Latest / Closing Market Report / 2025 ADAO | The Price of Farmland

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2025 ADAO | The Price of Farmland · Closing Market Report

• 0:00
  Todd Gleason: The following presentation on the value of farmland was made by Bruce Sherrick during the all day I got look at the beef house in Covington, Indiana on the March.
• 0:12
  Bruce Sherrick: Well, late breaking news I just saw in the newsreel. Governor Braun just announced a 25% tariff on imports from Illinois, so it'll cost you each $10 more to get out of the room today. The news, of course, has been dominated by conversations about tariffs. We wanna turn to something a little bit more interesting, farmland values. How many of you were here last year?
• 0:35
  Last year, I asked how many people own farmland? How many people wanna own more farmland? About the same hands were up, and how many thought it was too expensive. And about the same number of hands were up, and I said, how many of you wanna sell your land to me right now, the land value that you see right now? By put their hand down.
• 0:52
  And in the last year, we've had kind of a a really predictable, kind of evolution of farmland values. And we wanna talk through and I have some visuals. There's about five copies of this, handout on each table. Not quite enough for everybody. You can sail back and forth between tables, collector edition, of course.
• 1:11
  No. This is just a way of kind of guiding the conversation and some things to talk about as we get here for the next thirty minutes. Is that what we have? Okay. Alright.
• 1:20
  So and there were a couple of questions about debt load and interest rates and these all kind of fit together. So as we kinda go through, if you have questions, you don't have to wait till the end. Shout them out, hold your hand up, and make it a little bit more entertaining. K. First of all, just start.
• 1:34
  There's nothing surprising about this first page. It just says the factors influencing land values are the interest rates, the inflation, and the income. Interest rates, we have kind of a normalized cost to capital. We came out of a period, kind of the perfect storm for farmland. We had managed interest rates, so buyers with leverage didn't have a problem buying land, adding debt, and let the rental or income payments pay for it.
• 1:56
  Kinda got out of that managed area, and we're back to normal interest rates. But 67% mortgage rates feel high now that we got kind of addicted to opium. Right? Other people's money. We got addicted to cheap money, and it became really difficult to get out of that habit.
• 2:12
  And it's a little harder to buy with leverage right now. Number two though, long term leverage is still very low. About 13% you'll see on one of these stats on one of the tables in here. There's not a lot of debt on the long term side of of markets, but there's a lot of debt on operating notes. And so that's been a little bit more painful going forward.
• 2:30
  On inflation, this is somewhat the good news. Farmland tends to be very positively correlated with inflation in the long term, and I don't see anything that will ever break that. There are a lot of good reasons for it. It's kind of a eight hour mini course to talk about the relationship between long term land values and inflation, but they're positively correlated and we'll retain that relationship going forward. And that's not an every year thing, but the last four years, if you put them together, have shown about a 35 to 40% increase in value farmland, especially high quality stuff in the middle of the country.
• 3:02
  Kind of anticipated the expansion in the monetary base. It's a pretty clean model. You print a bunch of money, prices go up, and the things that should go up in most are the things that are least depreciable long term. The long term thesis for the demand for things that you grow on farmland is actually also very strong. Around the world, we're gonna go from eight to nine to 10,000,000,000 over a fairly predictable period of time.
• 3:25
  But the most important thing isn't the more isn't the number of people we have, it's the quality of the diet that people consume as countries get richer. So think about this. If you eat a if you eat crickets, which we don't in this country, it takes a little over a calorie in to get a calorie out. If you eat fish, it takes about two. Eat chickens, it takes about three calories in to get a calorie out.
• 3:45
  Eat pork, which a lot of the world loves, takes about nine calories. If you move on up the scale, I skipped over guinea pigs and dogs because we're in The US. If you move on up and you get to beef, you're probably at 14 or 15 calories in to get a calorie back. So you have to actually increase the amount of feed grain as well. Fuels as well.
