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May 2010 Archive for Farmland Forecast

RSS By: Marc Schober, AgWeb.com

Marc Schober is the editor of Farmland Forecast an educational blog devoted to investments in agriculture and farmland.

Farmland Values Rise 4% in Seventh District

May 26, 2010

Farmland values rose 4% year-over-year according the Federal Reserve Bank of Chicago’s May AgLetter, due to strong demand from farmers and greater availability of fund for lending. The Seventh Federal Reserve District reported quarter-over-quarter farmland values increased 2%. However, the amount of farmland for sale, the number of properties sold, and the amount of acreage sold was less than first quarter of 2010.

Over the past 12 months, as the economy has rebounded, lending has become more available, and the outlook improved for agriculture, farmers and investors have started to look to acquire more land. We believe that the amount of land sold in the last quarter was muted due to the late harvest and early planting. The traditional selling season of post and pre harvest was delayed as farmers tried to get their crops out of the ground and put in an early planting for 2010.

Values

In the Seventh District, farmland values rose 4% compared to the first quarter of 2009, with values increasing 4% in Illinois, 7% in Indiana, and 8% in Iowa. Wisconsin farmland values decreased 1%. Quarter-over-quarter values were very strong in the first quarter of 2010 as overall values rose 2%. Farmland values increased 4% in Indiana, 3% in Iowa, 2% in Wisconsin, and 1% in Illinois compared to the last quarter of 2009.

"Farmers had a good year in 2009 despite some tough conditions," said economist David Oppedahl of the Chicago Fed.

Rents

Cash rental rates did not increase as aggressively as farmland values, rising just 1% in 2010. Cash rental rates rose 3% in Indiana, 1% in Iowa, 8% in Wisconsin, and were unchanged in Illinois. When adjusting for inflation, cash rental rates actually declined 1% from the first quarter of 2009.

The increase in farmland values relative to cash rental rates has lead to a rise in the price-to-earnings ratio for farmland, although the current price-to-earnings level is considerably below the all-time high in 2005. We feel due to the difficult harvest in 2009 and limited amount of land sales, that farmers had some leverage when negotiating new rental contracts, which could have kept cash rental rates down slightly.



Credit


The Chicago Fed reported mixed credit conditions in the first quarter. The loan demand index was at its highest level in the last 12 months as 29% of bankers reported higher demand, while only 20% reported lower demand. 32% of bankers noted that more funds were available for lending compared to last year. Interest rates on agricultural real estate loans declined to their lowest levels in six years, average 6.04%.

Outlook

Bankers expect that farmland values would remain constant in the second quarter of 2010. This is to be expected as a limited amount of farmland changes hands in this time period. The respondents also expect real estate loan volume in the second quarter of 2010 to remain the same.

As we noted earlier about the delayed selling season, we expect the end of 2010 to see a large volume of farmland sales. So far in 2010, farmers have been successful with an early planting season and are in position to have an excellent crop. We also expect to continue to see corn imports from China throughout the year, which could reach 1.5 million tons in 2010.

If farmers can have a relatively good crop, grain prices remain stable, and credit is available, the end of 2010 could see a large jump in the amount of farmland sold and the values.

Remember to visit Farmland Forecast (farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Weekly USDA Crop Progress: Soybean planting progress falls behind historical average

May 25, 2010

Yesterday, the USDA released its weekly planting progress report. Progress in corn planting is almost complete across the 18 primary producing states. During the last week, 6% of the entire corn crop was planted; bringing the total planted crop at 93%. This compares to a 5 year historical average of 89% in similar time periods, and 2009’s estimate of 80%.

 

The USDA estimated corn emergence of 71% for the 2010 crop, which is above both the 5 year historical average of 62% and the 2009 estimate of 50%. 71% of the corn crop is in good or excellent condition, while 24% is in fair condition and 5% is in poor or very poor condition.

 

Of the 18 primary soybean producing states, 53% of soybeans have been planted, and 24% have already emerged. The 5 year historical average is 57% planted and 23% emerged. By this week last year, 44% of the soybean crop had been planted and 15% had emerged.

 

The planting of spring wheat continued on pace with the 5 year historical average, bringing the 2010 planting progress of 91% equal to the 5 year historical average. By this time last year, 75% of the spring wheat crop had been planted. Spring wheat emergence is still slightly ahead of schedule. The USDA estimated that 70% of the crop has emerged already, compared to the 5 year historical average of 68% and last year’s 42%.

 

The winter wheat crop continues to be in above fair condition. 66% of the winter wheat crop is in good or excellent condition, while only 9% is in poor or very poor condition. Last year, 45% of the crop was in good or excellent condition while 27% was in poor or very poor condition. The percent of headed winter wheat for this year’s crop was at 63% this week, which is 3% less than in 2009. The 5 year historical average is 68% for the week.

