 years.”

    Pumpkin patch gives farm a new life

    A mother’s desire to ensure that each of her three sons had pumpkins to carve for Halloween, spawned a pumpkin farm operation that gave new life to a family farm and is still going strong after 30 years.

    “In 1977, when our three sons were young, my wife decided to plant pumpkins in the garden so they would have Halloween pumpkins,” related Chicago Farmers’ October meeting speaker Bruce Condill, of The Great Pumpkin Patch in Arthur, Illinois.  “The patch did well and increased in size over the years. So much so that the boys set up a farm stand and sold the pumpkins. The proceeds paid for seeds for the next crop. We also invited our boys’ classes from school to visit our working farm, see the pumpkin patch, select a pumpkin to take home, and interact with our animals.”

    In 1988 when a severe drought threatened the Condill family’s corn, soybean, and alfalfa crops, those pumpkins sparked an idea to sustain the family farm, which had been in the McDonald family (Bruce’s wife’s family) for five generations. Mrs. Condill’s family migrated from Virginia to Arthur, Illinois, in 1859. “We were struggling in 1988 with the cash crops,” said Bruce.

    “My wife suggested that we expand the pumpkin patch with a variety of displays and mazes and open our farm to the general public,” said Bruce.  “It was a great idea. I don’t think we would have made it without The Great Pumpkin Patch.”

    Today, The Great Pumpkin Patch, which sits in the middle of Amish country, welcomes more than 60,000 people during the harvest season, which runs from September 10 through October 31.The farm is open daily from 9 a.m. to 6 p.m. It grows 300 varieties of pumpkins, squash, and gourds on 63 of the farm’s 200 acres.

    “We have three missions: the Homestead Bakery, the Great Pumpkin Patch, and Homestead Seeds,” said Bruce. “Amish bakers produce the baked goods for the bakery. Our son, Mac, is in charge of Homestead Seeds.   Our goal is to encourage the ordinary farmer to grow more gourds, pumpkins, and squash. Mac and his wife, Ginny, also own and manage The Homestead Bakery and The Great Pumpkin Patch.”

    He went on to say that the farm provides a safe place for people to experience the harvest season and get connected to the land and each other.  “We want them to know where the food they eat begins,” said Bruce.

    Squash, gourds, and pumpkins have a range of maturities from 70 to140 days.  Plantings are intended to be done on May 20, June 10, and June 20.  “This year was wet, which altered the intended planting dates, and was not good for pumpkins, but great for soybeans and corn, which we still raise,” said Bruce. “When the growing season is ended, we disk the remaining pumpkins into the soil and then soybeans are planted the following spring. When the soybeans follow the pumpkin crop, they are three to 12 bushels better per acre than when they follow corn. The pumpkins are a great fertilizer.”

    He noted that Mac is an expert on pumpkins and gourds.  He works with seed companies and sometimes grows experimental seeds.  Mac also works with botanical groups from around the world and with university specialty crop people.  Bruce noted that Mac appeared on the Martha Stewart Show three times to discuss gourds and the many varieties that are available. The Great Pumpkin Patch also was featured in an issue of Martha Stewart’s magazine.

    “The Great Pumpkin Patch has many unique ways of displaying all of the varieties that Mac has introduced to the farm,” said Bruce.  “The Patch boasts a Survivor squash, which came from a Kentucky farmer whose seeds came from a Holocaust survivor, thus its name.  The Patch has African, Asian, European, Australian, New Zealand, and Central and South American gourds, pumpkins, and squash.”

    The heirloom seeds used in the 63 acre pumpkin patch are purchased from commercial and private seed companies and also include seeds raised by Mac in his isolation plots.  These plots are planted at least one-half mile from any source of a cucurbit vine plant.  Bruce said that neighboring farmers allow them to use plots on their land so that seed purity is assured. Seeds are not taken from the large pumpkin patch because of the risk of cross-pollination.

    While the Great Pumpkin Patch is a highlight of the farm, there also are mazes, animals, and a restored one-room 1912 schoolhouse. The school and other attractions bring 4,000 school children on field trips to the farm in October.  In June, the farm sponsors the “Back Forty,” which is a Hob Nob arts and crafts event that features 75 vendors, crafters, and musicians. In the past, the Condills were hosts of “Farm to Fork” dinners that were attended by 100 diners at $80 a plate.

    “It was a five course dinner that included meat from our Amish neighbors’ farms, vegetables that were locally sourced, and wine from a winery,” said Bruce. “It was a wonderful way for people to learn about the source of food. It connected the farmer to the chef and to the people who ate the food.”

    The Great Pumpkin Patch also has been responsible for decorating Country Living fairs throughout the United States with its many gourds and squashes and flowers. The farm also decorated the White House grounds one year for a Halloween party. “It was a great experience,” said Bruce.

