Land Ownership Survey Reveals Surprises - Wendong Zhang

Hi, I'm Paul Yeager This is the MtoM Show podcast a production of Iowa PBS in the Market to Market TV show. We're going to talk specifically about land today and the markets and a little bit about Market to Market. Actually, we'll get into that with our guests, who is a returner. It's Dr. Wendong Zhang. He's formerly of Iowa State University now of Cornell University in New York. We're going to talk a little bit about how the two compare when it comes to landownership phone calls that Dr. Zhang received after releasing his final piece of work at Iowa State University, who owns the farm land of Iowa.

This is a survey that dates back decades and has implications on who owns the land, how much longer they plan to own it, and who's buying it. Those are all topics we're going to cover. We'll also talk about some setups, whether it's leasing or sole ownership or corporations. Who are these new corporations? Is it foreign ownership? Is this a political issue that matters? In Iowa and across the country? It varies, and it varies on the type of land. And that's some of the topics we'll get into as we go studying deep and diving into the academics on this installment of the MtoM Show podcast. Alright, you've had a full winter to kind of acclimate. Now you're getting into that full summer, New York still wins, right? Better, better climate.

[Wendong Zhang] I think a summer especially with over 100 wineries along the Finger Lakes is it's pretty nice. And I do have to say that we were talking about agriculture, if you drive around Iowa road, so you will see a lot of brand new barns are built with a section 199 A money. And you see much less of that in New York State that I think that you see a lot of more. A lot of need for more investment in upstate New York, especially for smaller farms.

[Paul Yeager] Well, that's that maybe your next project, you can do that outreach there with Cornell maybe that would that would work.

[Wendong] One of the interesting projects that I'm dealing with that I think I was also seeing a rising interest about this is about solar. So in the northeast, especially in the New England area, North New York state, there are a lot of concerns about utility scale solar farms competing for agricultural land. And so they're looking for large tracts of flat grounds. And often these are prime farmland or higher quality farmland. And I think that here, especially with some more limited farmland resources, there's creating a more more more larger rift among the agricultural communities and more sentiments coming from the farmers as well.

[Paul] Do you Okay, that's interesting, because just a few months ago, I had a discussion with a solar, an owner of a solar company, he said they're going after smaller tracts of land to for 12. You make it sound like in your area, or in New York, it's bigger tracts of land.

[Wendong] Right? I think they in part of this title is state policy, that New York pretty New York has pretty ambitious energy and climate goals. So to achieve that a big portion of that is their clean energy investment. There are several large facilities that is above five megawatts has been proposed, there are projects that are even as large as more than 20 megawatts. So I think that in this area in upstate New York, that people are mainly dealing with a lot of the utility scale solar farms that is beyond a fairly big, of course, at New York States and other urban area, you see a lot of rooftops investment as well, but those in your grand scheme of things that are not generating enough and quickly enough.

[Paul] I think we could get into that here in just a moment. I think I'm gonna circle back to it. But I want to get to the reason you were back in Iowa here recently, was to complete your work. You had some as as one journalist noted that you returned when maybe you didn't have to Why did you feel it was important to come back and finish off this project?

[Wendong] I think that so I came back to Iowa in June for the 2022 Iowa farmland ownership and tenure survey. This is a quite unique survey that arguably is one of its kind in the nation. It's essentially provide a statistically representative picture of how land is owned, rented out and what is the plans for transfer who are the landowners who are the tenants? You know, this is a This is actually mandated by Iowa code to be conducted since the 1980s, every five years by Iowa State University, and in response to the changing landscape after the 19, a farm crisis. So I think that this is a very important survey. That's, that's the official reason I'm coming back. I also don't want to be blamed at the person who dropped the ball on a survey that's reoccurring every five years. So I think that when you're looking at this particular survey, this is quite interesting, because a lot of the data collection efforts including the one that I did, the Iowa line Value Survey, and my colleague Jr, bar code did Iowa rural life poll, all these are sort of one off survey that is not statistically representative. And for the ownership survey, this is it is actually a statistically representative, we do a lot of statistical procedures to make sure that we get the statistics that's representative of all farmland owners, and all farmland parcels. So so we have a much better picture. To give you one example, that the 2022 results shows 7% of Iowa land is currently using cover crop. And if you're looking at a lot of the producer surveys, and that is conducted by extensions or other sources or servers, you know, crop services providers, you may think that the statistics is as high as 30% or 40%. So this provides a much better accurate representation of what's going on on the land and who are the owners as well. And if you're interested about conservation, this is also where your journalist suspend could come in Paul as well, that you if you're optimistic, you can say that this represents almost a doubling of two acres, because in 2017, we only have four persons that acres are using cover crop now is 7%. If you're pessimistic, you can say that the seventh person is still way far off from the 40 45% go that is set by a Iowa Nutrient Reduction Strategy. So that's the strength of...