• 4:04
  The world is moving towards some version of renewable or at least energy crop production, ethanol and other things. Very politicized at the moment, but in the long term you still have a calorie and the original solar collector is still a plant and you still have to do something with that. And moving that forward through the channel, the demand for those is gonna continue to increase for a really long time. The amount of arable land is still going up. The old famous Will Rogers quote buy land, they ain't making any more of it.
• 4:32
  Not quite true. We're still actually adding arable land on a world basis, just not in The US. Okay. So that was a little bit on the inflation part. And then income.
• 4:43
  Oh my gosh. Where is the income kinda come from? Well, it turns out that and Jonathan, has written a lot about this. And, if you aren't a subscriber to FarmDoc, I encourage you to. But government programs have changed quite a bit, and we're looking at a lot of ad hoc assistance.
• 4:58
  And ad hoc to me has become the new standing government program. There's a chart near the back of this that we'll talk about that a little bit more. Scott was once quoted as saying there's nothing as permanent as a gov a temporary government program. There's a lot of things about the changing source of income to agriculture. We have, historically gone through this idea that maybe we'll get paid for for carbon, maybe we'll get paid for environmental serve services, maybe we'll get paid for sequestering things.
• 5:25
  Hasn't turned into a very real or live market, but the consumer awareness of sustainability features and the fact that agriculture is actually part of the solution, not part of the problem, I think does have long term importance for the stability of income back to production ag. I always like lavalier mics because then I have two hands. I'm gonna flip to the balance sheet of ag, which is on page two. One of the things that's interesting is, and I'm not gonna go through all the numbers. You can always email me if you want the slides.
• 5:55
  But farm real estate is a huge fraction of the farm balance sheet, the agricultural balance sheet. Total assets are over 4,000,000,000,000. 4 trillion in the ag sector now. That's a really remarkable number. More than 85, around 85% of it is actually in farmland.
• 6:14
  That's really remarkable as well. The little red circle at the bottom is the amount of long term debt. Still very low leverage, but it's not uniformly distributed at all. Sorry, Todd. Your b roll.
• 6:30
  Gosh. Yeah. Sorry. Now I heard the, guy who invented, throat louse and just just died. There was no coffin at his funeral.
• 6:39
  Yeah. Okay. Sorry for the sidebars here. The debt to equity ratios though on the equity in general in the sector is still very, very strong, which is incredibly supportive for short term farmland markets. Also, again, a chart later in the handout, but the turnover is so slow.
• 6:58
  Turnover is between one and a half and 2% per year at arm's length. Thank you very much. Yep. Thank you. Putting near my glasses so I remember where both of them are.
• 7:12
  So, so the the balance sheet effect is really real in farmland markets too. And a couple of things that if you want to kind of dig into the research, we look at the land values in states that have anti corporate farming laws beside states that don't. And can also detect kind of where the bottom is for both neighboring buyers and institutional buyers. And Indiana and Illinois compared to Iowa show a very distinct pattern. On the way up, Iowa goes up a little faster.
• 7:42
  On the way down, Iowa comes down a little faster. The chart that's in a couple of pages here on the, spreading out of quality, we'll talk about a little bit more. But the strength of the balance sheet is still pretty good. You know, it doesn't feel as good as it did a couple of years ago, but there's still a pretty good floor under farmland values as well. The bottom, the consolidation in farmland numbers.
• 8:03
  I think this chart is absolutely hilarious because each time you see one of those little, like broken parts of the line where it hops up a little bit, is each time USDA had to redefine what a farm was to keep a certain number of farms classified as farms. You need at least 2,000,000 to be kind of politically important. We've dipped below that now, so I expect the next definition of the farm from USDA to be anybody who wants to be a farmer can count themselves as a farmer. Keep about 2,000,000. About a million of them are real though.
• 8:34
  We have the census from 2022 pretty well processed now. And of farms that produce the majority of the operator's income, there's about a million or a little under a 900 and some thousand. I forget the exact number. But if you do the math in the following way, there's about 330,000,000 people in The US roughly. It makes the math easy to do.
