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February 2012 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.

Kansas City Fed: Farmland Values Rise 25%

Feb 22, 2012

Record high farmland values and strong farm income were highlighted in the Federal Reserve Bank of Kansas City's recent fourth quarter survey of Agricultural Credit Condition. The survey detailed several indicators of farm financial conditions in the 10th District including farmland values, interest rates on farm loans, and credit supply and demand.

Rising Farmland Prices
2011 posted a record high, 25% increase year-over-year in farmland values. The value of nonirrigated and irrigated cropland in the District climbed 8.9% and 7.5%, respectively, compared to third quarter gains of 2011. District ranchland values increased 3.1% in the fourth quarter marking a year-over-year increase of 14%.
Farmland values soared to record highs due to strong farmer demand. Absentee land owners saw this increase in demand as an opportunity to sell their land, and did so. Farmer purchased farmland jumped to 73% of total sales in 2011 compared to 60% in 2005. Outside investor interest remained high for productive cropland, although the volume of farmland bought for recreational and development use declined. A third of District bankers expect farmland prices and the amount of farmland for sale to increase throughout 2012.

Farmland Froecast Kansas City Fed Farmland Values Fourth Quarter 2011

Annual cash rental rates for cropland increased 18%, well above the 6% increase last year. Ranchland rental rates increased moderately by 10%, compared to a 4% increase in 2010.
Farm Income
Farmland income in the 10th District strengthened in the fourth quarter and is expected to remain strong throughout the first quarter of 2012. Crop prices remained strong through the fourth quarter supporting farm income in regions with successful harvests. However, farm income varied in 2011 due to regional weather events such as the droughts in Oklahoma and Kansas where producers had decreased income as crop insurance claims were relied on.
Livestock prices in the fourth quarter continued to outpace prices from a year ago. Elevated prices are attributed to drought-induced herd liquidations, pushing cow inventories to historic lows. Farm income for livestock operators depended on their ability to manage elevated feed costs.
Farm Loan Portfolio
Loan demand picked up in the fourth quarter as more equipment and capital improvements were purchased and the capital spending index increased after a six month decline. Purchases increased due to the 2011 federal tax rules on bonus depreciation allowances. Bankers indicated that sufficient funds were available for loans in the fourth quarter; less than 1% of loans were refused. Looking forward, loan demand is expected to rise modestly in the short-term, as farmers prepare for spring planting.
Another factor affecting loan demand is low interest rates. The fourth quarter interest rates averaged 6.3% for farm operating loans, and fell below 6.0% to 5.9% for the first time in the survey's history on farm real estate loans.

Farmland Values Post the Largest Increase since 1976

Feb 21, 2012

From January 1, 2011 to January 1, 2012, farmland values in the 7th Federal Reserve District rose 22%, the largest annual increase since 1976 according to the Federal Reserve Bank of Chicago’s fourth quarter survey of Farmland Values and Credit Conditions Report. The value of "good" farmland increased 4% in the fourth quarter compared to the third quarter of 2011. All District states posted higher year-over-year increases in farmland values and the largest year-over-year land value increases came from Indiana and Iowa at 27% and 28%.

Federal Reserve Bank of Chicago 4th Quarter Farmland Values

The outlook for farmland values in the first quarter of 2012 are promising as 43% of those surveyed expect farmland values to continue an increase through March 2012.

The district experienced the largest increase in 35 years, with farmland values increasing 22% year over year. This increase is substantial when comparing it to the compound annual growth rate for agricultural land values (adjusted for inflation) which has been 5.5% since 1986.

Earnings

According to the U.S. Department of Agriculture's (USDA) most recent forecasts, 2011 net farm income is anticipated to be $98.1 billion in 2011, a 24% increase from 2010 levels.
The key drivers of net farm income in 2011 were corn and soybean prices. Corn prices averaged 57% higher compared to 2010, while soybeans averaged a 26% increase over last year.

Although feed costs have increased, livestock and dairy prices have risen as well. Milk prices increased 23%, hog prices increased 21%, and beef cattle prices increased 21% year-over-year

Credit

The agricultural credit condition continues to improve across the 7th district from 2010 to 2011. Of the total respondents, 51% reported higher rates of loan repayment compared to last year. Less than 2% of the volume of farm loans are considered having major or severe repayment problems. Due to higher concentrations of animal agriculture, Iowa and Wisconsin banks hold larger volumes of problem loans than other states.

The index of funds available in the fourth quarter of 2011 was higher than the funds available in the same time period last year. 56% of responding banks indicated there were more funds available during the fourth quarter this year compared to last year. Only 3% indicated there were fewer funds available this year compared to last year.

Demand for non-real-estate loans continued to decline. Only 19% of respondents reported higher demand for non-real-estate loans over last quarter, and 32% reported a decrease in demand.