[Paul] ...journalistic spin. I'm supposed to say we don't spin we present. Just want to clear that up for

[Wendong] you keep okay yeah, you have you have the recur, right. So the if you have I, we are glad to we are entering the no spindle. That's good. That's healthy.

[Paul]  Okay, I saw a picture with Mike Duffy. Back on your trip. He's the guy who had worked on that survey for a number of years. I know you have conversations and you want to make sure you just talked about getting things as accurate as possible, make sure the methodology is up there. Were there new questions that you asked not necessarily after the methodology. But just for instance, you mentioned the cover crops is one where there are other questions that you asked this time,

[Wendong]  right. So we have several we have several brackets of new questions. One is we added new questions on agile fields practices, saturated buffers and bioreactors. A nitrate removal wetland, that is the governor Reynolds have invested significantly in the first water quality bill. Right. So So over 150 billion a million dollars will be allocated to these practices over the next 1012 years essentially, and that we don't see as much progress there. Because this require this is still at the infancy stage. All these three agile field practices are still at less than 1% of the acres are currently using them. We do see you know progress on cover crop a no till no till is up 27% to 30%. Now, so that's one set that we have some more understanding of conservation. We also added a question on cover carbon credits. So carbon credits is for those of you who don't know, essentially that the large companies like Pepsi and say Microsoft to want to create their carbon offsets for their carbon emissions. One way to find these emission reduction is to potentially encourage farmers to adopt relevant practices such as cover crop to reduce emissions that are coming from agriculture in lieu for for to do that they will get the payments, either based on per carbon sequestered or per practice or per acre, in general that a lot of the land owners have already heard about this 2% of the Iowa landowners are already participating in the carbon credits program and another 3% is considering at the other spectrum that 30 percent of the landowner have never heard of covering credits, I think that that number will shrink over the next few years because there's quite a bit of efforts to push for that as well. So that's, that's one bucket that conservation. We also have a new questions on. beginning farmers. So what's the funding provided by ISU beginning farmer center, there's a lot of interest to understand whether the landowners are willing to sell the land to beginning farmers. And so there's an interesting question that we asked, What so how many persons? Are you willing as a landowner? Are you willing to sell to a hard working beginning farmer at fair market value? So when you asked that question, that 75%, as a landowner said, yes. But if you further drill down and say, Are you willing to sell to a hard working beginning farmer below fair market value at a discount, then that percent drop from 75% to about 40? Some percent, right. So there is concern among landowners, about beginning farmers ability to pay top dollars, or they they worried that they won't be able to find quality, beginning farmers in their local areas. So that's another set of new questions, as well, I think that these are some of the major ones. But as you mentioned, that the strength of this datasets is not only we provide an update of what's the conditions are for 2022. We also have a useful information that can go back and to track the evolution of the land ownership and tenancy and transfer trends dating back to 1982. So we can provide a 40 year perspective for a lot of the question that has been asked throughout the decades.

[Paul] You're not supposed to say 1982 was 40 years ago. That's just I remember 1982. That's where I get a little off. Yes, that was 40 years ago.

[Wendong] I hate to remind you, Paul, that I wasn't born in 1982 yet, so I'm still allowed to say that.

[Paul] Oh, man. Oh, wow. So this is before your time.

[Wendong]  But, you know, the nice thing about living in Iowa is I heard, I have actually written papers about 9080 farm crisis and even the 1920 1930 farm crisis. So every landowner, especially the senior landowners have vivid memories and some sometimes painful memories of the 1980 farm crisis. And many of the lenders too. So I think that a lot of the changes, and as a part of that, that the survey in response to the 1980 farm crisis, that provided the better data quality, the better quality data, like this survey that allow us to better track the trends and alert to for major shifts like that.

[Paul] Well, I think one of the items that you found in your survey, if I if I read this right, is that 84% of the land is owned debt free. I'm gonna guess that's a major difference than the farm crisis era studies. And maybe some of those earlier ones that you mentioned, is it?

