Federal Agricultural Mortgage Corporation (AGM) Earnings Call Transcript & Summary

Well, welcome, everybody. Thank you for joining us on this sunny Valentine's Day, 14th February of 2024. Today, we're going to be covering for you the latest and greatest from the USDA's Ag Census just came out, I would say, less than a day, but 24 hours ago, Blaine Nelson and myself, the Econ, we kind of represent the Econ team, the research team at Farmer Mac. And we spent the last 24 hours, probably not every hour, we did sleep between now and then, looking through the release that the USDA put out in just 24 hours ago. I'll talk a little bit about what the Ag Census is and we can -- I'll give you some background if you're unfamiliar with what Ag Census is and what it contains. We'll kind of start there. But before we do that, just a couple of quick housekeeping items. We're recording the session today. So we've muted all the mics. Just to get that better quality and clarity on the audio. [Operator Instructions] And it will help, I think, us guide the conversation if we're giving you what you want to hear. We're going to put up a poll at the end. So please stick with us all the way throughout, tell us some honest feedback about the information we gave you and the wonderful personalities that we'll put in front of you over the next 45 minutes. So please feel free to give us that critical feedback at the end of the session. And then we're going to post this later to our website, www.farmermac.com, and you can access that later or any colleagues who couldn't join you can send them a link and let them watch it later. Okay. So we got our sort of typical announcements out of the way, what are we going to talk about today? You've got Blaine Nelson, Senior Economist at Farmer Mac, myself, Jackson Takach, Chief Economist at Farmer Mac. And we're going to talk all about the Ag Census. Now we'll start with a little bit of background on what the Ag Census is and why it's so interesting to us as researchers as well as finance industry members, like there's a lot of applications of this research to what we all do in our day jobs, trying to help put capital to work in rural America. We're going to do some high-level highlight stuff that you've probably seen bubble up until your news feeds. We'll cover all sort of those big takeaways that you're seeing in the other news media outlets, but we want to pick 4 things that we think are really relevant to the ag lending space to sort of farm and ranch land owners and rural economy studiers. We found 4 things that we really want to drill into. So we'll cover those 4 things. And then at the end, we do have a little bit of time for Q&A. We'll probably turn you lose. Yes, around 40 minutes, that tends to be our sweet spot for this type of research and analysis. And I'll jump right in. So I'll take the first bullet there, which is what is the Ag Census, right? So this is a piece of a survey work that the USDA is tasked with doing, they're tasked by Congress with this important job essentially accounting every single farm and every single farm operator in the country. It happens every 5 years. It's put out -- the survey is put out and conducted by a group inside the USDA called the National Agricultural Statistics Service. And you just get loads and loads of information from their survey. It's a pretty long survey. If any of you have farm ground or part of a farm operation, you probably got the survey, you've gone through it. It takes a little bit of time to do it, but that data is so rich, and it really is one of the best places for -- down to the county, down to the ZIP code, down to the congressional district they really take it all the way down in a lot of geographic detail all the way down and give the world, a lot of people who are interested in what farmers are doing, what they look like, what is the farm operation need if we're a service provider. So everybody in industries, researchers, politicians, you name it, has interest in what's happening on those farms. And we're blessed we get it every 5 years. So if you're looking for population statistics, it's every 10 years. Farm -- the farm world in agriculture, we get at every 5, which, as you know, hey, it's more frequent than maybe some sports teams. I'll pick on Blaine's Vikings here. They don't even make it to the playoffs every 5 years. We get Ag Census data, this level of detailed data more often than the Vikings go to the playoffs. So hey, what could be better than taking the most recent ones, so they did the survey in 2022, released it now in February of 2024, and we're going to jump in to some of those results. Blaine, I'll give you a chance to defend your football squad.

Kicking us when were down as if the annual Super Bowl reminder is not a tough enough pill to swallow. Now, thats....

Hey, I'm a Giant's fan. It's going to be a long time, I think, before we make it back to the Super Bowl. So...

Maybe you can draft like one of the Manning brothers when they have a kid and graduate. I think there is actually -- anyway. Yes. The Census, Jackson, I mean, right? There's no real equivalent elsewhere in the world in terms of the depth of the knowledge that the USDA puts out and just how they continue to expand. And I mean this is the crème de la crème.

Yes, I think you nailed it. It is so unique to our industry that we've got to find good ways to use it to make sure that they keep doing it. All right. Why don't, Blaine, I'll pitch it to you to kind of walk us through what are some of those highest level? What are the headlines the last 24 hours really digging into from that surface read of the Ag Census.

Yes, definitely. So good morning, good afternoon to everyone on the call. Blaine Nelson. Jackson has already introduced me. Happy Valentine's Day to everyone out there. St. Valentine the patron saint of lots of things actually, but honey being one of them. Any guesses? I don't know the backstory on that, but any guesses, #1 honey producing state in the U.S., Jackson any guesses?

Yes. I would have just based off of the floral needs of tree fruits, fruits, and tree nuts. I mean my guess has to be California. This is a byproduct of the need to pollinate. That was going to be my top guess there.

Excellent guess. They're actually #2. They are #2. The #1 a bit off the wall, at least if you're not from the upper Midwest, actually, North Dakota, about 40 million pounds of honey production as of yesterday, that came on the Census. So...

That's a surprising fact. I'm a little bit interested in that one. Like why so -- is it the winter, the hard winter, you got to have that honey, the Bees are really like preparing for that hard winter, I don't know. I'll speculate all day, but I'm going to get into this later.