• 8:54
  And about a million real farms, that means one farm has to produce enough for 330 people. If you factor into that the amount of energy used from crops grown, energy, uses from crops grown, and then the exports and the imports, we are a net importer of agricultural products now because we like blueberries all year round and you have to grow things on the opposite sides of the Equator. All that's fine. If the tariffs stay real, we won't be having blueberries in the winter anymore. But there are these, imports and exports that kinda even it out that put the number kind of like at 400 when you're all done with all those transfer payments.
• 9:33
  So farm has to be pretty big to be pretty viable. I always say the second biggest combine John Deere is currently making is a good measure. And however many acres it can get over in a year is a reasonable estimate for what an economically most efficient scale of a farm is. It turns out to be kind of true. But this is gonna keep going.
• 9:52
  The rental market's going to continue to get bigger. The ownership market is going to continue to rent more, and that's just a simple fact. That's a little inconsistent with some policy directives we hear, but that's that's where we're headed. The next couple of pages on farmland values and farmland price change, I'm not gonna spend a lot of time on. These are USDA total averages, and so you may say, yeah, the farmland in my in my area is worth twice as much.
• 10:17
  This includes all those little hobby farms that are not using their agricultural land to support the majority of their family's living expenses. So my rule of thumb is to multiply the numbers in the top one by about one and a half, and that's a pretty good measure of what land values are. I'm also involved in a couple of other projects where we get from the state of Illinois, we get every transfer. So every time a farm sells, we get a record because the property tax assessment process is done at the University of Illinois. So we need to know actual transfer values, and we can keep track of those pretty well.
• 10:51
  They are a pretty good index of farmland values. They move the same. So whatever you think your value is today compared to that number you see on the chart, they're gonna move in lockstep. USDA numbers are related to the real numbers whether you're above or below. Farmland values, again, percentage crop price change in the bottom.
• 11:09
  I think that's just remarkable to look at. We got a correction back.
• 11:13
  Todd Gleason: Are those documents available to the to us?
• 11:16
  Bruce Sherrick: Sure. Email me and I'll send you more than you want. Thank you. Yeah. Yell out.
• 11:23
  Find it. USDA data are really hard to manage. They're really hard to get through. And there was a massive change back in '95 in how they keep track of their data, so you can't get it all out of quick stats anymore. But we've kept a record all the way back to 1960.
• 11:37
  Todd Gleason: I'm talking about the green sheet. I'm talking
• 11:40
  Bruce Sherrick: about the sales sheets. The sales sheets from Illinois are technically public, but good luck. It's really complicated to get them and use them. We get we get all of them, a couple of comp services do, so CoreLogic buys or CoreLogic gets them and then resells them to you. Illinois Land Sales Bulletin, CAMO Ag, acres.
• 12:03
  I think we have seven different sources now that I can check. And then the Illinois Society releases their survey once a year, which has about a thousand kind of, curated comps. So that one we release March 26 this year, and those are all public. So we can get a version of it. If you have a good business case, I can help you learn how to dig in through their data system.
• 12:27
  Cropland value per acre. At the bottom that has kind of a picture of the lines that go from bottom left to top right where it says the Indiana CAGR. That means the continuously compounded annual growth rate, and it's continuous compounded just as a math version. So just the appreciation rate has averaged 5.28% per year all the way back to 1962 or '63. I think that's remarkable.
• 12:51
  On top of that, you get the income as well. So that's one of those questions about what is supporting farmland values. And again, I know I'm flying through this, but the story gets a little harder to tell quickly when I get to the end. So all of the setup, I just want to do in picture form. The next page that has the Illinois summary in addition to, we have a little utility at the U of I that we keep track of where we can do every single state, down to most counties that have meaningful agricultural production now.
• 13:21
  That's kind of a a new addition to our data suite about a year and a half ago. But this Illinois Land Value Survey by Soil Productivity Class, All Regions, is the title at the top. That's the, you know, this hasn't been released yet. This is the one we put in our it's about a hundred page booklet in Illinois where we go through all the sales around the state by month, by SPI or soil productivity, which would be like the CSR. And then, have the folks in each region help write a story about what's going on in the land market in that area, whether it's recreational or solar or farming or development of a new, you know, chemical plant or so on.