[Wendong] Yep. So you picked the one of the probably most cited the statistics of the survey? So you're correct that we asked essentially, for every the survey landowners, suppose you have 500 acres, we asked you out of the 500 acres, how many acres that doesn't have any debt, that debt free? How many acres are currently under mortgage, how many are purchased still under a contract? Then we calculate the percent of land that is debt free, that percent is that 84%. In 2022, it's up from already high percentage in 2017. It's already at 81%. If you're looking at 1980s 9082, that percent is at 62%. So you're right, if you're thinking about the 9080 farm crisis, you know, mate 80s, that percent is probably dropped to half of the land is fully paid for. And so this is this statistics is really critical because that if you have such a high debt free status, that means that the higher interest rate doesn't trickle down to the land market as easily as we see as in the residential land market, residential housing market. So the land land values are sort of supported by the statistics because the landowners don't necessarily need to live acquitted or sell a parcel of land to pay off mortgage due to higher interest rate. This is also tied with two other statistics. One is we find a record high share of the land that is currently owned primarily for family or sentimental reasons. So sets 37% of the land are owned in 2022. For primarily for family or sentimental reasons, this is in part tied with the really high debt free status. So the landowners don't necessarily need the land for current income or even the lat long term investment. This is also tied with the trend of the aging land owners, that if you're thinking about being 1980s, that the landowner or who are 65, or above, they only own about 30 persons of land in Iowa, and that share in 2022, it's about two certs, and about over 30% 37% of the land are owned by landowner who are 75 or above. And if you're looking at these more senior land owners, that their debt freeze share is actually not just 84%, they're actually above 90%. So So So essentially, that you have the aging land owners could no longer necessarily need that land ownership to, to pay for the debt to to generate current income, they a vast majority of the land they currently own are debt free, and they are owning the land for a lot of them are owning the land mainly for family or sentimental reasons. And when you have the record level of government payments, falling COVID And the really high commodity prices, in part due to the Ukraine conflict, and you have the landowners have a lot more cash and what do they want to buy, they essentially want to buy land, and you see a lot of those reflected was a much much higher land value scene, we're seeing that compared to, you know, two, three years ago, the land values are probably over 30% higher compared to 2019 levels. And if we are thinking about the the outlook, because the projected government income is going down and predicted commodity prices are probably going softer as well, that we're actually forecasting a stabilizing probably modest decline in the labor market. But even was the protected about maybe for, like, around 5% decline, that we will still be talking about much higher land prices compared to two three years ago.

[Paul] Because there's always that adage that land doesn't really devalue. But it doesn't sound like I didn't hear you say the word correction. Just a little letting off the gas maybe is that

[Wendong] right? So I think that I think that there is sort of modest correction in the forecast where the at the soil management land Valuation Conference this year, the agricultural professionals forecasted maybe a three to 5% decline over the next six months on average. But the previously maybe the land has rose a little to 3% and falling that in 2020 2020 for the people and 20, even 2025. Folks are also forecasting maybe a modest decline as well, overall, we might be talking about a 10% dropped from the peak, as we seen as in 2022. But you can think about the total value, we are currently about maybe at least a third up compared to 2019 values. In general, I think that the supporting factors, in part is due to the high debt free about levels and limited land supply. There's also new additional demand sources that are coming in the investment community as well that compared to 10 years ago, there are a lot more interest among investors, including some of the higher profile investors like Bill Gates and some of the pro athletes are starting to think about farmland as part of their investment portfolio. But overall there if you're looking at overall Iowa farmland market, it's still a local farmer buying a local land story. And so this this coupled with this ownership survey and the land value survey, and so you'll spot on the the most relevant statistics, it's a debt free rate is so high that you know that a lot of the financial fluctuation doesn't necessarily lead into a correction in the land market.

[Paul] Okay, you mentioned relevant, but how about political because it is a national and state by state, countless legislatures this year talked about? Who's owning the farmland? They're from China, they're from Brazil, they're from Africa. Right? Are you finding that that is at all the case.