Lots of digging in, doing facts like that. But yes, anyway, I just want to say happy Valentine's Day to everyone out there. So if anything, folks have a fun takeaway when they go home tonight to their significant other, if they have one. So yes, highlights from the Ag Census. A lot of these, I call them common highlights intentionally because anyone who's in the ag space and a lot of the folks on the call here today, most of the folks, if you're at Ag Week or any of the major news publications, you're going to have seen some of the numbers that are highlighted here on this first slide. We see a continued decline in the number of farms that are active in the U.S. That's been a long-term trend, dropped 7% over the last 5 years to 1.9 million. I'm going to talk in current terms, even though it's really as of 2022, but 1.9 million is the current value we're now going to see for the next 5 years. Land and farms did drop to 880 million acres, we'll dig into that a little bit. Average farm size increased 5%. We see that continued consolidation trend within the agricultural space. So fewer farms, even though there's fewer acres out there, there's also -- they also -- it tends to be larger operations in general. And that once again came through in the data. Maybe one of the more positive things that a lot of folks like to highlight is, it does continue to be predominantly family-owned and operated farms that constitute over 95%. And they farmed the vast majority of the acres at about 84%. We're going to talk a little bit about the age and the demographic topic, if you will, but average age of producers did increase again last year, or as of 2022 from 57.5 to 58.1. So it's only about a half a year. But when we dig in, we actually look at that demographic curve, some more interesting things occurring there. So these are kind of the commonly cited statistics and numbers, I know Secretary Vilsack was heavy on these and again, a lot of the major news publications. Any of these jump out to you in particular, Jackson?

Well, a couple. I think about the number of farms, if you're going to bank farming, right, or lend into the agriculture producing community, lower farms equals, fewer potential borrowers. It kind of changes market shares, right? So I think my brain immediately goes to, is there a change in capital need, right, for fewer number of farms who are farming more acres, but I think we can get into that maybe a little bit more. I was like, 6 months, I was expecting a bigger jump in the average age of farmers. And I don't want to get too far ahead of ourselves, but that was one I was little surprised. 6 months doesn't seem like a big change in the average age of farmers, given we've gone 5 years from now, and it's basically sort of stayed the same.

Yes, yes. And of course, we're going to take a closer look at that. But I think that right off the bat, that speaks highly or it speaks very nicely as far as the number of younger producers that are coming in kind of counterweighting some of the older farmers that we all know and love out there. So we'll look at the demographic curve. One thing I'll just point out before we flip is, it was the first time, we talked about the number of farms declining. When you look at it from a size perspective, it was actually the first time that all sizes of farm saw a reduction. So previously, what was occurring was kind of a hollowing out of that middle class farm size or middle-sized farm class where you saw a lot more small farms starting up and a lot more of the larger farms kind of growing. It didn't occur this time. And I think there's a lot to unpack there in itself kind of driving that reduction across the board.

Yes, I think that's an important point, too, because we're kind of used to seeing the -- and changes in farm numbers have been like, hey, the 1 to 10-acre farms kind of increasing pretty substantially. That didn't happen this time, where we actually saw a decline in the smallest category where we're used to seeing every acre imaginable kind of included in that farm count. We didn't see that this year. It was a little bit different.

Did not see it. That's right.

Yes. Let's talk a little bit about some of these demographics. So you've teased the headline, let's drill down into some of those demographics. I think this is big finding sort of number one.

That's right. And so sticking with the demographics first, there's 2 kind of main points I want to touch on here. But I think the first one, when we talk about that average age, it really obscures kind of the more fine point here in that we really -- in terms of increases in the number of producers out there, where we saw the growth was on the younger end of the curve and then the longer end of the curve. It's no news that baby boomers make up the largest demographic proportion here in the U.S., at least outside of kind of the millennials, if you will, in certain areas. But what you see here is just a transition on the long end of farmers -- aging, right? And we see naturally, you're going to lose some farmers over time due to retirement or just exiting the business, as they age into the 65 and above category. But overall, that number did continue to grow in 2022, while we saw shrinking in kind of that 45 to 65 demographic. So that's kind of on the long end. On the short end, one of the positive things in terms of backfilling some of the producers that are leaving the business due to age or whatever else, we did see a decent jump, I would say, in the terms of younger producers entering the business, not to the same extent that maybe some of the older demographics bumped up. But it is positive news worth highlighting that there are younger producers coming in to work in the ag space.

Yes. And we talked about that big number coming down, right? So we're down to 1.9 million farms, right, from 2 million farms last year. But that's not the whole story. I mean, because, yes, maybe operationally, there's fewer farming operations, but the total number of people operating those farms didn't change as much. Did I read that right? Am I seeing the same data as you?