• 14:02
  Well, what's important there I'll try to do this. Need two hands to do this. As land values were going up, the asset classes, top down to bottom, spread out quite a bit. And the received knowledge had always been that you buy better, highest quality land always was going to go up by the most. And that was true on the way up, and on the way down it's converging.
• 14:26
  And despite the fact that it appears, if you just do unweighted by productivity averages, it appears that farmland values had fallen three to 5%. Lower quality land is still going up, had still gone up by the end of twenty twenty four in Illinois. Indiana is a little harder for me to keep track of. I keep track of the property tax level. That's kind of got a little bit more of a delay.
• 14:47
  So next year when we're here, I can tell you about what happened in 2024 in Indiana. But Illinois is kind of this pattern, and I expect the same thing is happening other places. The bottom page bottom part of that page, I think, is really fascinating. There are lots of different, like, political perspectives in the room, I'm sure. But at the end of the day, if you think we're headed into a really robust expansion, farmland does really, really well.
• 15:16
  If you think there's an inflationary period coming, farmland does really, really well. If you think we're about to crash and burn the world, what asset would you rather own? So in a relative sense, looking at it compared to the other assets I have on this page, I think this is a pretty compelling story. At the top, The US Thirty Two states is a diversified portfolio. We work a lot with NACREF, the National Council of Real Estate Investment Fiduciaries, and the nine different companies that have institutionally owned and managed funds of farmland.
• 15:49
  So think of the Nuvenes and the, Mani Life and The US Ag in your state, Cottonwood, Bill Gates' group, others who have large holdings in farmland, they have to report on an identical accounting basis. So we don't have anybody cheating and saying they're funded better or worse. They it's an audited financial, system for reporting. And if you take a blended average of the 32 most important states production wise based on their value production, you get that top row. So farmland has returned 9%.
• 16:21
  Not terrible. Standard deviation of only 4%. That's remarkable. The coefficient of variation, a technical term, which is just a risk per unit of return kind of thing. But look at the minimum or the the biggest drawdown and the maximum or the biggest gain.
• 16:38
  And then compare it because the next items are equity markets. Dow Jones, Nasdaq, and and nice, you know, NYSE. Now again, if if you happen to buy 10,000 shares of NVIDIA five years ago, well, one, you're not here anymore. You're not in this room. But if you take out the Nasdaq and take out the tech, it's still the case that farmland has beaten the equity markets all the way back to 1972 in any ten year period you look at outside of tech.
• 17:06
  The next one's in red, fixed income, AAA bonds, BAA bonds, and ten year treasuries. I teach a class on campus where every class we plot the ten year and two year treasury rate, and then we watch it for a semester, and then we tie it to national events. And the ten year rate, kind of the index of all other fixed income, of course. But if you look at that as an indicator at about 4%, we're not as far out of balance right now against history as some people might think. It's not that absurd of a moment in time relative to interest rates.
• 17:35
  We just got very used to in in my lifetime, we had both the housing crisis where we were followed that with a period of managed interest rates in The US, and then we had COVID where we followed it with a period of managed interest rates. Those two periods in that short of a period of time haven't happened to any place else since the creation of the Fed or since the creation of this country for that matter. And so we have two recent periods of very low interest rates, which tend to make us think that interest rates should be very low. Try teaching time value of money to college kids who never had a positive savings rate available to them, and then you'll realize, hey, this, you know, that wasn't the normal interest rate environment. But what's most important on this page is to look at the bottom.
• 18:19
  The bottom is the PPI and the CPI, and the correlation with farmland is positive. And it's remarkably positive over a whole bunch of periods, including through the seventies when we had an expansion of interest rates, expansion of money supply, went off the gold standard, and then changed our behavior managing interest rates all the way to the present to fight inflation essentially. Through that entire period, kind of flipping the page and going as quickly as I can, on the page that's kind of a blue box at the top and the m one supply at the bottom. There's a great story between those two items. Farmland and the bottom, the the orange over top of the blue, farmland has beaten inflation almost forever.