Interest rates for agricultural loans declined in the fourth quarter of 2011. Farm operating loans average interest rate was 5.47%. Declining for the fifth straight year, interest rates on farm real estate were 5.20%. Although interest rates are lower, 24% of banks tightened credit standards for farm loans in the fourth quarter of 2011 compared to 2010.

1st Quarter Outlook

Bankers expect non-real-estate loan volumes to increase in the first quarter of 2012. They expect larger volumes of farm machinery, operating, and grain storage construction loans in the first quarter of 2012 compared to last year and a decrease in loan volumes guaranteed by the Farm Service Agency and for farms with cattle.

The Federal Reserve Bank of Chicago’s fourth quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the 7th District’s value of farmland, farm loan portfolio performance, and on-farm income. The 7th District consists of the entire state of Iowa, and portions of Illinois, Indiana, Wisconsin, and Michigan.

http://www.chicagofed.org

For Daily Updates Visit http://farmlandforecast.colvin-co.com 

Rural Mainstreet Index Remains Strong

Feb 17, 2012

The Rural Mainstreet Index (RMI) declined modestly this month, due to large decreases in farm equipment sales and loan volume. The main driver of the index continues to be farm income, and for the 25th straight month, the index has been above growth neutral.

The Rural Mainstreet Index dropped slightly to 59.6 from 59.8, yet remains above the 55.3 it posted 12 months prior.

RMI February 2012

 

According to Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, “Agriculture had another strong year with all indications that 2012 will continue to be positive for farmers."
Agriculture
The farmland price index increased to 75.0 this month from 74.3 in January. This marks the 25th straight month the index has been above growth neutral. The farm equipment sales index declined to 63.4 from 72.3 in January.

Farmland Price Index February 2012

 

Bankers were asked what their forecast was for farmland prices in the coming year. Almost half, 46%, forecast prices to grow between 1% and 5% while only 8% of bankers expect prices to decline.
Banking
The loan volume index decreased to 31.2 from 45.5 a month prior. The check deposit index decreased to 64.5 from 68.2 in January and the certificate of deposit and savings instruments increased to 50.0 from 47.8 last month.
October's hiring index increased to 53.7 compared to 51.5 in January. “Year-over-year job growth for Rural Mainstreet communities is almost double that for urban areas of the region,” said Creighton University economist Ernie Goss.
The economic confidence increased to 60.3 from January's 56.1 as outside markets continue to affect the economic outlook, “Improving national economic reports are clearly and positively affecting the economic outlook of bankers in our survey,” said Goss.
Survey
This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The RMI is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.

For Daily Updates Visit http://farmlandforecast.colvin-co.com/ 

WASDE: An Agreement between USDA and Consensus

Feb 09, 2012

It almost seems as if the USDA got together with the consensus to amend their differences as USDA forecasted supplies for corn, soybean, and wheat are in line with the analysts. South America and Russia continue to the be on everyone's radar as yields in South America and government involvement from Russia could affect the grain markets.

Corn

The USDA projected U.S. corn exports at 50 million bushels higher due to an increase in sales and shipments and a decrease in Argentina's supplies.

2011/12 U.S. ending stocks are projected at 801 million bushels, a 45 million bushel decrease from last month. The USDA narrowed the forecasted season-average farm price by $0.10 on both ends of the range to $5.80 to $6.60 per bushel.

The forecasted stocks to use ratio was lowered to 6.3% compared to 6.7% last month and well below the 5-yr average of 12.0%

2011/12 global coarse grain supplies are decreased by 3.1 million tons reflecting reduced corn production in Argentina and Paraguay. Argentina corn production is lowered by 4 million tons to 22 million, and Paraguay's production is lowered by 0.4 million tons.

We will continue to watch Argentina's corn production as La Niña weather patterns of extreme heat reduce yield prospects. Although Argentina has seen recent rain, extensive heat during pollination in December and January has caused irreversible damage to the early corn. 

Soybeans

U.S. soybean exports are projected 226 million bushels lower than last year, but unchanged from last month at 1.275 billion bushels. 2011/12 ending stocks are unchanged at  275 million bushels. The U.S. season-average price range for 2011/12 was narrowed to $11.10 to $12.30 per bushel compared to $10.95 to $12.45 last month.

Global oilseed production for 2011/12 is projected down 4.9 million tons to 257 million tons due to lower production forecasts for South America.

Wheat

U.S. wheat ending stocks for 2011/12 are projected 25 million bushels lower to 845 million bushels. Exports are increased by 25 million bushels due to strong sales, strong shipments, and competitively priced feed. The season-average price is raised $0.20 at the bottom end to $7.15 to $7.45 per bushel.