[Wendong] So we actually, along with my collaborator, Michael Taylor, at Auburn University, we actually have the transaction level of the foreign land ownership reported under a theta x. So in general, that the foreign land owners own only own about 3% as a US farmland agricultural land. And if we are looking at primary agricultural Corn Belt regions like Iowa, that we're only talking about less than a little over 1% owned by has any ownership rights, that is by a foreign buyer, right. And a lot of those are actually a wind farms that has had the leasing rights for the either have bought the easement rights or bought that land for East for wind turbine development, or they have the leasing rights. And if you're looking at the reported data, that the ownership statistics, by the Chinese buyers very low that if you're looking at even the more recent purchases, that China has not even the top 10. So the dominant buyers, the top buyer is Canada, and the top categories are often forest land or pasture. So they don't necessarily are in the in the area of Iowa and think that the there more smoke than then that then value in in reading into how the land market is significantly impacted. Even

[Paul] they're buying land. But it might not, it's not looking like it is land that's 180 for corn or beans, it might be 180, a forest or timber or something like that.

[Wendong]   Right. And if you're looking at the typical foreign buyer is typically a Canadian company, as opposed to a Chinese company, okay. And so if you're looking at the just looking at the Chinese purchases, that one billionaire bought 100 and 130,000 acres in one county, in Texas that doubled the entire Chinese holdings over the next decade, over the past decade or so this very, like, very sort of unique situation. And in part, unfortunately, reflective of deteriorating US China relations. And I think that they're they're definitely I think there's there, there could be more information provided about investor owned land. So when you're looking at the database, you often only see one of the investor buyer listed there. But we could know more for the minority holders, but currently, it's not driving the labor market. Similarly, it's Bill Gates is not shaping Iowa light market either. That in part because Iowa has dubbed as the anti corporate farming law that the corporation's was 25 stakeholders or more cannot easily buy Iowa farmland beyond 1500 acres. Okay,

[Paul] I'm going to now take you to a family event over the holidays when I had someone pull me over and say, Paul, what I'm hearing is so and so who sold that land? He was just a front for somebody else. How do you that is a foreign owner. You just talked about minority ownerships or majority ownerships? How can you tell if someone listed in in Iowa is the owner, but the majority of their funding is coming from somewhere else? Is that something you're able to track in this survey? And is that happening

[Wendong] in this survey? No. But it's so there could be happening but it's it's in general know that? Yeah, there there are cases where there's a Arkansas billionaire that is creating joint ventures with local farmers to bypass the investor restrictions so they can create ag corporations that will suffer less restrictions we are when it comes to foreign land owners. You don't We don't necessarily see as much evidence to that, of course, there could be some anecdotal cases of these, these things happening. But overall, if you're looking into Iowa land value survey that from the EQ professionals and from the landowners in general, we find that over 70% of the land are bought by local existing farmers, and even a 25% of the investors are probably half of the investors are retired farmers. So it's not necessarily the the foreign buyer that is that is driving the land market.

[Paul] Do you anticipate in the next two to 22 years as farmers age and these landowners age to a point where they are no longer with us and the land passes and there might do we have a an issue coming soon, with land ownership and the age of that, and maybe throwing a lot of this out the window that you've been able to find?

[Wendong]  So I think that, you know, we do see two trends related to that. One is that over time, there's a lot more institutionalized invest ownership structures that there is the move away from sole owners and joint tenancy, husband and wife ownership, to land trust, and to Corporation and LLC. And those are often they're still owned by the same family farm. But if they are more structured, they're more institutionalized. And these, these shares essentially now controls about a third of the land currently owned in Iowa. And when you're thinking about the transition, I don't necessarily anticipate a large influx of land that is due to the aging because the there are a lot of provisions, including the Step Up tax basis upon death for landowners. That if you transfer the land up, when you when you pass away, then you can avoid capital gains taxes for your for your successor essentially, that when we are asking how the land owners plan to transfer the land, only a very tiny share said they are willing to sell to others non family members, and that shares only 4% of the land owners. And even you asked them about the timing. They're like a very tiny share among that probably 1/10 of that is saying that that is happening over the next five years. So in general, the transfer will be within family, often taking the form of will or gift to family members and sometimes sale to family members. So they are still passing on to family members, not necessarily creating a whole lot of land suddenly available to either beginning farmers or neighbors or tenants or investors, including foreign buyers to buy. So we are still necessary. We are still in a tight land supply situation. We do see that over time with the aging with the higher asset values. There's a lot more landowners opt in for more complex land ownership structures like Land Trust and Corporation now LLC.