    How tariffs are affecting agriculture

    Dr. Gary Schnitkey, the speaker at the Chicago Farmers’ September 10th meeting, opened his presentation with positive news for a large audience: 2018 will be a good year; yields will be high and incomes will be higher, too. Dr. Schnitkey, professor at the University of Illinois at Urbana-Champaign’s College of Agricultural and Consumer Economics, has opened a number of the Chicago Farmers’ new seasons with presentations on trends in agriculture. These meetings always draw a large attendance and this September meeting was no exception.

    While Dr. Schnitkey led off with good news about 2018, he said that 2019 probably would not fare as well due to the tariff proposals. “Next year is a year of concern because people are uncertain about what the trade dispute will do to prices,” said Dr. Schnitkey. “If you are a landowner, you will have to have tougher discussions with your renters.”

    Dr. Schnitkey said that in 2018, corn fetched $4.00 a bushel and soybeans fetched $9.50 a bushel, “Prices fell after May due to the trade discussions so don’t budget these prices for 2019,” he said. “We are predicting corn could be at $3.50 per bushel and soybeans could be $9 per bushel. The trade dispute has dashed people’s hopes for higher prices. Until there is more clarity or a resolution to the trade dispute, these are the prices that we project to be in place.”

    Soybeans have been at the $9.75 level since 2014, but trade discussions began in May and prices dipped. Dr. Schnitkey related that on Friday, September 7, the bushel price for soybeans in Decatur was $7.94. “We can expect a range between $7.94 and $8.20 for soybeans and just below $4 for corn throughout the harvest period. I suggest you build your expectations at these prices for next year.”

    Dr. Schnitkey pointed out that there would have been price declines even without the trade issue due to high yields, but the trade talks have taken another $0.80 to $0.90 off the price of soybeans.

    Additionally, corn prices are expected to fall going into 2019. Corn will look more profitable than soybeans and, as a result, farmers are switching from soybean crops to corn crops, which will depress corn prices. Dr. Schnitkey noted that western states are switching to wheat from soybeans. “The downward trend of soybeans will affect other crops. The trade dispute will have a long-term impact on prices just by being there,” he said.

    In discussing yields, Dr. Schnitkey said that since 2014 soybeans and corn have produced above average amounts in Illinois. “A plateau was created, but that does not mean that those yields will always be there.”

    Regarding cash rents, Dr. Schnitkey said that reports prior to the trade discussions indicated that 2018 cash rents experienced about a $5 increase. “Where it goes in 2019 is a big question,” he said. “Land values are holding relatively well and major declines are not projected. They are not making any more farmland and that is a motive to hold assets; however, we could see declines if the trade dispute continues. Landowners might want to consider using flexible or variable cash rents going forward.”

    In response to an audience member’s question about lenders’ attitudes during this period, Dr. Schnitkey said that lenders have watched working capital decline on farms and it is possible they will become more proactive. He said lenders want to see a positive cash flow. “If a farmer has carry-over debt, the lender expects that farmer to sell assets to wipe out the debt.”

    Is that a bot with my soup?

    It’s been a long week. You’re tired, but you need groceries. Not to worry. No need to leave your abode. Order what you need online, click on delivery and the next thing you know, a bot is at your door with your weekly groceries.

    The bot is not in the picture yet, but Rob Dongoski, Chicago Farmers’ May 14 speaker, said that the bot in this application is not an impossibility. He noted that the United States spends $5 billion a year on ag tech, and the use of robotics in all phases of food production and delivery is not relegated to daydreamers. He said there is a lot of conversation about the use of drones, robots and wearable sensors. Goggles that can produce fields in virtual reality are among ag tech’s newest developments. “I think you will see some application of these goggles in the next four or five years,” said Dongoski.

    Dongoski, Partner and Global Agribusiness Leader at Ernst & Young LLP, said that by 2015, agriculture will have to feed 40% more people, and different kinds of food will be in demand as people in developing countries acquire more money.

    Global markets are alive and well, said Dongoski, and EY is looking at megatrends. He said there are a number of mergers that are quite large, such as the Dow/DuPont $130 billion merger in 2015. “Three of the five largest acquisitions from 2011 to 2015 dealt with food and beverage companies,” Dongoski shared.

    Regarding the future of agriculture, Dongoski said EY is seeing investments shift to the biotech side. Technology is seen as the way to produce more and healthier food in a more efficient manner. This technology also will help agriculture become more productive in areas of the world that do not have a robust agricultural economy. Dongoski noted that by 2100, 7 of the 10 largest cities in the world are projected to be in Africa.

    While more farms are needed, Dongoski related that urbanization is leaving a void on farms. He commented, “Children are not staying on the farms; they don’t want to be in a rural environment.” He noted that because it is difficult to realize profits with small farms, the farms now are getting bigger due to consolidation. He is seeing more farm operations that range from 10,000 to 20,000 acres. Will anyone own 20,000 to 30,000 acre farms? “People who are serious about farming and see it as a profitable business will act to own these large operations,” said Dongoski. He also noted that with the move to larger acreage, the future is moving quickly to autonomous equipment.

