Pub. 1 2020 Issue 1

19 ISSUE 1 | 2020 Iowa State University, University of Illinois and Purdue University have all reported relatively steady farmland values over the last three years. The 3-state average of good farmland has only dropped -1.4% in that time period. Low supply of good farmland has kept values steady. If values change, banks typically rely on certified appraisals. Used farm equipment is a different story. Used equipment prices are as volatile as commodity prices. Several factors are to blame including regional weather events, supply and demand, and net farm income. Different equipment categories have been more affected than others. Straight line -10% depreciations schedules simply don’t work anymore. For example, a new John Deere S670 combine cost ~$375,000 in 2014. The average auction value of that same machine today is $104,556. Straight line depreciation would imply a value of $221,434. Regulators have recognized the volatility in equipment prices. With the hype of CECL taking affect in 2023, regulators have reportedly requested third party equipment chattel appraisals during exams. Banks traditionally turn to auction results to build a chattel appraisal because auction results are real, third party values with no conflict of interest to the ag lender. During Kyle McMahon, Founder and CEO, Iron Comps by Tractor Zoom. Kyle is a third generation entrepreneur and actively farms in southeast Iowa. Before starting Tractor Zoom, he was the Director of Acquisitions for Summit Agricultural Group where he led a team to buy and sell farmland across the Midwestern Corn Belt. Kyle co- founded Buch-McMahon Lawn and Landscaping and is a graduate of Iowa State University. renewal season a formal farm visit may help ag lenders better determine asset quality and gather better data points such as Make and Model of farm equipment to help them build better machinery lists for chattel appraisals and collateral purposes. Moving forward, uncertainty looms as commodity prices and trade policy look unfavorable. Net farm income and equity erosion will continue to be an issue. Having more information and data to help make better decisions, provide safe harbor and adequately prepare for a downturn is an exercise anyone in the agricultural arena should be considering.  FMSI www.fmsiconsulting.com 913.955.3355 FMSI is a small business founded and located in Kansas, specializing in assisting community banks succeed, a mission consistent with core CBA values. We have partnered with community banks for nearly 25-years providing core advisory services including asset/liability, investment, and liquidity management. FMSI advisors actively assess market conditions and bank balance sheets of different size, mix, and capital levels. Market conditions are constantly changing presenting opportunities and challenges for CBA member banks. Interest rates are increasing for the first time in nearly a decade and now is a perfect time to partner with a trusted, industry leader. Establishing an FMSI relationship provides confidence your bank is optimizing the balance sheet, deploying necessary strategies, maximizing profitability, and managing balance sheet risks. FMSI is a Kansas CBA Endorsed Provider