That's exactly right. And that's one of the things when I listened to Secretary, Vilsack, and I'm a huge -- I'm a proponent of the USDA. So this isn't a knock on him at all. There are definitely even lots of politicians from all areas of the country out there that are going to kind of highlight, yes, we have fewer farms out there. What I would counter that with is, the farm -- the demographics of farms are simply changing in -- and what do I mean by that? What the data that we just got yesterday shows is that we do have fewer farms, but the farms that exist out there tend to have more producers per operation. And so net-net, you saw a very similar number of producers. It did drop slightly, but by less than 1 percentage point relative to that 7% decline in the number of farming operations. What is actually happening on the ground. And I think, again, we're -- this is mainly a banking audience. I think folks realize this. Farming is a capital-intensive business to get into. Historically, when my dad was farming -- or started farming, when my grandpa started farming, it maybe was much easier at that point in time to purchase their own land, start their own farming operation. Then you've got 2 operations. Today, what we're seeing is a lot more of multigenerational operations, right, where the sons, the grandsons, the nephews are becoming involved. And that flows through very nicely in the data where you see the 3 to 5-plus producers, that bracket of farm type actually increased by nearly 33% in terms of just the pure number of those operations. We did see a drop, a pretty sizable drop on the 1 to 2 producer operations. But again, almost nearly offset by that larger operation size. So I found that very interesting and we're going to touch on it a little bit more here, but what are your thoughts there, Jackson?

Well, I immediately start going to who do you have to talk to you? Like if you're building a marketing plan, to go increase your customer set like in your community and you want to target customers. It might have to change a little bit. Because -- and then I put my underwriter head on, I responded to that thinking, "Hey, does that change the level of family expense that I need to use in my calculations, if I'm thinking about cash flow and those types of things". So I think there's kind of 2 interesting threads to pull there that would affect lenders on how they go to market and who are they communicating with? How are they bringing in new business or making sure that they've got great contact points at the farming operation to continue to lend to them and bank them? And then also am I fully -- is there going to be a change in the cash flow structure because more families are coming on to single operations. And how does that affect volatility in revenue and cost structures, right? So those are kind of 2 things changing. They're going to have direct impacts on the lending sector.

That's right. And based on simple things like age, can have a huge impact on costs associated. If you're an older individual, producer on the farm, your health insurance costs might be higher. If you're a younger producer on the farm, you may have more kids that require a larger draw effectively. So Yes, very interesting. And again, I think that there are so many ways that you can look at that number. It definitely has a big impact.

What else? Let's continue while staying on the demographics world here. We looked at women farming.

That's right. That's right. We want to do due justice. The USDA puts a lot of effort into kind of quantifying not just how many farmers are out there or producers are out there. But Who are they? And what's kind of the makeup of the whole? One of the things that stood out to us was that female -- our female producers depending on where you are in the country, you did see a sizable increase in the number of female producers. Lots of different reasons probably for some of the variation across the country. In the upper Midwest, where I'm centrally located. I'd like to see that there are a lot more female producers getting involved in agriculture out there. In other areas of the country, I think some of it can just be attributed to just a decline in the overall number of farms. So difficult to disentangle everything that's driving this, but I think it's worth highlighting that overall, females in terms of a demographic are holding steady overall as producer numbers go.

Yes. And even the part where women are listed as a primary, right? In the upper Midwest, sort of women-led farming operations increased, whereas we've seen other splits of this start to come down in number, women-led farming operations increased, which I think is interesting.

That's right. And a large number of them were younger as we pointed out in that bullet point there, right? And that is positive in terms of -- we talked about a huge part of the demographic of producers is older. We have a large number of younger women producers coming into the trade. And so that's great.

Yes. And then other splits by race, ethnicity showed, hey, the general declining trend kind of apply to all other social groups, right? We didn't see a big difference with the exception of maybe 1 or 2 where there were some increases most. The operation, number of operations declining, it was declining across all groups.

We looked for a story here. Honestly, there just really wasn't. So I don't know if we need to belabor that, but yes, it was basically in line no matter what way we cut it up over the last 24 hours. Ethnicity or race didn't really have -- we didn't really see any trends there worth mentioning.

Yes. We'll highlight that again. This was over 24 hours. So I'm going to just keep that asterisk in the back of your head when we say something then like 4 months later, a finding comes out, we're like, yes, well, okay, we dug deeper and we found that. Over the last 24 hours, we found that these numbers showed no real big gaps or differences in their trajectories. And sometimes, no story is a story, right? And I think this might -- that might be the story that there is no story. Well, I'll talk a little bit about sort of renewables. So one of the big pushes over the last 10 years is, "Hey, how do you get your energy? Do you -- are you making your own electricity? Are you pumping oil out of the ground? What's happening?" And there has been a tremendous surge over the last 10 to 15 years in renewable projects. So this could be solar panels popping up on top of buildings, houses, on-farm, solar, wind turbines, obviously, across the Midwest, very prominent as you drive through the country, you go through -- you see a lot of wind turbines sort of diving the horizon or other things like digesters, there's a lot of -- in that other category. There's a lot of other geothermal heat pumps and those kinds of things. But the 2 we wanted to focus on were solar and wind. So in the last 5 years, from '17 to '22, you see there's been a pretty sizable increase in the number of farms. Again, the vertical is the number of farms who reported solar panels or solar energy being created on their farm. So it went up another 20,000 farms, give or take, in the last 5 years, a pretty sizable percentage increase. And now we're at something like 1 in 12 farms uses a renewable source of energy on their property. Couple of things that does, it reduces volatility on expenses, also sort of drives CapEx on the farms, so they need to put some capital to work for that investment. The third thing that I see out of this is it can generate some cash flows. So some farms are using leased wind capacity, wind electricity capacity or solar capacity, selling that out and that becomes a stabilizer in some of their incomes. So that's been a pretty sizable increase in the last 2 Ag Census, we're seeing those investments happening on the farm. And when you look at where that is happening, so what you see here on the map is the percentage of farms in each state that reported having a renewable project on farm, unsurprisingly, I mean, I think if we'd ask this, Blaine where do you think the #1 state is? For this, you might have guessed, California.