    A rapid change also is coming regarding the farmer’s source for advice. “Advice about agronomy is shifting from the local guy to data science,” said Dongoski. “The potential coming down the road is making retailers nervous.”

    An audience member voiced concern about the accuracy of the data that would be available to farmers. Dongoski said there is not a mechanism currently in place that can guarantee the accuracy. “There is a lot of work to do regarding this issue,” he said. “We have to know who owns the data, what is it worth and who wants to consume the data. Security and fraud protection have to be in place.”

    Ray Brownfield shares his views on Illinois land values

    More than 70 people attended The Chicago Farmers’ April 9th meeting to hear Ray Brownfield discuss 2017 land values in Illinois. Brownfield, a 40-year member of TCF, is the managing broker/owner of Land Pro, a company composed of professional land real estate specialists that is based in Oswego, Illinois. An accredited land consultant and accredited farm manager, Brownfield recently received the Realtors Land Institute APEX 2017 Top Twenty Producer award. He noted that he and Jason Lestina, also a member of TCF and an Illinois real estate broker and an accredited farm manager with Land Pro, sold $27 million worth of real estate in 2017.

    Thanks to the melting of glaciers during the Ice Age, portions of Illinois boast some very fertile soil. As the glaciers receded, they left behind silt and minerals that give the state its Class A soil. “The area that I refer to as the Golden Triangle, in the center of the state, has the largest concentration of Class A soil,” said Brownfield. “This soil, of course, commands the best prices.”

    Brownfield noted that buyers usually refer to a farm’s productivity index (PI) to determine the price they are willing to pay for parcels. All farms have a PI, he noted. The PIs are used to quantify yield potential of Illinois soils. The highest PIs are located in east-central, west-central, and northern Illinois. The counties with the lowest PIs are found in the southern part of the state.

    “The prices for excellent soil are down about two percent, but there are still some pockets of strength” said Brownfield. “B quality soil prices are down about one percent, while C quality soil prices are down about five percent, which is due to drainage issues and less productivity.”

    Brownfield said that the regions of the state that have excellent quality soil are experiencing median prices per acre that range from $9,755 to $10,800. Regarding B quality soil, Brownfield said it is a buyers’ market; people are looking for the best possible soil at a discounted rate. “If buyers can purchase land with lesser quality soil at a discounted price, they are willing to invest another $200 to $300 in improvements, such as drainage tiles,” said Brownfield.

    He went on to say that farms with C soils and lower PIs are difficult to sell because they have high clay content, do not drain well and usually are irregular in shape; however, some farmers will purchase these farms if they believe they will fit their needs. Brownfield said that the average quality of soil diminishes as you travel farther south in Illinois.

    Regarding properties with less productive soil, Brownfield said that the demand for recreational land has decreased. The larger the parcel of recreational land on the market, the less attractive it is for buyers because they cannot produce enough income from it and still cover costs.

    How does farmland rate as an investment? Brownfield noted that the annual growth rate in farmland investments from 2001 to 2017 ranged from 6.19 percent to 10.3 percent, depending on the region. The farms have to be held for at least 10 years to experience these rates, he said.

    Regarding 2018, falling commodity prices will affect land prices, said Brownfield. He said that real estate professionals and appraisers don’t expect to see much increase. A December 2017 survey of the group shows that 54 percent believe there could be a one to four percent decrease in land values.

    “A lot has happened since December, too,” said Brownfield. “Tariffs, decreasing commodity prices, increases in interest rates, and the possible elimination of the Renewable Fuel Standard are among the factors leading to price declines. On the other hand, higher yields and good economic growth in the United States will lead to price increases.”

    Your fields can tell you a lot if you know where to look

    Climate Corporation, an ag-tech company that develops resources to support farmers in making data driven decisions, was the host for the Chicago Farmers’ March 12 meeting. Located at 1330 W. Fulton Market Street, in the West Loop area, Climate Corporation is a neighbor to Google and McDonald’s corporate offices. It is a Platinum Level sponsor of TCF.

    Climate Corporation’s Craig Rupp, senior director of engineering, and Patrick Dumstorff, market developer lead, gave TCF an overview of the company’s workings as we dined on a buffet luncheon in Climate Corporation’s dining room.

    Climate Corporation began life as 640 Labs in October 2012. It derived its name from the number of acres in a square mile, according to Rupp. Its accomplishment became attractive enough to gain the attention of Monsanto and was acquired by that company in December 2014. It moved into its current headquarters this past October. A subsidiary of Monsanto, Climate Corporation operates as an independent company. Any data it collects is not shared with Monsanto.