[Paul]  Does that make it harder to do your work to figure out what those actual ownerships are? Uh, yes,

[Wendong] it did. It did that if you're looking at that the response rate for the for the survey 10 years ago, we got probably 70% response rate. This time we got still pretty high. But we only have 45% Because also to to another challenges that start the when the survey was started in 1980s. It was a telephone survey. Now I think after this round, we need a debate, like in addition to telephone that how do we make sure that people still are answering the survey, you know, meaningful way that people can come confined because that everyone in two calls or could be spam cause we added the online version where for sole owner and joint tenancy, they can potentially provide their responses online. But I think that you know that the response rate is, is good, but it's we wish them to be a little higher.

[Paul] You mentioned that I hit one of the headlines of the survey on the 84% debt free what was the other headline you thought from this survey?

[Wendong] Right. So there I mentioned about the The shift away from the sole owners and joint tenancy to more institutionalized ones. There's another one that is related to rent, the shared the land that is leased out is increasing significantly. Now 58% of the land or rented out and was vast majority are in the form of fixed cash rent. So if you're looking at how land is rented out that they are often rented out through fixed cash rent or flexible cash rent was, you can think of this as fixed cash rent with some bonus depending on the performance of the crop yields or prices. And crop share is also declining as well. This is this is tied with another headline of the experience that 55% of the landowners are currently do not farm and half of them do not have any farming experience. If you're looking at the leased land that shares even higher. So typically, when a producer and tenant are talking with landowners. They shouldn't assume the landowner always know what they're talking about. Because half of the landowners are may not the landowners for leased land may not have farming experience. Right. So that created another separate challenges. How do you communicate with with landowners, especially not only about agricultural production, but it's with, you know, conservation and energy leases and things like that.

[Paul] This is where I make the selfless plug. That's why they should watch Market to Market we help those out who are no longer Yeah, that's I mean, that's honestly I think about that a lot about who's watching. Yes, I know. There are those making those day to day decisions on the show. But there's a lot of people who are, are absent landowners, or remote landowners I think was what the the term that you use. So when you look at, again, let's go back to the beginning. Your time now in New York, and you've kind of had a little chance to get a sense of what's happening. I know this is not full, pure statistics. But where does Iowa rank in the sense of are they the only ones that have a land ownership setup like this? You've talked about other places, other types of land? Is this like The Last Unicorn out there that has the ownership that it did the way it used to be? How did how does New York compare in some of the ag land there?

[Wendong] I think that that Iowa is sort of the leader in data collection efforts related to agriculture that I'm working with colleagues in New York states to to gather more data about not only land ownership, but it's more primarily land value and land rents. Because there there's much, much more work that needs to be done here. And there are a lot more smaller farms here and the direct to consumer farmers, but in general that I was unique being part that there's nationwide data collection efforts from USDA, but it's that's done almost every 1015 years. So the last time was in 2014 called Total survey. So so the Iowa landowners and farmers are pretty lucky and I got calls from Indiana and Arizona people are wondering whether they can find similar data for for other even other Midwestern states. And the answer is often no. To follow up on your earlier points. If you want to find out more about the survey, you should go to the ICU Card website Center for Agricultural and Rural Development. So card ca rd.ia state.edu. And where you can find a lot of information about the report and all these statistics and press release. And I will also sent Paul the link for the presentation and the recording for the press conference as well. But in general, I think this is a very unique survey, a very important survey that provided a lot of useful information. And that is not only useful for researchers to do analysis, and so we have published papers explaining why people are shifting away from owner operation and crop share to cash rent. But beyond that there's very good information about to get a sense of how land is owned and then how how the how the land is rented out and so you you can compare Was your own situation and learn a lot more about your land and the land owners in general as well.

[Paul] Dr. Always good to see you and chat. I've enjoyed these a ton. And I hope we get to do it again. It won't be Iowa. We'll talk about what you're finding out there in New York.

[Wendong] Yep. I think that the what is interesting about agriculture, as you notice is that, for example, that both Iowa and New York are, are in agriculture in increasingly are influenced by energy and climate policies. So I think that there are surprisingly many similar sayings and I definitely look forward to talking with you again, thanks again for the opportunity.

[Paul] New episodes come out each and every Tuesday. They're released in both audio and video form. So you can subscribe either way, whether it's on YouTube or wherever you get your podcasts. We'll see you next time. Thank you for enjoying hopefully, our content