• 19:06
  The sympathetic response in 02/2009 to the kind of overnight shutdown of the short term markets, That's a bit of an anomaly, but otherwise, farmland has beaten inflation by pretty constant spread by quite a bit. Is there another asset you would rather own? That's one of the things that keeps the floor under farmland values. And if you just did a straight out income capitalization model of farmland values, people often go, well, gosh. Farmland shouldn't be selling for that much because it's a two cap.
• 19:35
  It's a three cap. It's a, you know, 50 times earnings. Well, but, you get a lot of return from the appreciation through time too. It's also very, very tax efficient asset to die with, to be bought. The top the top page though is really critical for a couple of reasons, one of which might seem kind of subtle.
• 19:53
  If you look at the M1 money supply, and again, I know that's not a great measure of total money supply, and there were some great questions about the, you know, capacity of the economy to support additional debt. M1 though is what a lot of people feel. M1 is a lot of the, first measures that tie to velocity of money pretty well. And when we printed the extra 7,200,000,000,000.0 or so during COVID, you got a fairly sensible response by asset values, and the the inflation that ensued was not particularly surprising to most economists. It's a little hard to pattern out, a little hard to predict the detail.
• 20:30
  And then as that peaks and comes back down, as the Fed was beginning to manage the size of its holdings, we kind of expected something to happen to get back to normalization. But what's important is that small little crook at the end going into December December and January. This goes through January one of twenty twenty five. Post election anticipations, management of the Fed's balance sheet as well. We still have such an overhang of the quantity of money that is sitting on the Fed's balance sheet that the rest of monetary policy isn't as important as it seems.
• 21:05
  Shrinking the Fed's balance sheet is the same as raising interest rates, and there's still several extra trillion dollars to work through in the economy. That's fairly supportive of ag values. Okay. So that again the, the great quote that I read I wish all these quotes were my own. None of them are.
• 21:24
  If politicians accomplished 10% of what they promised, there would be no need for heaven or hell. Right? So we're going to have all of this reduction in the budget. I'll take the over on that any day. We don't seem to be slowing down spending, and we're expanding the deficit.
• 21:40
  The the impact of those, somewhat overstated so far. And and certainly, if you did save any money, you shouldn't send it out in the form of payments, at least not to people people who pay positive amounts of income tax, because that means your future burden for extra deficit that could have been paid off is greater unambiguously than the amount of money you get. But aside from that, we don't expect that to get smaller. We don't expect the total amount of debt and the cost of debt service to get smaller. Again, somewhat supportive of farmland values.
• 22:13
  Okay. To the next page, ad hoc as the new standing farm program. That's very tongue in cheek, kind of. It just shows you though through time, if you look at the kind of movement away from farm programs, conservation programs, traditional spending, crop insurance, and then look at the size of the orange and yellow bars, a lot of the transfer payments have come from things that weren't part of that planned standing set of programs. This is from one of our, again, one of our FarmDoc publications.
• 22:44
  It's a fantastic website. If you guys again don't don't get to it, please try looking at it a little bit and consider subscribing. And again, I almost feel positively compelled to put the Milton Friedman quote in almost anything anymore that says one of the great mistakes is to judge policies and programs by their intentions rather than their results. Transferring money to farms is supportive of farmland values. And again, you can be pro or con the policy that does so.
• 23:12
  I'm just just the messenger here to talk about what I expect in farmland markets. The net farm income and net cash income at the bottom. A couple of you may have seen a couple of days ago, Secretary Rollins saying that conditions on the farm are perhaps as bad as they've been in the in a hundred years. Okay. Well, last year's farm income was only the eighth highest on record.
• 23:39
  Certainly wasn't the worst in a hundred years, but the composition was not very standard. The income to livestock producers was pretty high. Income to commodity producers a bit lower. There's some stats on that in the next page, and I can give you linkages to volumes of that. The distribution of income is not very normal.