    “We are doing things with technology that have been in use for a while, but are new to agriculture,” related Dumstorff as he displayed the drive to the company’s Climate FieldView Plus, which has the ability through the drive to acquire machine data, such as RPM, speed and temperature, and agronomic data that include seeds/acre, gallons/acre, and bushels/acre. The Climate FieldView Plus is in place on farms throughout the United States, Canada, Brazil, and Europe, according to Rupp.

    The drive, which is a black metal apparatus that is about three inches in diameter, connects to the “nervous system” of the farm machinery’s internet, said Dumstorff, and it grabs data from the implement to which it has been affixed. The field data it acquires can be streamed directly from the equipment, manually uploaded to a thumb drive or iPad or transferred to another system such as the Cloud. In addition to the data that the program gathers, it will soon have the ability to produce image based yield maps that would inform farmers how many pounds of a crop are coming off a field, for example.

    In response to an audience member’s question, Rupp said that the cost of the Climate FieldView Plus program is $1,000 per year and the cost of the drive is $250.

    Rupp explained that he monitors advanced technologies and keeps aware of the development of autonomous robots. “I look to see where the industry is going,” said Rupp as he showed a brief video of recently developed autonomous robots at work. There were instances of robots planting seeds, thinning a lettuce crop (by oversaturating the plant with fertilizer), and cultivating soil.

    “This is what is coming and Climate will be involved,” said Rupp. “Think of Climate as the Amazon of agriculture. We’re the data storage warehouse coupled with data analytics. Our vision is to couple our platform with agriculture robotics. The agronomic insights would come from us.”

    In response to a question about the possibility of cyber security threats to the platform, Rupp said that Monsanto is extremely sensitive to privacy and has a firewall to protect data. Additionally, standards are being developed that would ensure even greater security.

    It was noted that with the increasing use of technology in agriculture, the farmer has to be a scientist as well as an agriculturist. However, that does not alter the farmer’s connection to his work.

    Rupp said, “I grew up on a farm. Climate is a fascinating company to work for. I spend every working moment ultimately focused on the same problems my father worked on. I always tell people that we have the best customers. Farmers are salt-of-the-earth people - genuine, honest, and really nice.”

    Will we soon be eating meat that is not animal-based?

    There could come a day when one might find an aisle in the meat section of the grocery store devoted to alternative meat. Not veggie burgers, but a product that is considered meat and is not from an animal.

    Known as alternative meat, it is one of the three key trends that should be watched over the next 5 to 10 years because of its possible impact on the food chain, according to Lucas Frye, the speaker at The Chicago Farmers January 8, 2018, meeting. Frye, a 2015 University of Illinois graduate, is founder of Amber Agriculture, an agtech startup that automates farmers' grain management.

    Joining alternative meat as a key trend are gene editing and vertical farming, said Frye. He noted that the companies that are involved in these areas are focusing on themes that include the stories they have to tell, greater nutritional value and convenience. “These are themes that will be prevalent for the next five to 10 years among these trends,” said Frye. “The trends are not set in stone. They could slowly increase their impact on the food chain or they could fall flat, but these trends will dictate the conversation in food and agriculture.”

    Regarding alternative meat, Frye noted such companies as Impossible Burger and Beyond Meat, both produce alternative meat that is plant-based. “These companies create meat from scratch and want it labeled and sold as meat,” said Frye. “But words will escalate and impact the conversation. There will be battles about definitions. How will cattlemen respond to the words alternative meat? But these are companies that are exploring what happens if they design a new food system.

    He went on to say that the environment is an important element with these companies and they share the belief that animal agriculture is an evil. In addition to plant-based meat is lab-based meat. One company starts with a chicken feather and a petri dish to create meat. The lab-based meat is not scalable yet and costs $1,300 per pound. “These producers are centered on the story that they can share with the consumer,” said Frey. “They are not worried about the livestock producer; they are more worried about scalability and making the economics work.”

    Frye said the group is confident that it can create food, find the ingredients and not go through the cereal crop to do it. These groups are building software, databases and an ecosystem. “They have a story, they are focused on nutrition and will get the food to market in a convenient manner,” he related.

    Gene editing is the next trend to watch. It focuses on nutrition and its conversation is similar to the one involving GMOs. Companies like Calyxt are involved in gene editing, said Frye. Calyxt is focusing on building in the next three years new varieties of crops such as high fiber wheat and higher oil content soybean. These new varieties could help farmers command higher prices for their grain from buyers seeking higher composition values. It has partnered with the Farmers Business Network for distribution.

    The final trend Frye focused on was vertical farming. He pointed to Plenty Agriculture, which is a main player in this area. It uses efficient LED lighting that is strung vertically in warehouses and is able to grow fruit and vegetables. Its developers have indicated they can better control the nutrition of the crops and the cost, once the endeavor has become more scalable. “Plenty Agriculture claims it can build a factory and grow its crops in 30 days. Plenty can produce 16 crops in one year and can produce what regular production grows in a soccer field with only the space of the soccer net,” related Frye.

