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What’s Eating Mo? 9/28/2020

Farmland Prices:

 The Iowa Chapter of the REALTORS Land Institute recently released its survey which showed the value of an average acre of Iowa cropland remained mostly unchanged for the past six-months. The state average value for high-quality cropland is $9,236 per acre; -quality cropland is going from around $6,975 per acre, low-quality cropland around $4,686 per acre. Non-tillable pastureland at around $2,932 an acre, and timber-land at around $2,566 an acre.

Pandemic Impacts on Commercial Real Estate:

Without rental income, property funds are not able to pay distributions to shareholders and borrowers cannot service their debt. Real estate investment firm MSCI analyzed data for 107 property funds in the U.K., Europe, Australia and North America to assess the impact of slowing net-income growth. Property funds in all five regions showed lower income return in June 2020 compared to December 2019.

Retail and hotel assets were particularly impacted by lockdowns and social distancing, while the industrial sector continued its outperformance. On a same-store basis, the biannual net operating income of retail assets declined by -20.7%, while hotel assets saw a -31.4% drop. Industrial property’s net income grew +3.7%, which was only marginally down from the +3.8% recorded over the prior six-month period.

For a billionaire, Trump paid very little income tax:

  In 10 of 15 years leading up to his 2016 election, Trump paid $0 of federal income tax “largely because he reported losing much more money than he made,” the NYT writes. In 2016 and 2017, he paid $750 each year. Trump is facing a series of large looming bills in the next few years, and it is not obvious how he will cover them.

Seth Hanlon, “In 2017, a single worker without children who made $18,000 would have paid $760 in federal income tax. Donald Trump paid $750.”

Meat plants clearing backlogs, boosting supplies:

Although though meat prices remain elevated from the spring, the backlogs facing pork and cattle producers have been cleared, pointing to the prospect of lower prices this fall, Iowa Public Radio reports. Processing rates recovered or surpassed 2019 levels back in June as meat plants reopened following the spring’s COVID-19 outbreaks, but it took workers most of the summer to catch up, with millions of (now heavier) animals in the pipeline. Experts are predicting softening demand and falling prices, according to the Farm Bureau.

Inflation Is Already Here—For the Stuff You Actually Want to Buy

The gap between everyday experience and the yearly inflation rate of 1.3% in August is massive. The price of the stuff we’re buying is rising much faster, while the stuff we’re no longer buying has been falling, but still counts for the figures.

Cashman’s Comments

The effects of the pandemic are being felt very unevenly throughout the economy and will likely result in many unintended consequences.  What we see out of our window is not the world.  While our farms are producing ever more efficiently, the rest of the world is ramping up production.  As a result, our market share, and our market power, is declining.

Certain sectors (ag and industrial real estate, grocery) are holding up well while others (retail and hotel real estate, airlines, restaurants) are getting crushed and may be permanently impaired.  Inflation is uneven across economic sectors and this has huge implications since many investments and contractual relationships adjust based on the Consumer Price Index, which may be a less reliable indicator of what is truly happening.  All of this will have uneven regional impacts as those reliant on certain sectors suffer while other regions are more stable.