Farmland Forecast

Foreign investors looking to invest in the fertile farmland of Argentina will be significantly limited by the Rural Land Law, passed in late 2011 by the Argentine Government. Argentina is concerned over the growing amount of foreign ownership of their natural resources. Nearly 7.0% of Argentina's arable land is owned by foreigners, according to the Agrarian Federation of Argentina. The Argentine Government will now track ownership of its natural resources and limit further expansion of foreign ownership via the new land law.  

The USDA continued their streak of surprises by increasing ending corn stocks for 2011/12, despite analysts projecting a reduction in domestic corn supplies. The May WASDE also produced the first official projections for 2012/13, with a record high corn yield of 166 bushels. Domestic soybean stocks continue to dwindle as the usage ratio will be at a historically low rate due to increased U.S. exports and decreased South American production.

Corn

We will be keeping a close eye on the progression of the historically early U.S. planting season. The balance sheet of U.S. corn will remain a hot topic as the amount of planted corn is projected to be the highest since before WWII and the U.S. has pre-sold a record amount of new crop corn thus far in 2012. 

For daily articles on farmland and agriculture, visit www.farmlandforecast.com 

Greyson Colvin and Marc Schober both grew up in the Midwest with farming in their families. Using their expertise in agriculture, Colvin & Schober were pioneers in the farmland investment industry. Now the two are putting their knowledge into the Investors’ Guide to Farmland, the handbook to educate investors about the investment opportunities in US farmland.

Everyone has to eat to survive. The production of almost all food can be traced back to farmland in some way. Demand is growing for farmland as the world's population and global needs for food are rising. The supply of farmland is not changing, thus creating a severe imbalance in the supply of farmable land and demand for food. The world's population is expected to grow from 7 billion to over 9 billion by 2050. Over the same time period, food production must double.

"Agriculture over the next decade is going to create a substantial amount of wealth, not only in the US, but also across the globe," Mr. Colvin noted.

How can one capitalize on the increased global protein consumption and demand for food? An investment in farmland will provide a steady stream of income and capital gains due to the increasing global demand for agricultural commodities and limited supply of global arable land. The Investors' Guide to Farmland will guide you through the rational for investment in farmland, understanding the characteristic of farmland, and why it should become part of your portfolio.

Mr. Schober said, "Investors are currently struggling with a steep learning curve in farmland and the Investors' Guide to Farmland will help readers understand why and how to invest in farmland. Any investor thinking of adding farmland to their portfolio, novice to expert, will gain priceless knowledge from the book."

The Investor’s Guide to Farmland can be purchased on CreateSpace (www.createspace.com/3861185), Amazon.com, and other fine retailers. 

About the Authors:

Greyson S. Colvin – Mr. Colvin is founder and Managing Partner of Colvin & Co. LLP, an agriculture-focused investment manager. Mr. Colvin’s family has owned and operated farmland for over 120 years. Previously, he was an analyst at Credit Suisse in the Portfolio Management Group and at UBS Investment Research. Mr. Colvin received a B.A. in Financial Management from the University of St. Thomas and a M.B.A. in Finance & Investment Banking from the University of Wisconsin – Madison. Mr. Colvin has been featured in numerous publications, including The Wall Street Journal, Bloomberg, and Dow Jones, as well as a frequent speaker at financial and agricultural conferences.

T. Marc Schober – Mr. Schober is a Director at Colvin & Co. LLP and Managing Editor of Farmland Forecast. Growing up on a Wisconsin farm, the Schober family has owned and managed farmland in Wisconsin for over 40 years. Mr. Schober previously worked at Schober, Schober, & Mitchell, S.C. as a law clerk specializing in business law. Mr. Schober received a B.S. in Business Management from the University of Wisconsin – Eau Claire. He is also involved in a number of cancer fundraisers including the Oconomowoc LakeWalk and has been featured in several publications including Dr. Marc Faber's Gloom Boom & Doom Report, AgWeb, and Seeking Alpha, as well as frequent speaker on the conference circuit.

This afternoon, the USDA released its weekly crop progress report indicating almost three-fourths of the U.S. corn crop has been planted.

As of May 7, 2012, the 18 primary corn producing states have planted 71% of the U.S. corn crop, compared to 32% one year prior. 17 of the 18 states have planted more than their five-year historical average. A total of 32% of the U.S. corn crop has already emerged compared to 6% from a year ago.

As of the first week of May, 24% of U.S. soybeans have been planted, a 18% increase from a year ago, and a 13% increase from its five-year average.

The six primary spring wheat producing states have planted 84% of their crop, compared to the five-year average of only 49%, due to the favorable planting conditions.

Winter wheat continues to outperform 2011's conditions with 63% of the winter wheat crop in good or excellent condition; a 30% increase from last year. Winter wheat in very poor or poor condition is at 12%; a 30% decrease from one year prior.

Corn prices increased by 0.8% over the past week ending at $6.65 per bushel, soybean prices decreased by 2.7% over the past week ending at $14.63 per bushel, and wheat prices ended the week at $6.06 per bushel, a 6.3% decrease from last week. Year-over-year corn prices are down 2.5%, soybeans are up 10.4%, and wheat is down 16.3%.

For daily articles on farmland and agriculture, visit www.farmlandforecast.com 

Grain markets were range bound in April as the markets digested the implications of last month’s planting report. Soybeans have continued their rally and now stand at a three-year high after the USDA announced that U.S. farmers will plant the largest corn crop since World War II at the expense of soybean acreage. China shocked the market at the end of the month by buying 1.5 million tons of U.S. corn, the largest one-day sale since 1991. Optimal weather has farmers planting at a record pace across the Corn Belt as 53% of the entire corn crop has already been planted compared to the five-year historical average of only 27% by the end of April.