    “In all of these instances, the goal is to control the entire story, produce foods that have more nutrients and provide convenience to the consumer,” said Frye. “They are striving to prove their products taste better and the production process is transparent. If all of these ideas fail, they will resurface in the next 10 years or so. People will just keep trying new variations on these same ideas.”

    Frye explained that his company, Amber Agriculture, is leveraging the latest in sensing an analytic technology to help farmers capture high market prices. Currently the company is in test trials in Illinois and Canada and hopes to have the product on the market this fall.

    U of I celebrates its sesquicentennial and looks forward to the next 150 years

    “You cannot go a day without being impacted by some innovation from the University of Illinois,” related Dr. Robert J. Jones, chancellor at the University of Illinois Urbana-Champaign, during remarks made at The Chicago Farmers’ December 11th holiday meeting at the Union League Club of Chicago. The university has a history of excellence and innovation, but it will not rest on its laurels, he noted.

    “The university is very good across a wide spectrum and is excellent at a massive scale,” he said. “I am surrounded by excellence at the University of Illinois in every field of study. Most universities would die for what we have.” He noted he was proud to be in the midst of the university’s 150th anniversary, which will extend through graduation 2018, but it is necessary to ensure that it will be a strong and sustainable University of Illinois for the next 150 years.

    “To reach our goal, we must include a strong and sustainable agriculture foundation. Everything I have done has been shaped by my experiences as an agriculturist and provided me with an understanding of the mission of land grant colleges,” said Dr. Jones.

    He related that he was the son of Georgia sharecroppers who made it clear to the landowner that their children would not lose a day of school to work on the farm. Dr. Jones said he was grateful for his parents’ view. Interested in science since an early age, Dr. Jones worked with his high school vocational ag instructor and saw how science and agriculture are related. He was a member of 4H and was impacted by his association with the Future Farmers of America, he said.

    After earning undergraduate and graduate degrees, Dr. Jones embarked on a 34-year tenure at the University of Minnesota. Later, he served as president of the University at Albany, State University of New York, from 2013 to 2016 when he was named chancellor at the University of Illinois. He isan experienced and accomplished scientist and research university leader.

    Noting that the University of Illinois Urbana-Champaign was ranked14th overall in the country this year by U.S. News and World Report, he said that 22 of the university’s programs rank in the top five in the country and 75 of its programs rank among the top 25 in the country.

    He said that there were 39,000 freshmen applicants last year for 7,500 slots. The university welcomed 7,581 freshmen who had a strong profile with an average ACT score of 28.5. It also is a diverse class, 22 percent of whom are first generation college students. “The class demonstrates that the university can be an elite academic institution, but not an elitist university,” said Dr. Jones. “Also, 5,500 of the students are Illinois residents. We educate a large number of students from the state and will continue to do this. This is what the land grant mission is all about.”

    Dr. Jones also expressed pride in the core academic faculty, which includes 1,190 tenured and 1,000 specialized faculty members. The faculty generated more than $600 million in research and development expenditures. “For the sixth consecutive year, we are the top university in receipt of National Science Foundation awards. Our students and our faculty are our assets,” he said.

    Dr. Jones went on to say that to keep the university strong and deliver on its land grant obligations, it must have a presence and deep engagement where most of the state’s citizens live, which is Chicago. “We won’t diminish anything we do at Urbana-Champaign, but we have to be more strategic about our connection with Chicago,” he said. “To that end, the university wants to work with The Chicago Farmers because it has a critical and long historical presence in the city.”

    Dr. Jones said the university was charged with enormous potential and he shared with Chicago Farmers the university’s vision for the future. “We have to activate that potential for impact and change,” he said.

    He shared that the university has faced challenges: budget stalemates, changes in leadership and a climate of social and political unrest on the campus.

    “If you look closely, you will see what we have done to prepare us for the worst of times,” said Dr. Jones. “We can’t be held hostage by a budget crisis, and we can’t sustain excellence without proper funding. Our 2018 appropriation was our 2015 base, minus 12 percent. We are working diligently through this budget impasse. We continue to work on reforming the budget model, but it is a challenge. Despite implementation of a $67 million permanent reduction to the budget, we are increasing our financial aid to $92 million for the next year. We have to be financially prudent and resilient to meet the challenges of the next 150 Years.”

