7. The market can stay stupid longer than
you can stay solvent
7
8. Someone is going to be very unhappy
Federal Deficit/Surplus
4
As Percent of GD
2
0
-2
-4
-6
-8
-10
-12
1950 1960 1970 1980 1990 2000 2010 8
9. This market is not what it appears
Drivers
Interconnected global markets
Policies
Biofuels
Fiscal and Monetary
Implications
Asset values
Business strategy
9
12. Both growth rates are slowing
Global
Growth
Rates
of
GDP
and
PopulaAon
0.065
Chg
in
LN
GDP
0.055
Chg
in
LN
Pop
0.045
0.035
0.025
0.015
0.005
-‐0.005
-‐0.015
-‐0.025
1969
1974
1979
1984
1989
1994
1999
2004
2009
12
17. Very few constants
Ethanol production
Tough demand market
Will the exports be there?
US energy production
Crude oil production
Natural gas production
Chasing the differentials
Global energy issues
Middle East factors
Where’s China really headed?
17
18. Thank you North Dakota
US
Crude
Oil
ProducAon
000s
of
barrels
per
day
6500
6000
5500
5000
4500
4000
3500
18
Jan-‐09
Jan-‐10
Jan-‐11
Jan-‐12
Jan-‐13
Jan-‐14
Jan-‐15
Jan-‐16
19. Unsustainable, but how does it get fixed?
Ratio: WTI to Natural Gas
60 "6 to 1" is the natural ratio
50
40
30
20
10
-
Jan-1992 Jan-1996 Jan-2000 Jan-2004 Jan-2008 Jan-2012 Jan-2016 19
20. The market is on a “crash course” to change
Monthly Rig Count
2,000
Oil rigs
NG rigs
1,500
1,000
500
371 426
0
20
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
32. What generates the “return”
Land – 25%
On average is paid – 25%
Is just another asset class
Can be overpriced/underpriced
Management – 20%
Net margins with government pmts
Management & own labor
Agronomic impact
Knowledge has economies of scale
32
33. Looking for market inconsistencies
Ultra low interest rates have a
differential effect
33
34. It’s about bushels not acres
Land prices have responded to:
Crop prices
Low interest rates
Land improvements have not
Tiling
Leveling
Irrigation
Soil enhancement
34
38. Take-aways
Unsustainable = high volatility
US ethanol policy
US monetary policy
Land market consequences
Global production response
Once started will continue
Relative matters more than absolute
It’s about bushel not acres
Buy the cheapest bushels
Easy deals are always overpriced
38