Grain Prices

Corn prices closed at $6.60 per bushel and increased by 2.5% in April due to an end of month rally after the Chinese were majority buyers in the single largest corn sale in the past 21 years. Prices declined throughout the majority of the month as speculators sold off positions to take profits and were concerned about the estimated 95.9 planted acres for 2012. Favorable planting conditions have some analysts expecting a bumper crop for 2012, although the last few years have shown the weather can be unpredictable.

Soybean prices continued to increased this month by 7.1% to close at $15.03 per bushel, a three-year high. Prices increased due to commercial and speculative buying throughout the month of April on the fear of decreased production in the South American crop. The USDA's April WASDE Report revealed a decrease in Brazilian soybean production of 2.5 million tons as warm temperatures and insufficient amounts of rainfall continued to decrease yields. Additionally, the highly accelerated corn planting season should lead farmers to maximize corn acres at soybean acre's expense.

Wheat prices declined by 2.0% this month, closing at $6.47 per bushel. Prices again remained stable throughout the month as the USDA estimated U.S. wheat ending stocks for 2011/12 at 32 million bushels lower in April as feed and residual usage was increased. Excellent wheat conditions have also put pressure on wheat prices along with an increased planting pace of spring wheat across the U.S. The Wheat Belt has been experiencing excellent planting conditions compared to recent years.

Chinese Record Imports

Over the past few months, we have been suggesting that China will be providing a hypothetical price floor for U.S. corn by purchasing corn at opportunistic times. On April 27th, a reported 1.56 million tons of U.S. corn was sold, with 1.44 million tons to be rumored to have been purchased by the Chinese, giving support to new crop corn in the U.S. The USDA estimated only four million tons of corn would be purchased by the Chinese throughout the 2012 marketing year.

The International Grains Council recently estimated that Chinese imports of corn may increase 50% to six million tons in the new marketing year starting July 1, 2012. Such an increase will continue to drive corn fundamentals even more bullishly.

Farmland Values

The National Council of Real Estate Investment Fiduciaries’ (NCREIF) Farmland Index had a total return for the first quarter of 3.78%, comprised of 2.77% appreciation and 1.00% income return. The 3.78% return is the strongest first quarter since 2006 and the second highest ever for the first quarter going back to 1991. The Mountain region was the strongest performer with a 10.08% total return, followed by the Corn Belt at 6.31%. Stephen Kenney, Chairman of the NCREIF Farmland Committee and Vice President with the Hancock Agricultural Investment Group, noted that "Even with strong appreciation numbers in many of the NCREIF regions, the farmland asset class continues to garner interest from institutional investors as a conservative investment that historically has provided stable cash flow."

The Creighton University Rural Mainstreet Index (RMI) decreased slightly this month to 57.1, but remained well above growth neutral. The farmland price index declined in April, indicating slower growth in values, but remained above growth neutral for the 27th continuous month. The farm equipment sales index increased to 62.4 from March’s 61.5.

Bankers were asked this month what percentage of sales were purchased by non-farmers. Bankers indicated that 20% of sales were purchased by non-farmers. DeWayne Streyle, CEO of United Community Bank of North Dakota reported, “Nonfarmer and recreation investors are driving the farm land valuations (higher).” We find this statement inconsistent with the data we have observed. In fact, we believe farmers are the primary reason farmland values have increased.

The amount of farmland sales have been decreasing recently due to the majority of purchasers being preoccupied by planting the 2012 crop. Farmers make up 74% of all farmland purchasers, according to Iowa State University, thus the amount of potential buyers for land is much lower. Landowners who are considering selling their land are aware that it is not an ideal time to sell when farmer income is tied up in crop production and farmers are busy with field work. Once farmers have their 2012 crop planted and a portion of their crop presold, there may be more farmland sales when farmers are able to have time to focus on expanding their operation through buying additional acreage.

Planting Progress and Conditions

U.S. corn farmers have been planting at a record pace as 53% of the entire corn crop has already been planted as of April 29th, compared to only 12% in 2011 and the five-year historical average of 27%. 25% of the U.S. corn crop was planted from April 22 to 29th alone. The USDA estimated that 15% of the corn crop has already emerged as of the end of April, compared to the five-year historical average of only 6%.

Farmers have also been ahead of schedule planting soybeans while 12% of the U.S. crop has already been planted as of April 29th, compared to the five-year historical average of 5%. Winter wheat is in considerably healthier condition than in 2011 as 64% of the U.S. crop is currently in good or excellent condition compared to only 34% in 2011.

Regions in the upper and western Corn Belt have been experiencing nightly frosts which have actually put a delay to planting corn in isolated areas. If corn planting continues at its accelerated pace, soybean acres could dwindle, thus building soybean prices even more bullish on lower acres. The current price of soybeans is near the point where farmers could return more profits in beans compared to corn, but switching acres this late in the season is very difficult as seed is typically purchased well in advance to planting.

Outlook

The record sale of U.S. corn at the end of April will set the bullish tone for grain prices throughout the summer and into the new crop marketing year. We expect China will be opportunistically buying over the remainder of the year. Planting has been steadily progressing at a very fast pace, but expect weather conditions to dictate short-term crop prices after planting is complete. Soybean planting will start after farmers finish planting corn in late May across the Corn Belt.

For daily articles on farmland and agriculture, visit www.farmlandforecast.com