California.

Hawaii as well, Hawaii is very high. If you're a farmer in Hawaii, you probably have some renewable energies because electricity is very expensive in Hawaii. But California, policy aims, a lot of expensive power makes sense. I think that there's a lot of solar activity in California Sunshine. It shines brightly over the great state of California. And then in the Midwest, you see that percentage is probably more tilted towards to wind turbines being on farm. But it's not even. The Western states tend to have a higher proportion with renewable power somewhere in there and in the Southeast for a little bit lower percentage of renewable power on farm. And look at all this is to say there's probably going to be some money investments into some of these states, into some of these farms to put on renewable projects. And that's an opportunity as capital providers to participate in that and make sure that farmers, ranchers, rural Americans have access to the infrastructure that they want to put on farm or on their rural homes.

What do you think Jackson as far as -- let's even forecast that folks like to put out their Super Bowl predictions, like a year ahead of time. Forecast for the next Ag Census, which of these bars do you think is going to grow the fastest, solar or wind?

Just looking at what's projected. So you look at EIA, the U.S. Energy Administration or Agency. They're looking at a lot of solar, so small projects, very small projects. So I think solar is going to continue to grow over the next 5 years in the 2027. I can't even -- that's like a made-up year, in the 2027 Census. So it's going to be big, but I also think there's a lot of wind coming back online. Well, I think the one thing that this may be the bar charts don't give the full picture is the capacity, the energy that's being generated on solar, much smaller projects, wind, pretty big projects. So capacity-wise, even though wind hasn't moved a number of farms with wind on farm. The amount of energy created has moved quite a bit. And I think that's where we're going to see wind playing a bigger picture. In 5 years, it's going to be more capacity, maybe not tens of thousands of new turbines, but more capacity and better technology in the wind space. Solar, I think we're going to continue to see that go up and up. It's a good question though. Hey, let's talk about big finding number two, right? Renewables becoming a thing. On farm has been for years, but increasing investment in renewable energy, energy projects on farm, and that's an opportunity for lenders out there in that rural space. Let's talk about farmland though.

So Definitely. And completely clear graph here, right? Everyone knows exactly what this is communicating.

And no ambiguity here, right? This is perfectly clear.

The reds and greens, it looks like that those old TV channels when you had the rabbit ears and there's black and white just spotted everywhere. No, okay. So what this is, it's the county level look at the number of acres of cropland or ag land in the county as of 2022 relative to 2017. If it's a green color, effectively, it means it increased the number of acres went up. If it's a red color, it -- they decline the number of acres. And if it's somewhere in between, it's somewhere in between. But that's effectively what this graph shows. I'll be the first to admit, I thought there were going to be much clearer trends, much clearer regions. But why don't I just talk through a couple of things going on here. So overall, we know that farmland declined by about 20 million acres across the U.S. over the last 5 years. When we look then and say, okay, well, where did the decline fastest at? Then we're looking at the red. And I think what stands out to me are a few key regions. So in my neck of the woods, which would be in the Minneapolis–, Saint Paul area, you see quite clearly there's been a kind of an urban influence in terms of the farmland surrounding that Southeastern Minnesota. It comes through quite heavily in places like Texas. You see it in places like Florida, really, a lot of the sunshine states, you see that urban influence coming through. You've got other areas of the country where farmlands declining like South Dakota and North Dakota, where there is partially some urban influence certainly in the Sioux Falls, Brookings, all the way up through Fargo, Grand Forks. You see some of that. You also see things like conservation. You see things like less amount of actual pasture being put to use out there. And so from the declining land or land availability picture, there's no one clear driver as far as what's causing that decline. On the other end, and I think it's probably worth acknowledging that you see green in a lot of weird places here because it's what stood out to me. I see a lot of green in Southern California. When you look at the actual data, a lot of that is attributed to the fact that, yes, there's more farmland in some of these counties, but it started a very low amount. So when you're right outside of L.A., you have a very small amount of ag land that's there. The USDA will still survey it and they'll still put it out as, yes, there's farmland there. But you could add someone's backyard to the calculation, effectively, you're causing it to go into a heavy shade of green. So for a number of the counties out there, if you're scratching your head a little bit, hey, why did ag land increase here or there by a certain amount? It could be just a base effect, and I think that that's worth pointing out here. So a lot going on. What stood out to you, Jackson?

Well, a, it's a great graph, right? So if it allows, I think, everyone on the call to really zone in on maybe where their lending territory is, the customers that they're serving or their area and sphere of interest and influence and say like, "okay, are we increasing or we decrease?" Because sometimes you see that number, 20 million acres and you're like, "oh, where was that?" So I love visual. I think it's very clear like yes or no, like red or green. I totally agree with the urbanization and I also think some of this screen too is probably pasture kind of flipping in and out of are you grazing cattle on it or not. And that could be a function of what year is it? And did I not graze cattle in the year that they took the Census, right? So they're -- and some of those like I'm looking at some of the more cattle focused Western states, boy, that some of those greens are probably like "Hey, where are the cows out there this time around? And then you see this kind of pop. I do think you covered what I was going to ask about was just that pocket in South Dakota, I think it's very interesting, right in the corner of Minnesota, Iowa and Nebraska. That was to me the most interesting thing, but you covered that one. And I think there's some pockets like that in Kansas, where you're like, wow, that was a lot of percent change coming out of farmland. And I wonder if some of it is permanent or if it's conservation, maybe it flips in 5 or 10 years, just depending on some of the economics of it.