    Dr. Jones briefly reviewed the framework of the measure of success in the strategic process for “The Next 150 Years” and a glimpse of things to come:

    • The University of Illinois will be ahead of the game, be innovative, and lead to discovery.
    • The creation of the Carle Illinois College of Medicine, the first engineering-based medical college; students will be immersed in clinical experiences from the first day of school.
    • Improve food production to feed the world. “The work we are doing now is Nobel-like research focused on feeding the world,” said Dr. Jones.
    • As a foremost leader in science and data analytics, the university has been sought out by the Mayo Clinic to create a partnership to advance the notion of individualized medicine for Mayo’s 100,000 patients annually.
    • Efforts are focusing on creating new ways to engage with the population of the state outside of Urbana-Champaign, while maintaining the anchor campus. The building of Discovery Partners Institute will create a presence in Chicago on a 62 acre parcel at Roosevelt Road along the Chicago River. Through the institute, college partnerships with Northwestern, the University of Chicago and the Fermilab will be created. Some 1,800 students will attend classes there with 90 faculty members. The students will graduate from the Urbana-Champaign campus, but they will have the opportunity to have internships in Chicago to encourage them to return to Chicago-based companies for work after graduation.
    • The 53rd Street Project, initiated in conjunction with the University of Chicago, which will offer public engagement activities and research on advance materials and advance analytics.
    • A campaign to raise $2.25 billion in the next five years for the Urbana-Champaign campus. Dr. Jones said, “It is an ambitious goal, but a critical one to meet to carry out the University of Illinois’ mission.”

    Grain merchandising and uncertain markets

     

    When dealing in the commodity markets, volatility is your friend. This observation was among the nuggets that Jeffrey Hainline, chairman of Advanced Trading Inc., and Jeremy Strubhar, Ag Risk advisor at Advanced Trading Inc., shared during their presentations at the November 13 Chicago Farmers’ meeting.

    Advanced Trading (ATI), based in Bloomington, Illinois, is a commodity trading company. It offers consulting services to people in agriculture on how to manage their enterprises, related Jeff. Additionally, ATI provides assistance for logistics, strategic planning, marketing, and research. Proprietary software and solutions to help manage commodity risks also are available through ATI. It has national and international clients.

    Some things to know in managing your commodities:

    • Jeff noted that in 2017 there have been very narrow price ranges in corn and soybeans with little movement. “Without much movement, grain companies suffer. Lack of  movement means lack of opportunity,” said Jeff.
    • He said that 2017 has the second highest corn stocks/use ratio since 2000. Jeff went on to say that 87 percent of corn is used domestically and the use is growing slowly by about two percent a year. Feed and industrial uses of corn respond to the size of the crop.
    • Jeff related that ethanol use is growing and ramping up. As a result, there will be a need for more corn. Currently, China only uses a two percent ethanol blend with gasoline. If they expand their ethanol use, there would be a dramatic increase in fuel and ethanol demand. The same situation exists in India. Brazil is a major ethanol producer, but its ethanol is made from sugar. The United States exports corn in the form of ethanol to Brazil. He said that the United States has lost the China market because it has a stockpile of corn. However, we have picked up Mexico and Turkey.
    • Ethanol companies continue to be profitable.
    • Logistics is an important consideration with stockpiles of corn. Last year’s record corn crop forced many ground piles. When there is a significant amount of corn that needs to be stored and there is no place to put it, the price goes down.
    • The forecast for this year is that there will be deficit space by 250 million bushels.
    • At one point, the United States had 74 percent of the corn market; however, exports stayed stagnant and now the United States has 34 percent of the market.
    • Regarding soybeans, it is estimated that China will import 97 million tons of beans this year. This is due to the increase in feed needed for animals because Chinese are eating more meat. South Africa, Asia, and the Middle East bean markets also are growing because they are buying more meat.
    • There is a meteoric growth in the demand for soybeans because it has become food for animals.
    • There is an incentive for farmers to plant more beans and sell them; not so for corn.
    • There is a record short position for managed money in corn.


    Jeremy discussed what the farmer can do to better manage the grain market. He noted that 2.4 billion bushels of corn were carried over from 2016-2017 and” the farmers owned it,” which resulted in a lot of storage costs.

    “You want to be hedgers,” said Jeremy. “Lock in prices. Be aware of what will hurt your operation, such as lower prices. Things outside of our control can lead to lower prices, such as political unrest and natural disasters.”

    Jeremy observed that the American farmer has become an expert in managing risks in growing the crop, much of which has improved due to technology. However, managing price risk still suffers.

    The tools that help manage prices are:

    • Put options, which give the farmer the right to sell unsold bushels; puts gain in value as the price drops.
    • Call options, which give the farmer the right to buy. It is used to replace ownership after selling bushels; calls gain in value as the market goes higher.
    • “A put is used to protect yourself against lower prices,” said Jeremy. “With a call, if prices go higher, you benefit. A call option is a way to replace grain once you sell it. It is often cheaper to own grain in a call option than to store the grain in a commercial grain elevator.”
    • He pointed out that options work best when there is volatility.
    • Puts:
      • Lock in a floor and give you a minimum price
      • Extend cash pricing window
      • Allow you to partake in higher cash prices, or increase floor
      • Make the risk know
      • Insulate you from a price drop, protect your financial balance sheet
    • Calls:
      • Gain if futures prices rally
      • Risk is known
      • Remove fear of selling too early and too low
      • Make cash sales with confidence
      • May be cheaper than paying for commercial storage


    In response to a question, Jeremy said that 5,000 bushels is the minimum amount of bushels for option strategies.