Global wheat supplies for 2011/12 are projected 2.1 million tons higher due to increased beginning stocks in Kazakhstan and increased production for India, Kazakhstan, and Morocco.

We will be closely watching Russia as their supply of wheat dwindles which could result in their government shutting down exports for the second time in two years.

Overview

Moving forward, the grain markets will be closely watching South America's corn and soybean production and how La Niña weather patterns will affect yields.

For Daily Updates Visit http://farmlandforecast.colvin-co.com 

Grain Markets Volatile per USDA Report

Feb 01, 2012

U.S. grain markets began 2012 on a strong note, but the January USDA WASDE Report quickly brought volatility back to the markets. La Niña has continued to cause problems for South American farmers with expected yields decreasing by the month and providing support to the global grain market. A strengthening U.S. dollar has slowed the grain rally in late January alongside renewed European debt concern.

Grain Prices

Corn prices decreased by 1.25% in January and closed at $6.39 per bushel. Prices moved sideways in the beginning of the month as investors anticipated the January WASDE Report. The bearish WASDE Report sent corn futures limit down mid-month to below $6.00 per bushel for the first time since mid-December. USDA estimated U.S. corn production 48 million bushels higher with a 0.5 bushel increase in yield per acre and a 45,000 acre increase in harvested acreage. Additionally, U.S. corn exports were projected 50 million bushels higher due to strong sales to date and reduced forecast for Argentina. The La Niña weather pattern is still damaging crop expectations in South America as Rabobank International estimated 2011/12 global corn production would decrease by 1.2 million metric tons from the December estimate of 854.6 mmt.

Soybean prices increased by $0.01 this month to close at $11.99 per bushel on the Chicago Board of Trade. The January WASDE Report estimated U.S. soybean production to be at 3.056 billion bushels, a 10 million bushel increase based on improved yields. The soybean yield estimate is up 0.2 bushels per acre to 41.5 bushels per acre. Again, the La Niña weather has caused more stress in the soybean markets as Rabobank International recently estimated that global soybean production will be down 3.5% to 249 mmt in 2011/12 from December estimates.

Wheat prices were sent 2.0% higher during January to $6.66 per bushel. Prices started the month down due to the bearish WASDE Report for corn and soybeans although wheat data wasn't as bearish. U.S. wheat ending stocks were projected 8 million bushels lower in the WASDE Report to 870 million bushels due to an increase in seed usage and exports. Feed and residual use is projected 15 million bushels lower due to a decrease in expected disappearance during September through November. Wheat prices have rallied since Russia may impose an export tax on wheat to help support domestic supplies. We will watch Russian wheat exports closely as any government action to constrain Russian exports may drive a U.S. wheat rally.

Farmland Values

The Creighton University farmland price index fell to 74.3 this month from its record high 84.1 in December. This marks the 24th straight month the index has been above growth neutral. The farm equipment sales index decreased to 72.3 from 73.8 in December. Only 9% of bankers expect the ending of the blender's tax credit for corn-based ethanol to have a significant negative impact on the Rural Mainstreet economy. The majority, 51%, thought it would have a modest negative impact.

Fred Bauer, president of Farmers Bank in Ault, Colorado, responded to the bankers reporting, "Oil and ag income continue to push our area economy up."

Crop Conditions

South American farmers are worrying about a significant decrease in soybean and corn yields this season. According to our Argentinean network, the Pampas region of Argentina where soybean yields average 4,000 kg/hectare, yields are expected to be close to 2,600 kg/hectare, while corn could be off over 50% at 3,500 kg/hectare compared to an average yield of 8,000 kg/hectare.

The second drought in just as many years has left the sub surface soil moisture levels very low in Argentina which are leading to more severe damage in crops compared to a first year drought. We will continue to keep monitor on La Niña in South America throughout this spring.

U.S. farmers have been in awe at the small amount of snow that has accumulated thus far this mild winter. The frost depth across much of the Corn Belt is shallower than average at about 30" for southern Minnesota according to the Minnesota Department of Transportation. The average maximum frost depth in southern Minnesota occurs in early February at approximately 65" to 70" in depth. The 2012 winter frost depth is on pace to be significantly less which could lead to a drier, earlier, and favorable 2012 planting season.

Outlook

The lack of snowfall across the Midwest has kept planting season on farmer's minds as corn planting will be full on within three months. Farmland values have continued to showcase very high sales across the Corn Belt as farmers still are looking to expand their operations through land acquisitions. We remain bullish on farmland values and see any short-term grain market woes as great buying opportunity for investors.

We will continue to monitor the weather in South America, but so far the lack of snowfall in the Corn Belt looks to be making way for an ideal 2012 planting season for U.S. farmers.

For Daily Upates Visit http://farmlandforecast.colvin-co.com 

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