Right. And that's -- I think you hit the nail on the head. That a lot of the decline, I think, is somewhat tentative and that could go either way. If you saw a huge run up in commodity prices. And certainly, we did. But generally, it can take some time for that to filter back into production.

Fabulous. I'm not seeing questions coming in here, but we do have the chat open. So if you do want to get your query -- I don't have to interrupt with the question. I'm happy to save it for the end. But don't forget, we got the chat open to drop questions in there, so it's not just me and Blaine grilling each other on the research we did over cups of coffee last night. All right. Let's stay in farmland. I want you to talk a little bit about ownership concentration levels, and we got a couple of findings here on the farmland piece.

Yes. And I think worth highlighting here is exactly what the slide kind of lays out that we continue to see this trend in terms of concentration, not just in terms of the amount of acres that are covered, but also who owns the farmland. It tends to be according to the ex-Census data that larger farms tend to cover more and more of the actual acres, they tend to own those acres as well, and that came through quite heavily. The one caveat that I want to throw in here, I'm glad we've already talked about it. It was intentional was, yes, the larger farms are covering more land, they own more land. But again, those larger farms also tend to have more operators associated with them. And so I think on a pure per person standpoint, this graph might look a little different. And that's where we can only go as deep as the USDA service. But I think overall, maybe what this misses is that there are younger farms associated. It's not just all being concentrated in terms of ag land wealth in terms of just those -- only those large operations and one operator. It's many operators in many instances.

Yes. No, I think this is a good one. And it's also helpful to see, I think, in a geographical layout, right, which you've done in this map. So walk us through this real quick.

Yes, that's right. And so we've got a couple of slides here, and I'll go through these quickly. But what I wanted to then do is look at, okay, well, how do you land kind of ownership trends vary across the United States? And so what I've done here is just shown the proportion of ag land that's rented within each individual state and then graphed it. I think what pops out immediately to folks here is in a lot of the core agricultural production regions, what you tend to see is that there's a higher proportion of land that's actually rented out to other folks. The inverse of that then is when you look at areas maybe like the Southeast U.S., you see much lower proportion of actual land being rented. Most of it is owned and farmed by the individual that owns it. And I think when we then layer in -- and we don't -- unfortunately, we didn't do it in this specific graph. But when you think about, okay, where are a lot of the larger operations and some of the more commercial operations, what you tend to see is that they're located in some of these higher production regions like the middle of the U.S., like the West Coast and even through the Delta and down into the South. So -- that in itself is interesting. Go ahead. If you have a question, otherwise, we can flip to the next slide, Jackson.

Well, I didn't want you to go out because I can feel like we were going to go to the next slide, but I did want to catch you here. And just ponder for a second here. Does any of this have to do with leases for grazing, right? And what makes me think about that is the 39% in California where there's not as much leasing activity and there's not much crop ground and that kind of thing like you might see in Illinois or Iowa. Is there anything with the grazing in this, like states that have more animal production, do they tend to have a higher lease percentage? Or is that not in this -- is this just crop land?

For the context here, this is going to reflect both, but I do believe yes, I do believe what you're saying, it does tend to be true. The one area where I really want to spend some time digging into is understanding better how federal leases. And some of these -- when you talk about the Mountain states, and you've got Bureau of Land Management, land that comes into play. I don't know how the USDA Census actually treats if you're a livestock producer that's renting land, but you also kind of own rights in certain instances to be able to graze some areas. I don't know how the Census treats that. So...

Feed Article. Look out for a Feed Article. We're going to dig into crop ground versus pasture ground. That's kind of what we're going to dig into for the next one. But I think this is a fascinating look at like, hey, where are -- where is some more operating debt versus real estate debt? That's another thing we'll talk in just a minute about sort of debt and how we can tease some information out of the Census using interest expense data. But in areas where there's a lot more rent, I mean, that's more non-real estate debt would be more in higher demand versus where there's more owned acres, there's going to be a capability to leverage that and get real estate debt, right? So it's kind of interesting to see where there might be some interplay between ownership, rent and debt needs as a lot of people on the call today are debt providers, right, capital providers.

I didn't want to front run your slide, but that is, to me, one of the -- what you're going to talk about here in a little bit as one of the most interesting finds over the last 24 hours. So Yes.

Let's not go -- let's talk a little bit more about ownership and then we'll get into some of the debt.

That's right. And so here, I kind of graphed the inverse and I looked at, okay, well, let's talk about ag land ownership and look at where it's increasing, where it's decreased over the last 5 years. Some things that stood out to me immediately just in terms of year-over-year, if you will, percentage change in farmland ownership, the Upper Midwest. You see that farmland ownership actually declined for many of the states and more of it, therefore, is being rented out. I think a lot of that is demographic driven. In terms of who owns the farmland. It tends to be an asset that's, in many cases, is passed down. And given where farmland values have been, the fact that when this rented out, interest rates are still low. I think there are a lot of folks that were holding on to it because they could rent it back out versus actually selling that farmland. I think that, that's partially what's at play here. You do see some areas where you see some outliers, Florida, being a huge amount -- or a huge decline in terms of the amount of farmland that's owned by producers. Florida is certainly a state where investors have gone in. It may be in a little bit more aggressive way and purchase some farmland there. And it's not just large scale. I think that there's also influences from smaller investors as well. And so some of that does filter through. Now you don't see that come through in Illinois as strongly, which is another investor friendly state. But overall, I think it's just interesting to look at here, there were regional patterns in some of the ownership changes.