 

Corn prices increased 3.7% over the past week ending at $3.69 per bushel and soybeans were down 0.7% to $9.41 per bushel. Year-over-year corn prices are down 16.0% and soybeans are off 26.0%.

 

Next week we look forward to continuing our reporting of USDA estimates of corn and soybean conditions, along with the usual planting progress.

Remember to visit Farmland Forecast (farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Rural Mainstreet Report: Area Economic Index at highest level since January 2008

May 24, 2010
The overall Rural Mainstreet Index (RMI) expanded to 54.3 this month, according to Creighton University’s May survey of bank CEOs in a 10-state region. The RMI is at the highest level since January 2008. The farm equipment sales index continued to be above growth neutral 50.0 for the second consecutive month at 50.9. The farmland price index decreased to 52.7, but remained above 50.0 for the fourth consecutive month. The confidence index, which provides an economic outlook six months from now, increased to 63.0 which is the highest it has been in nearly three years. All but one of the ten indexes was above 50.0. Only the retail sales index, at 49.2, was below 50.0.



The farmland price index decreased to 52.7, but still continued its stretch above 50.0 for the fourth month in a row. Ernie Goss, economist at Creighton University and co-founder of the RMI said, “In addition to an expanding rural economy, we are tracking significant improvements in farm and ranch land prices and farm equipment sales. I expect both of the factors to remain healthy in the months ahead.” North Dakota, Minnesota, and Iowa had the highest Individual farmland price indexes of the states surveyed.

 

The farm equipment sales index decreased to 50.9, but remained above growth neutral for the second consecutive month as equipment sales grew at a slower pace. The farm equipment and farmland price indexes had both been slipping prior to February of this year, but have since made strong rallies.

 

The confidence index increased to 63.0 this month, marking the highest the index has been since June of 2007. Banker confidence is increasing as the overall rural economy is growing. All of the banking indexes were healthy for the third consecutive month. The loan volumes index decreased to 54.4 from 61.1 in April, the checking-deposit index increased to 67.0 from April’s 62.7, and the certificates of deposits index decreased to 50.0 from 52.5 last month.

 

This month bank CEOs were asked to compare May 2009 cash rents on cropland to today’s cash rents. Roughly 15% of bankers have seen an increase of over 5% in rental prices, while 23% indicated increases of 1-4%. 56% are seeing unchanged rents.

 

Bankers were also asked, in terms of crop planting, how far along are farmers in your area? Over 25% of bankers felt that farmers were more than 75% complete in their area, while 11% indicated that farmers are less than 25% complete. 72% of farmers have over 50% of their planting finished, according to the survey.

 

Outlook

 

The overall RMI increased to above 50.0 for the first time in over two years. This surge in the RMI is great news as the Mainstreet economy is starting to gain strength again. Nearly every index was in a growth positive stage.

 

Even though the farmland price index decreased, it remained above 50.0. By holding above 50.0, the index still indicates increasing farmland prices across the Midwest. If the index decreases, yet remains above growth neutral, like it did in May, farmland prices are increasing, but at a slower rate. An index above 50.0 indicates growth in the sector, and growth is all rural Mainstreet can ask for after a harsh couple year history, shown by the indexes.

Remember to visit Farmland Forecast (farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Weekly USDA Crop Progress: 55% of corn emerged, but one-third in less than good condition

May 18, 2010

Yesterday, the USDA released its weekly planting progress report. Progress in corn planting is almost complete across the 18 primary producing states. During the last week, 6% of the entire corn crop was planted; bringing the total planted crop at 87%. This compares to a 5 year historical average of 78% in similar time periods, and 2009’s estimate of 61%.

 

The USDA estimated corn emergence of 55% for the 2010 crop, which is significantly above both the 5 year historical average of 39% and the 2009 estimate of 28%. 66% of the corn crop is in good or excellent condition, while 27% is in fair condition and 6% is in poor or very poor condition.

 

Of the 18 primary soybean producing states, 38% of soybeans have been planted, and 13% have already emerged. The 5 year historical average is 35% planted and 9% emerged. By this week last year, 23% of the soybean crop had been planted and 5% had emerged.

 

The planting of spring wheat continued on pace with the 5 year historical average, bringing the 2010 planting progress of 79% almost equal to the 5 year historical average of 80%. By this time last year, 49% of the spring wheat crop had been planted. Spring wheat emergence is ahead of schedule. The USDA estimated that 55% of the crop has emerged already, compared to the 5 year historical average of 47% and last year’s 21%.

 

The winter wheat crop continues to be in above average condition. 66% of the winter wheat crop is in good or excellent condition, while only 8% is in poor or very poor condition. Last year, 48% of the crop was in good or excellent condition while 26% was in poor or very poor condition. The percent of headed winter wheat for this year’s crop was at 52% this week, which is 2% less than in 2009. The 5 year historical average is 56% for the week.