    Jeremy said, “My recommendation is to have a basic risk management plan based on protecting prices, not speculation.”

    FSA fosters successful farmers and quality environment

    Rick Graden is an enthusiastic spokesman for the Farm Service Agency (FSA) and he helped attendees at Chicago Farmers’ October 16 meeting understand why the FSA is beneficial and benefits farmland owners during his presentation.

    Stabilizing farm income, helping farmers conserve land and water resources, providing credit to new or disadvantaged farmers and ranchers, and helping farm operations recover from the effects of disaster are the missions of the U.S. Department of Agriculture’s Farm Service Agency (FSA), explained Rick, who is the acting state executive director of the agency. He noted that FSA has been a part of the U.S. Department of Agriculture since the 1930s when it became an initiative through the Agricultural Adjustment Act. While its name changed over the years, FSA has maintained its focus on ensuring that the country has safe and reliable food sources and on keeping farmers on the farm.

    Rick noted that FSA is the only U.S. government agency that works with elected county committees that are composed of farmers’ peers. “Because there is local representation, these committees make determinations based on local affairs, and agricultural conditions,” said Rick.

    FSA provides numerous programs that benefit farmers, but due to time constraints at the meeting, Rick focused on the Conservation Reserve Program (CRP). Implemented in 1985, CRP protects the environment, controls erosion and benefits wildlife, said Rick. CRP acreage is capped at 24 million acres under the current farm bill. “FSA would like to see a cap of 35 million acres,” said Rick.

    Currently, FSA is processing CRP applications that were submitted from May to September of this year. Rick urged people to be patient. He said that FSA is always adding more acreage to the CRP pot as CRPs are terminated when farms are passed on through inheritance or when people opt out of the program. Farmers can re-enroll in the CRP program, but owners might have to enhance their CRP practices to remain eligible to re-enroll. However, FSA will cost share in many instances for the enhancements.

    Rick noted that FSA has approximately 42 different CRP practices, not all practices are available in Illinois. Among them is the pollinator habitat that was implemented in 2012. A maximum of 100 acres per farm can be set aside as a pollinator habitat.

    “Seed for these habitats is expensive, but FSA will cost share with farmers for these plantings and specialists will assist in planting the areas,” said Rick. “A pollinator habitat on your property results in higher CRP cash rental rates.”

    Rick noted that FSA monitors practices and spot checks CRPs and pollinator habitats. At times, it might recommend spraying for weeds. There are 106,615 acres of pollinator habitats in Illinois and applications are no longer being taken. Rick said FSA will probably return to the pollinator habitats program because the planting of milkweed, goldenrod and blackeyed Susans are so beneficial for Monarch butterflies and honeybees. He noted that FSA hopes that pollinators could be planted along the interstates and Illinois is considering undertaking this. Iowa already is doing this.

    “CRP is the best program FSA has ever had,” Rick said. “Its provisions result in so many benefits for the environment. In my opinion, it is here to stay.”

    Longtime TCF Speaker Returns to Share His Expertise

    Dr. Gary Schnitkey, professor of Agricultural and Consumer Economics at the University of Illinois Urbana-Champaign, discussed crop farm income, cash rents and farmland prices during his presentation at the Chicago Farmers September 11, 2017 meeting. Dr. Schnitkey has been keeping TCF members well informed through his presentations since 1998. “He is a wealth of information,” said TCF President Barbara Clark.

    Dr. Schnitkey related that 2015 was a low income year, but income bounced back in 2016 with an average income of $90,000 per farm. This was due to good yields in Illinois. However, he suggested that incomes in 2017 could be less, averaging around $60,000.

    “Of course, much depends on where crop prices go as we move forward,” said Dr. Schnitkey. “Income is down because prices have not changed a lot and the yields this year are projected to be down.”

    Dr. Schnitkey said that soybean and corn yields have been above the trend in recent years, but he said that projections are down for soybeans in Illinois. He noted that 50 percent of this country’s soybeans are exported, with the vast majority going to China, which also imports soybeans from Brazil. “The hope from farmers’ perspective is that this export situation to China continues to grow so that soybeans remain in a positive situation,” said Dr. Schnitkey.