Yes. I think you highlight too, the small versus large, right? So both are seeing an increase, but there's a little bit of a faster or a difference in level of ownership in small versus large.

That's right. And this is -- I know this ties nicely with what you're going to talk about in terms of debt that exists out there, Jackson. But this is very in line with everything I've looked at in terms of producer financials. Smaller producers tend to own much more of their land versus actually renting it. There's a number of reasons why the ability to spread out costs, the fact that a lot of times small farmers tend to have off-farm jobs and their farming is a hobby effectively. But when you get into the farms where you're talking about 250,000 or more in revenue per year, all of a sudden a much higher proportion of rented land. What's interesting is those larger farms actually increased by 2 full percentage points, the amount of farmland that they own in terms of that rent-owned relationship. And so I think that, that partially probably reflects the fact that farm incomes were decent in '20, '21, '22. And I think that for a decent number of producers out there, they were aggressive in looking to purchase land, especially given the fact they were able to lock it in at low interest rates. So it's important to bring in that context, in my opinion.

Totally.

Yes.

I mean all of this -- this is going -- this is the kind of data that changes capital needs, it changes borrower demographics. I mean, that's what we're trying to drill down and I think give everybody a flavor for, is like, hey, if there's a change in ownership, that's a change in capital demand. That's a change in loan need or demand. And all of this relates to what does farmer -- what does farmer, rancher, and rural America need in terms of lending and banking capabilities, right? And ownership is a huge part of it. We'll talk -- I was going to drill into Florida a little bit more, but I do -- I'm time conscious. So we'll jump into debt like so this is where is the money, right? Where is the borrowing? We took a look at interest expense. So on the Ag Census itself, they're breaking down, not only are you spending money, what's your expense structure around interest rates and debt times interest rates, what's your total interest expense. But that allows us to take a deep look into real estate versus non-real estate. We present here some statistics on the real estate debt side because that's where Farmer Mac is most interested on farmland mortgages. How are we going to do the same research on sort of the non-real estate debt and look for where is it increasing, decreasing, et cetera? The statistic we threw together here for today's presentation, we look at the percentage of operations at a county level, we're able to get that level of detail here, what percentage of an operation in Carroll County, Illinois. What percentage of that population uses debt -- uses real estate debt. So we're able to come up with a percentage for every county that our farms that use real estate debt. And that gives us a sense for, hey, we can look at for differences from year to year. From Census to Census. Are there parts of the country that use debt, have a higher propensity to borrow those areas might require different needs in terms of capital levels, costs, those kind of things. I'll point out here like just looking at the map, you see it's lit up in orange in places of high ag intensity. So where there's more ag intensity, they tend to borrow more against the land. That makes total sense. What I do think is also interesting here in the Southeast where there is a lot of ag intensity, you don't see as much propensity to borrow, to use debt in the capital stack, which is interesting. And again, I'll harken back to Blaine, your map where you say, okay, well, more is owned there less is rented, but also relates to the size of the operation. So what we're kind of putting together here is that larger operations that maybe own fewer acres tend to use the acres that they own to borrow and take on a little bit more debt to fund that operation. And then if you look at this, break the same data down by size, you see that exact same thing. Larger operations, fewer of them. So there's only maybe 75,000 farms in '22 borrowed real estate debt that had more than 1,000 acres in production, but that represents almost 50% of all those types of farms, right? So the larger operations, need more capital. They're using that capital to borrow against their real estate at a higher rate than smaller farms who don't need as much capital. And that ties extremely well with the data we saw from your deep dive analysis on that ownership percentage. Also took a look by what is their primary production type. So as you can see here, like dairy, the highest very capital-intensive, dairy owners are way more likely than any other group to need capital against their real estate. So they have real estate debt needs. But grain and oilseeds maybe like 30% to 40%. So the larger operations still need a lot of debt. And then we take a look at maybe some of the more specialized vegetables and crops, right, or vegetables, melons, 20%. So what you grow matters, how large you are matters and where you are in the country matters and all that kind of you can put together out of this Ag Census data to give you a sense for what's my market, how is it changing? And how do I need to change with it in the next 1 to 2 years to make sure I'm in tune with that market.

One of the things that stood out to me, Jackson, and it's not just in terms of like a one-way causality in terms of producers looking to use debt. We've established that it tends to be larger, maybe more commercial farms. And here, I'm talking really across the board regardless of production type. I would argue that the reason in a lot of cases that some of these farms do grow to be so large is because they have a lender that's helping them out and they're a strong source of capital that helps them grow. And that's not just a pat on our own backs, but I think that it's a 2-way street, right? Willingness to use capital in a lot of ways -- borrowed capital in a lot of ways, helps you grow faster. And I think that, that comes through.

So incredibly insightful. And I'll say the other flip side of this is if the stack of 200,000 farmers who use debt at 1 to 99 acres, right, that small set, they actually control a sizable amount of assets that's underleveraged, right? So on any of this, the -- a flip side of it is there's an incredible opportunity to help farmers, ranchers, access capital, put more of it to work and see some of their needs met. That is completely untouched, right? So if we're only a 10% leverage in the sector, where is that 90% of assets. A lot of it is in some of these larger operations, but a lot of it's in smaller operations that have no debt whatsoever.