 

Corn prices decreased 2.2% over the past week ending at $3.56 per bushel and soybeans were down 0.3% to $9.48 per bushel due to falling prices last Friday. Year-over-year corn prices are down 18.5% and soybeans are off 21.0%.

 

Next week we look forward to continuing our reporting of USDA estimates of corn and soybean conditions, along with the usual planting progress.

Remember to visit Farmland Forecast (farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Weekly USDA Crop Progress: 39% of corn crop emerged

May 11, 2010

Yesterday, the USDA released its weekly planting progress report. Progress in corn planting is significantly above last year’s pace, with 81% of the total corn crop already in the ground for the 18 primary producing states. This compares to a 5 year historical average of 62% in similar time periods, and 2009’s estimate of 46%.

 

The USDA estimated corn emergence of 39% for the 2010 crop, which is well above both the 5 year historical average of 21% and the 2009 estimate of 13%.

 

Of the 18 primary soybean producing states, 30% of soybeans have been planted and 7% have already emerged. The 5 year historical average is 19% planted and 4% emerged. By this week last year, 13% of the soybean crop had been planted and only 3% had emerged.

 

The planting of spring wheat was slowed a bit last week, which brought the 2010 planting progress of 67% almost equal to the 5 year historical average of 66%. By this time last year, only 34% of the spring wheat crop had been planted. Spring wheat emergence is ahead of schedule. The USDA estimated that 38% of the crop has emerged already, compared to the 5 year historical average of 28% and last year’s 12%.

 

The winter wheat crop is still in well above average condition. 66% of the winter wheat crop is in good or excellent condition, while only 8% is in poor or very poor condition. Last year, 46% of the crop was in good or excellent condition while 27% was in poor or very poor condition. The percent of headed winter wheat for this year’s crop was at 40% this week, which is 2% more than in 2009. The 5 year historical average is 43% for the week.

 

Corn prices increased 0.8% over the past week ending at $3.64 per bushel and soybeans were down 2.6% to $9.51 per bushel. Year-over-year corn prices are down 13.5% and soybeans are off 18.8%.

 

Next week we look forward to reporting USDA estimates of corn condition, along with the usual planting progress.

Remember to visit Farmland Forecast (farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Rising U.S. Corn Exports May Increase Prices

May 10, 2010
Corn is the staple crop of the U.S. Ask any Midwestern farmer what their most profitable crop is, and most likely their answer will be corn. Grain prices affect the amount of acres of a certain crop that are planted by farmers, as some recent developments could change corn prices and the amount of acres planted in the near future. One of the developments is increasing U.S. exports of corn, which may have a significant effect on future corn prices. When corn prices increase, many other asset values that are dependent of corn prices, such as farmland, ethanol or other grains, will be affected too.

 

Current Corn Prices

 

Since the USDA released the January World Agricultural Supply and Demand Estimates (WASDE) report, corn prices have been volatile. In just two weeks after the January WASDE was released, corn prices decreased 16%. The bearish report stated that U.S. corn yields were at a record level in 2009, at 165.2 bushels per acre, breaking 2001’s previous record by almost 3%. This record yield was hard to comprehend for many analysts since the fall harvest had been one of wettest and coldest on record, not to mention the large amount of corn still standing in fields as of the report date in January.

 

Besides the bearish WASDE report in January, corn prices declined even more when corn importers were purchasing their corn elsewhere due to the rising U.S. dollar. Add 88.9 million planned planted acres in 2010 estimated by the USDA, and corn prices didn’t have much of a chance to make a much needed rally.

 

The weather so far this spring has turned out to be nearly perfect for corn planters across the Corn Belt, and of course the corn markets have taken notice. Corn prices hit almost a three week low on April 27th, according to Bloomberg, due to the favorable planting conditions. As of May 3, 68% of the U.S. corn crop had already been planted when the five-year historical average is only 40%, according to the USDA’s weekly planting progress report.



China’s Purchase

 

With nearly all the factors stacked against an increase in corn prices, importers made a move. In late April, the USDA announced that China purchased 115,000 tons of corn due for August delivery while many analysts believe that a recent purchase of 240,000 tons by an unknown buyer might have been China as well, according to Bloomberg. The surprising increase in U.S. corn exports immediately improved corn prices by nearly 3% in one day.

 

China purchased the U.S. corn in order to relieve their domestic corn prices, which were 74 cents per bushel more than U.S., according to a state-owned market research center in Beijing. Another factor behind the Chinese purchase has to do with demand.

 

China’s corn production decreased by 13% to a four-year low last year because of drought, according to Bloomberg. Other reports forecast China’s current drought to decrease corn production in 2010 by more than 1%, according to Bloomberg. Just on May 5th, Yu Xiaomeng of Bijing’s Shennong Net said that China only has about 13 million tons of corn on hand. China is selling their current inventories of corn, creating a situation where they may be purchasing large quantities to replenish their shortage.