• 23:59
  It doesn't just land in the same spot every year, but total income wasn't that terrible. And so the the joke that I heard back on that was, yep. Everybody, I've been sober for thirty days. Well, not in a row. Well, and not the previous thirty, and that's just a historic estimate, I guess.
• 24:18
  But I think so so this this argument that things are as bad as it's ever been somewhere, that's true. But if you just look at the net farm income and the net cash income, those lines will go up because of the announcement of the additional emergency relief. Todd, I'm going fast enough that I'll almost make it exactly when you wanted me to. The value bag production in this chart, that's the beginning. You know, if you find that that loose thread and you pull it and you find it on your own sweater and you just keep pulling it off until it's gone, this this set of materials on the value of ag production by location and by source is that to me.
• 24:58
  I just find this fascinating to trace it through and find out that, you know, pistachios are no longer making money in California, but spinach is. And and you can you can dig through this forever. But I think the division between commodity and livestock is a very real one for many people. Now there's some integrated operations, but when corn prices are low, feed prices are low. And when corn prices are high, feed prices are high.
• 25:25
  And so on balance, you get a natural hedge in the economy, in the ag economy, but you get a little extra whip sawing between the segments or components of the economy. And so, again, that one is really interesting to look at. Iowa still has a lot of livestock. Illinois doesn't have much livestock left. We exported our pigs.
• 25:43
  And Indiana is a little bit more of a mix. Where dairy exists, it's a completely different game because of the milk, marketing order program still has a strange effect on price. But the bottom one is what's most telling. Livestock receipts finally crossed over top of, commodity receipts or crop receipts. Okay.
• 26:04
  Last page with some comments before a really cool back page. Thin market, low turnover, blue and orange, just, not just because I'm from Illinois, but the blue is one system for reporting turnover. And then when the transfer declaration or the thing you record when you buy or sell. When it changed this form a little bit, I switched over to orange because it's a little bit hard to tell if exactly the same determination was made on what counts as a farm. Had to be a farm, continuing use as a farm, be intended as use as a farm, and the assessor's office had to check a box to agree that it was still a farm to get treated as a farm sale.
• 26:44
  But the the process of doing so changed. So my blue and oranges are just a signal when the sample changed a little bit. But the story is between one and a half and 2% of farm land turns over per year at arm's length. Now, you may have read, and again, this is this is old news for everybody, that was supposed to this will be a joke. That was old news.
• 27:06
  Farmers are getting older. Well, farmers actually aren't. Landowners are. Operators aren't. Operators are bringing more younger people in, but people who own the land live longer and die later.
• 27:18
  And so the average age of a farmland owner, pretty high. It doesn't mean there's going to be that much more land brought to market because we're all getting older one year per year. It's been the truth for a really long time, and that hasn't created a structural change in one thing so. A lot of land gets transferred into a family corporation or into a trust or into another mechanism to manage the distribution across generations. Don't confuse that with a sale at arm's length from which you can establish market prices to willing buyers with return seeking capital.
• 27:51
  That's the sample I use to try to figure out what land values should be. So that again, I love that chart because we had this big run up in 2021. And young people kinda joined the industry in 2021 thought, man, this is easy. There's brokerage business all over the place. How are you I'm walking my these old guys talking about how hard it is to be a land broker.
• 28:11
  What's up with them? And then they got the their eyes open in 2022 and 2023 and 2024 will be down even more. Anyhow, some a couple of final comments. Transactional markets turn out to be really really efficient. There's a quote from a Nobel Prize winning economist who said, the job of an economist is not to tell people what they should do, but observe what happened and make sense of why it was so.
• 28:38
  Right? So what we see in prices are what I think are the right prices. If things feel too expensive, it's because somebody else has a better value they can associate with that than you can. But transactional markets are really good at summarizing information, but the diffuseness of the information has never been this great. We have more uncertainty about future income and about government policy.
• 29:00
  And the the crop insurance, subsidy being a transfer program, if the loss rates were the same everywhere, then everybody would have the same, crop insurance regimen. Loss rates that were not the same everywhere. And so if you have, think of Illinois. Indiana is not quite so bad, but Illinois soybeans have about a 50% payback rate on insurance. So if you have a 50% subsidy, you break even.