    Other information shared by Dr. Schnitkey:

    • Static prices for corn and soybeans: 2017 price per bushel for corn - $3.30, soybean - $9.50; 2018 projection: corn - $3.80, soybean - $9.50

    • ARC payments are expected to decrease and will vary by county; however, recipients should expect one-half or less of what they received last year

    • Costs are expected to be less in 2018 than they were in 2017; fertilizer costs have come down as well as fuel costs

    • Seed costs have not come down

    • For Central Illinois, soybeans are more profitable than corn; corn costs and seed costs increased more than costs for soybeans

    • Corn demand is static in comparison to soybean demand

    • There will be downward pressure on cash rents

    • Farmers and landowners should consider moving into variable cash rents

    • Little movement in farmland prices; prices have come down 10-15 percent off their peak; prices could come down another one to two percent

    • Anything that causes trade to slow in regard to NAFTA would be a negative; grain farmers want free trade

    • Regarding real estate taxes, use-valuation should be coming down

    • Projections indicate that the federal government will not do anything with ethanol; Brazil is raising a lot of corn that can be used for ethanol; the overall use of corn in ethanol is static

    • The United States could possibly begin exporting more corn, primarily to China, which now uses soybeans to feed animals

    • It doesn’t appear that water constraints will cause land to go out of production; Dr. Schnitkey thinks we will see more land coming into production due to Asian countries beginning to eat more meat: “As long as growing increases, land will be brought into production.”

    How to plan for smooth succession planning

    The hardest part about owning a farm is how to keep the land in the family, said Paul Morf during a presentation at The Chicago Farmers’ May 8, 2017, meeting. Morf, chair of the estate planning group for Simmons Perrine Moyer Bergman, a law firm principally located in Cedar Rapids, Iowa, allowed that “taxes are hard, too.”

    Morf related that setting up an LLC is the most efficient structure for succession planning. The LLC provides:

    • Centralized management.
    • Privacy regarding the ownership of real estate.
    • Separation of ownership from control through recapitalizing the LLC into voting and non-voting ownership interests.
    • Facilitates estate planning transfers of real estate to descendants and trusts for descendants.
    • Treatment like a partnership for income tax purposes so that all income and deduction items of the LLC flow through directly to the members.
    • Distribution of funds from the LLC to the members without taxation.
    • Liability protection for all owners.
    • Restrictions on transfers and insulation of LLC assets from creditors of owners.
    • Facilitating availability of significant valuation discounts for transfer tax purposes.
    • Avoidance of partition.
    • Avoidance of ancillary probate and possibly state death taxes in Iowa or Illinois for a non-resident landowner from Florida, Texas, Arizona or other state without a death tax.
    • Smooth business succession planning.

    Morf noted there is an emotional and economic attachment to a farm and there are times when fair is not always equal. He said this situation generally occurs when a child returns to the farm to work on it and maintain it, while other siblings have chosen other paths. Decisions have to be made:

    • Should there be identical treatment for siblings?
    • Give farming son the right/option to purchase farms from the estate or other siblings?
    • Should the land be held in trust, require rental to son at fair market retail rates and distribute rent equally to siblings?
    • Sell farms to the son (or grantor trust for sons) on an installment contract during life?

    In families where the business owners or famers have few assets outside of the business/farm and there are one or more children involved, other decisions have to be made when creating estate plans:

    • Treat children equally or fair but not equal?
    • Will the equipment pass predominately to the on farm heirs? What about the land?
    • Should children be put in business together or is each given a different parcel?
    • If you give children different assets, do you equalize with life insurance or liquid assets? He noted that life insurance is subject to the death tax.
    • Should children involved in the business be given purchase options?
    • Are those children not involved in the business given put options?
    • How do you value farmland or business assets for purposes of division?
    • Are buy-outs among family members for cash, or on an installment basis:

    Morf pointed out that there are a lot of tools for shared inheritances. He encouraged people to talk with their advisers and family during these considerations. Morf suggested that premarital agreements be in place for second marriages to protect the children. He added that placing an inheritance for children in a trust is a protection against a divorce.

    Morf reviewed revocable trusts and related that the trustor, who is the initial trustee and initial beneficiary, can amend or revoke the trust at any time. The trust is not a separate taxpayer and gifts to the trust have no tax implication. Additionally:

    • With the death of the trustor, the trust continues with new beneficiaries, according to the terms of the trust, which at that point becomes a will substitute.
    • It is important that every revocable trust be backed up with a valid will. A “pour over will” provides that any property owned by the trustor (and not by the trustor’s revocable trust) at death pours into the revocable trust.

    Farming in uncertain times


    Kennedy Weighs impact of new administration on ag.

    The political uncertainty at the national level may result in significant changes to the role of government for many people.

    “For large family farmers, the reduction in inheritance tax may preserve and help protect intergenerational transfer of not just family farmers, but a way of life, as well,” said Christopher Kennedy, chairman of Joseph P. Kennedy Enterprises Inc.

    “On the other hand, a pullback in crop insurance by the federal government may leave all farmers more exposed to the volatility of nature,” Kennedy said during a presentation at the Chicago Farmers meeting.

    To read the full article by Martha Blum with AgriNews, click here