 

If China purchases as much as 500,000 tons of corn, it would make them a net importer of corn, even though they are the world’s second largest producer or corn behind the U.S. “Demand is expanding faster than production,” Jay O’Neil from the International Grains Program at Kansas State University said in a recent Bloomberg Businessweek article, “China will become a net importer. That’s already a foregone conclusion.”

 

Agricultural processor Bunge Ltd expects China to become a small net importer of corn in the mid- to long-term as the country's rising demand for meat will increase its demand for animal feed, Bunge Chief

Executive Alberto Weisser said, according to Reuters.

 

Future Corn Prices

 

The growing demand for corn is inevitable. The increasing global population will call for an increased demand for corn. Populations in Asia, including China and India, are changing from a grain based diet to a protein based diet. Since one pound of meat requires 7 to 14 pounds of grain, the demand for grains, including corn, will grow at an increased rate.

 

The price of corn should climb, according to futures contracts on the Chicago Board of Trade. May 2011 corn has been trading more than 12% higher than May 2010 contracts.

 

Effects of increased corn prices

 

Grain prices affect many sectors including farmland, food, and ethanol. While the demand for corn will continue to grow, the affects of an increased demand will eventually span out to almost every sector. When corn prices increase, it immediately affects agriculture and food. Food prices will increase and so will many of the input costs of growing the corn. One of the most important inputs of growing corn is the land itself.

 

U.S. farmland is a commodity that is will have a difficult time trying to meet a growing demand since its supply is shrinking. The U.S. has lost 13,773,400 acres of prime farmland from just 1982 to 2007 alone, according to the American Farmland Trust. There is a complex equation that determines farmland values, and although no one knows exactly what it all includes, we know that grain prices are one of the major factors. When corn prices increase, farmland prices will also eventually increase because farmers will be able to produce more income from the land. Over time, the demand for corn will continually rise, and if yields are not able to catch up, then farmland values should increase due to the increase of demand for land.



Farmland values have been steadily increasing for over a century. For twenty years prior to 2008, farmland has appreciated 6.7%, and over the past 100 years it has appreciated 4.5%, according to USDA statistics. Cash rents on farmland can typically be found as a percent of the farmland’s value. If farmland values increase, so will the cash rents.

 

Food prices will also increase if there is an increase in grain prices, particularly corn prices. Even gasoline prices should increase since at least 10% of all U.S. gasoline is comprised of ethanol, which is primarily made from corn.

 

Current corn prices are pricing in a bumper crop, considering the favorable weather and early start farmers received to the planting season. The single most important event that may offset these bearish factors to corn prices is demand. If or when China, or any other country, purchases more corn from the U.S., domestic corn prices will increase.

 

Investing in corn could prove to be a smart investment, but investing in farmland may be safer since it has proven to be a much less volatile investment over past years. Over the long-term, demand for corn should outpace any increase of supply in corn, which will create a bumper outlook for corn prices.

Remember to visit Farmland Forecast (farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Weekly USDA Crop Progress: Corn and soybeans well ahead of schedule

May 04, 2010

Yesterday, the USDA released its weekly planting progress report. Progress in corn planting is considerably above last year’s pace, with 68% of the total corn crop already in the ground for the 18 primary producing states. This compares to a 5 year historical average of 40% in similar time periods, and 2009’s estimate of 32%.

 

The USDA estimated corn emergence of 19% for the 2010 crop, which is well above both the 5 year historical average of 9% and the 2009 estimate of only 4%.

 

This week the USDA reported their estimate of soybean planting progress. Of the 18 primary producing states, 15% of soybeans have been planted. The 5 year historical average is 8% and last year only 5% of the crop had been planted by this week.

 

The planting of spring wheat is coming along as well. The USDA estimates that 60% of the crop has been planted already compared to a 5 year historical average of 47% and last year’s 22%.

 

The nation’s winter wheat crop continues to be in above average condition. 68% of the winter wheat crop is in good or excellent condition, while only 7% is in poor or very poor condition. Last year, 47% of the crop was in good or excellent condition while 27% was in poor or very poor condition. The percent of headed winter wheat for this year’s crop was 27% this week, which is at the same level as in 2009. The 5 year historical average is 31% for the week.

 

Corn prices increased 2.6% over the past week ending at $3.61 per bushel and soybeans were down 2.2% to $9.76 per bushel. Year-over-year corn prices are down 10.2% and soybeans are off 14.2%.

 

Next week we will look forward to reporting USDA estimates of emerged soybeans, along with the usual planting progress.


Remember to visit Farmland Forecast (farmlandforecast.colvin-co.com)
for your daily update on news and research about agriculture and farmland.
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