Correct. Yes.

All right. Talk to us about production. This will be our final finding. So our big finding number four, some changes in production, talk us through this before we wrap.

Yes. So -- when we were kind of game planning for what we want to talk about on this webinar, I think that we had a lot of slides devoted to talking about what's going on with production in 2022. When you look at the data, what really comes through is the fact that commodity prices spiked in 2022. And so you see a huge amount of actual value growth in terms of commodities being sold. That came through quite strongly in all of the usual suspects, corn, soybeans, wheat. We know what was going on in 2022. So I don't know that there's necessarily much that needs to be highlighted from that standpoint. Certainly, we'll dive into it and look at how it varies from a geographic standpoint, and there's lots of work yet to be done. I'll plug The Feed. I know we're going to keep plugging The Feed, but lots of good articles yet to be written in the queue at this point. One, a couple of things that I will mention here just to wrap up. We did see changes in terms of the number of farms. We saw more grain farms, fruit and tree nut farms, poultry, greenhouses. We saw fewer of things like dairy and cattle farms. Prices come into play there in terms of profitability over the preceding years. We know that there were some tough years for dairy and cattle in there, specifically 2018 through really 2021, depending on what sector, but interesting in itself. One final thing, and I graph it here. For the folks that on the West Coast, there was a lot of tree nut acres planted, and that's not news to them. But the Census better than any other time picks up just as far as what's going on for permanent plantings and tree nuts, citrus, to a certain extent, berries, depending on what state you're in. There was a lot of acres that were put in over the last 5 years between 2017 and 2022. And we see that now flow through in terms of the pricing environment that we're in today. The flip side of that, and I don't know if you're going to ask this question, Jackson, and I'll just start out. The other end of that is, yes, there are a lot of new acres that went in. What about for some crops, the acres that are coming out, right? And you have thoughts on the almond side. I'll just pause.

Well, yes, no, I wonder in 5 years, if we're going to see maybe a decline as some of those older acres come out, as plant can get pushed, as trees get pushed and some of the newer acres come bearing. There is not going to change the supply picture. Supply picture could continue to increase, as some of those trees mature into prime producing age. But I wonder if that's going to change again. We're going to maybe one step forward, two steps back in the next Census as some of that acreage gets reevaluated for water needs for health of the orchards, all those kind of things. Well, that could definitely be something to keep an eye on in 5 years when we're having this. The next time we talk about the Ag Census release will be 2029, another made up year in my mind. And I think we'll see another chart here that looks a little different.

And water was definitely -- we didn't go into it on this call, but there's some very interesting data that we just scratched the surface on and what you see. If you go back to 2022, we're at the end of that huge drought on the West Coast. And water availability, the amount of water delivered. The USDA puts out that data in the Census. And so lots of impact there as well.

Well, we've got a little bit of time for Q&A. I want to be conscious of everyone's donated time today. Thank you so much for joining us and listening in as we kind of uncover some big things we found in the Ag Census, our first read of the Ag Census.

I've got one question that I'll just maybe toss out, Blaine, to you first, and I'll opine on it as well. Land values. We didn't really talk that much about land values or cash rents. Is there anything that came through our initial read of the data that would change how we might think about -- it makes surprises in land values or cash rents?

I wouldn't say there were any surprises. We've just started in terms of putting together kind of county level comparisons. We're looking at calculating cap rates. So it's certainly a topic that we're very attuned to for obvious reasons, right? I mean historically, we started kind of as a long-term farmland lender or to work with community banks. And so we're digging into it. I don't know if there's anything that stood out based on just the initial grabbing the data and throwing it into an Excel spreadsheet. But as we analyze that, I could definitely foresee a feed article coming up.

Yes. Well, 100%. There's going to be a lot to drill into on that front. I will say the revisions that were made to land -- so every year, there's a survey that comes out where the NASS group will survey farmers into how much is your land worth now, right? Every year, we get that data, we wrote about it on The Feed. We'll continue to write about it on The Feed. And every 5 years, they get the Ag Census and they rebase the numbers. What I saw just looking at a couple of states was they raised the numbers. So it kind of re-benchmarked to a higher level. So I think we'll probably take a look at that and say, "Hey, how much higher are farmland values than they reported back in June." But I think that tilted the 2023 numbers down. So they revised up '22 and revised down '23. And that's going to change how we think about land values moving forward. What that trajectory look like? And we'll do a deeper dive on that.

Jackson, speaking of revisions and how the data comes into the USDA and how they reported out. Question here about financial statements and in terms of a banker trying to square with what they're seeing on financial statements versus what the USDA is putting out? How accurate is the Census data. What are your thoughts there?

Yes. I think that the data is accurate, what you're probably picking up is that, that includes everybody, right? People who have debt, people who don't have debt. And income statements and balance sheets can look very different depending on the composition. So when you see an income statement, it probably -- because they're accessing capital markets, they're borrowing, right? That's going to change maybe are they a farm business instead of a sort of not a farm business, but they're still identified in the Ag Census, right? So I think that it's probably some of the averaging that happens between taking a survey of everybody who's considered a farmer influences some of those averages. So I think that's probably what you might be picking up. I do think there is a lot of hard work and thought and methodology, a statistical methodology behind the Ag Census. So I know that it's as accurate as the Census is, right, like they're putting that level of effort and money and time into it, but there are some nuances to it, and we even found that as we were going through the interest expense data, hey, you report this number here, you report that number here. Why is there a difference? And we're going to continue to kind of poke at some of those differences. And there's always a reason we just got to sometimes find that reason. So I think it's accurate, but there are some interpretability things that make it harder to go exactly from Ag Census to maybe what you've experienced in your lending institution. What do you think, Blaine?