• 29:25
  If you're in West Texas, you have about a 250% loss rate. So if you have a 50% subsidy, you have a 500% return to your investment in crop insurance. So that's not very uniform, and that is a really important thing to kinda get fixed going forward in policy. Again, I like to make fun of Texas because they're not here. They're not in the big 10 yet either.
• 29:47
  How many of you are going to the Illinois Purdue basketball game this Friday? I was just talking. Brady was, it's just like, it's gonna be odd for us in Illinois not to see a seven foot six alien come in with the Purdue basketball team. That'll be a good game though. Number two, ad hoc, the new standing government program, crop insurances subsidy transfer favors poor production regions and southern crops.
• 30:15
  I had the great fortune two weeks ago, maybe it was last week, time flies, was in two sessions where we were able to speak with Bozeman and GT Thompson and then, Klobuchar and and Craig in the same session, kind of the four corners of the Ag committees. And it was astounding to me that, you know, the degree to which, you know, input is being received, people hear things, and the response back is we have to provide more support, which was code word for we have to provide more subsidy somewhere. But the the sensitivity of the program from my perspective, they were incredibly sensitive to southern crop issues. You're gonna have rice and cotton probably pretty well protected. Secretary Rollins is also a Texas A and M person, and so may not bode as relatively well for the middle of the country as you hoped, but we'll see.
• 31:07
  Trade sensitivity increasingly critical. Strength of the dollar. I was glad to hear that brought up before. It's not as simple as people somewhat think. And and again, tariffs don't work like they're being proposed.
• 31:16
  Just frankly, they don't. They can't work positively from both sides. And if both sides retrench and retreat, there's a loss of comparative advantage, which is unambiguously bad. There can be political reasons to use tariffs if you wanna subsidize a particular industry. Okay?
• 31:33
  It's often cheaper if there are not other political reasons to just simply directly subsidize that industry, though. But we we have to figure out how to get from here to the next episode somehow because it doesn't actually favor anybody. Markets work intentionally to balance production systems. And I want a $300 70 5 inch TV. If we build that in The US, we can't.
• 31:57
  We can't dig potash out of the ground in The US either. And so, trade deficits are neither good nor bad on their own. They're just a consequence of relative cost of production. A lot of people think if you can import cheap labor, you should. If you can ex ex export expensive soybeans, you should.
• 32:14
  Those questions get mediated both by markets and political things. But right now, tariffs are really, really bad for agriculture if they're put in place as said. And then, secretary Rollins has already somewhat promised we would have something like market facilitation program payments. If you subsidize and don't count the cost of using that money for something it didn't have to be used for, you can say, hey. I was better off, but the economy isn't.
• 32:40
  So I wanna point out that tariffs are different for the economy than they are for a particular sec for a particular sector. A long term income prospects based on world demand though, unbelievably strong. If you project out to 2050, there's almost no scenario I can come up with that's not incredibly good for the production of commodities in The US. Five of the top 10 most populated countries on the planet will be in Africa in 2100. Five of the top 10.
• 33:09
  China will no longer be number one. Nigeria will have more people than The US. Where are we going to grow the food to feed the world? It's very, very pro US Agriculture. It's even more pro Brazil Agriculture.
• 33:23
  Doesn't mean it's not pro US Agriculture. Decarbonization and natural capital efforts, we kind of, with the changing administration, deemphasized RFS policies to some degree and clearly carbon based policies for climate smart ag. I think consumers are increasingly interested in the components of their production systems though. So sustainability still matters to some people, and Microsoft still needs to make payments for practices so that their proxy service rating is right. Those things are realities.
• 33:53
  I don't think you should expect carbon payments to be the panacea. Solar, a little bit difficult to figure out how much that's gonna expand. There's a couple of really big projects between Indianapolis and Champaign that I see all the time that are kind of cool to to track. But solar, I'll come back and say one more thing on. But I don't expect those to be a panacea for agriculture.
• 34:15
  And then the narrative for agriculture three years ago, you saw all the, you know, stop eating meat because cows create methane. And now you're seeing agriculture is one of the places where we can capture sunlight and put carbon back into the ground. I think that simple change in narrative is also very positive for agriculture. Onto the solar before the last page. We get asked a lot, and because I work with the Illinois Society on their annual lease trends and sales, we put a couple of questions in around solar.
• 34:44
  And this year, the answers that came back were fascinating. And as was commented earlier, somebody wants to pay you $1,500 an acre for a solar lease, you probably should take it. That's different than, is solar good or bad? And solar has currently a subsidy associated with production that encourages the installation. Without that subsidy, it would again be a different question, but not here to take a position.
• 35:08
  I'll just take, you know, a a way of thinking about it in a way that I like to do this. So again, you have to forgive me as English isn't my first language. But, if you took the entire state of Indiana and covered all the agriculture with solar panels, would the cost of energy go down by more than the cost of food would go up? Well, it doesn't take long to go through the simple math to figure out the cost of energy would go way down compared to the price of food going up, cost of food going up. I said cost both times.
• 35:43
  Just on simple elasticity basis alone. Is that good or bad? I'm not I'm not quite wait. Wait. I I said state, didn't I?
• 35:49
  I meant county. Again, forgive me. English is not my first language. County. If you covered a whole county in solar, would the cost of energy go down by more than the, cost of food would go?
• 36:02
  Well, the answer is the same. It gets a little stronger as you get to a smaller area, in fact, because intense energy production is really important because you don't have to transmit it very far. Food production, not as important. So and, wait. Are counties or townships bigger?
• 36:16
  I forget. Township. That's what I meant. I meant a township. I'm sorry.
• 36:20
  If we covered a whole township with solar I get English is it's such a hard language. I really struggle. And township. Township is like wait. Is that a section or a range bigger?
• 36:32
  I for That one I don't know. I forget. So no. I meant your farm. And when we get to your farm, you go, no.
• 36:39
  I don't wanna do that. And the answer is we went from a question about societal values of things to your value in something. And somewhere, most people's answer goes from yes, it's a good idea to no, it's a bad idea. And I'm saying markets are correct in that regard too. The local impacts of everything and your own desire to have a particular view is important, and that's part of the price.
• 37:04
  So don't confuse these global questions with the local market effects. That's all. So, on the back page, something that I'm trying still I'm just starting this project. I'm trying to go back and document some things. When Peter Berry left the U of I, he left a couple of boxes behind.
• 37:20
  And I just literally ten years later, I'm digging through some of those now. And one of the cool ones is outside our window, and Gary Schnick, he has the best view of this of anybody in the building, this Morrow plot, the oldest established experimental field from 1876 has had continuous corn grown on it and kind of in a grid. One direction, new varieties. The other direction, new tillage management and fertility. So the back corner is still old genetics with no fertility.
• 37:48
  And you can look at the progress. And I had the great delight of sitting by the guy from Virginia who, had 645 bushels per acre corn last year. This is field level. This isn't a plot. And talked to him about the genetics and the management.
• 38:03
  And the Morrow plots will be announced sometime. It's going to have a upgrade and a new perimeter put around it. We're going to celebrate something very important around the Morrow plots, but I thought it was a fitting time to point out the top. And that's something that was in a manuscript that Peter Berry had copied that said there are two sources of return to agricultural land. The first, the annual income on the products grown thereon, and the second, the increase in the value of the land itself.
• 38:29
  The latter will be the greater through time. The expectation that the growth rate and the tie to inflation and the ability to beat the productivity gain rate of the economy at large is something somebody we think George Morrow observed in 1878, '2 years after the establishment of the Morrow Plots, which is really rather astounding because that's still the case. So again, I expect that to be true ten years from now, twenty years from now, fifty years from now, and when if I ever end up with great great great grandchildren when they're around as well. So that is my story sticking to it. Thank you, Todd.
• 39:06
  Todd Gleason: Thank you very much.