Did you mention at the beginning, Jackson? I know you had it on the slide, but when they send this out, you're, by law supposed to fill this out.

Yes. It is a legal requirement. If you get the survey, they've identified you as a farmer, you have to take it. And I know there's probably some law breakers out there and probably some law breakers, everybody here knows or works with. But it is a requirement to fill it out. It is a -- I don't know what the punishment is if you don't do it, but it's required by law. It's exactly right.

So when folks are coming in for their renewals this year, bankers should ask them if they broke the law and didn't fill out their Ag Census forms. Excellent. The -- go ahead.

I was going to ask the last one here. 10-year trends or 5-year trends, right? Do you think there's going to be significant differences like further back, right? We're talking about -- we talked a lot about the 5-year trends. But if you look further back or if you think further ahead, maybe, I think I like that idea as well. What's going to -- what's different today than it was 10 years ago and what might be more different 10 years from now?

Yes. The -- so are there differences? Yes. One of the unfortunate parts is the USDA keeps adding so many great data fields to their forms. And so in a lot of ways, we're limited. We had to only -- we only had 2022 in many cases and sometimes only back to 2017. So I would have loved to have compared some of the metrics we've talked about against 2012, 2007, even going back to the '90s or '80s. We just -- we weren't able to. What's different and what's -- what are we likely to continue to see. I do think that I mentioned it already, the capital intensity or how capital-intensive it is to be in the ag space. It's only going to kind of continue to drive maybe multi-generation farms. And I think that folks should just be cognizant of that, that if you're a longtime lender out there that's used to working with just one producer as a shot caller, if you will, I think the complexity, the capital intensiveness, it's kind of going to continue to drive this multiple generations. And what does that mean for decision-making? What does that mean for transition planning, that's where my mind immediately goes, Jackson, just because it stood out so much to me.

Yes. I agree. I agree fully. I think the demographic changes could be tremendous in 10 years from now, right? I think it could be tremendous. I also said I think there's going to be different production technologies deployed. So I think we're going to see some changes in acreage, not necessarily yield. So I think there's going to be maybe even a continued drop in acres produced without a huge change in output, as we continue to be very efficient food producers. Also on the energy front, there's a lot of things happening there, renewable diesel, sustainable aviation fuel. So that's going to be interesting to see how that -- if I look back at 2007 versus '17, corn production versus ethanol. I mean, I think there are parallels that you could run to some of those biofuels coming in line over the next 10 years.

Jackson, you looked at like cropping patterns. Did you see any difference? And do you think -- so what are your thoughts there in terms of No-till, things like that.

Yes. No, I was expecting to see a bit more adoption of some of those regenerative practices and it's just not coming through the data. It could have been the year, it could have been the timing, 2022 prices were pretty high. So maybe there was just a change in philosophy for 1 year versus many years. That's why I think you need a lot of years of study on that. But things like No-till, reduced-till cover cropping, the adoption rates didn't move a whole lot between the 2017 Census and then '22 Census. And there's quite a bit of policy. People are trying to figure out what are the incentives to make those practices work on the farm. And I think judging between the '22 Census and the '17 Census is not a lot of change in behavior judging by those 2 dipsticks, which is interesting.

That is interesting. Yes.

Well, why don't you tell us a little bit all about The Feed and then we can go ahead and move to our polling. And thank yous for the great attention we got from everyone today.

Yes. I'll be quick here. For those who aren't subscribed to The Feed, super easy to do so, find it on the website. You can even click the link here if we send this out later. But overall, The Feed, the highly respected. It started long before I joined Farmer Mac. I'm happy to be a part of the team that puts it together. I will put a plug-in that we've recently changed format. It used to be kind of a quarterly document that was sent out via e-mail and posted on the website, maybe hard copies. We now have a kind of more of a blog style. We're putting out more real-time articles. We may continue to do a quarterly publication, but overall, we like the format in terms of getting good information out sooner and not sitting on it and letting it get stale. So -- please look into it. If you're not subscribed, please do so, and I'll just leave it there.

Yes. And we love those suggestions. So every so often, we get a suggestion about the topic for an article or something you all want to see covered, The Feed at farmermac.com, you can reach out to our great Marcom team, and they come up with wonderful ideas and themes off of that intelligence. And just a big thank you to everyone in attendance today. If you're a customer, if you're not a customer, however it is, you got here, thank you very much. Have a wonderful Valentine's Day. Thanks for tuning in. Finish that poll for us, let us know how we're doing. And don't forget your relationship manager, give them a call to ask them how they're doing, and they love talking and interacting with every single one of you. So reach out and say hello and how can we work together in 2024.

Farmer Mac relationship manager, right, Jackson, not like, not Valentine's Day relationship.

Not relationship managers, in that sense. That's correct. The Farmer -- you're Farmer Mac assigned relationship manager. That is a great clarifying point. Thank you, Blaine.

All right.

All right, everyone. Thank you so much for joining us today. We'll see you next time in 2029. Thanks for joining, everybody. I appreciate everyone's time and attention. Have a great day. If we didn't get to your question, feel free to drop us a line at The Feed of Farmer Mac or Blaine or myself.