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May 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.

Crop Progress: Corn Conditions Worsen by 5%

May 29, 2012

Although corn conditions remain above average, they declined by 5% from last week due to hot a dry weather across the corn belt.

 

As of May 29, 2012, a total of 92% of the U.S. corn crop has already emerged compared to 59% from a year ago. Corn conditions are very favorable as 72% of the crop is in good or excellent condition compared to 63% a year ago, and only 5% in poor or very poor condition.

 

As of the fourth week of May, 89% of U.S. soybeans have been planted, a 41% increase from a year ago. Of the 89% planted, 61% have emerged which is an increase from 22% at the same time last year.

 

Of the six primary spring wheat producing states 96% of the wheat has emerged, compared to the five year average of 68%. Spring wheat conditions are also favorable as 79% is in good or excellent condition and only 2% is in poor or very poor condition.

 

Winter wheat continues to outperform 2011's conditions with 54% of the winter wheat crop in good or excellent condition; a 21% increase from last year. Winter wheat in very poor or poor condition is at 17%, a 27% decrease from one year prior. As of the fourth week of May, 9% of the winter wheat has been harvested, compared to the five year average of only 1%.

 

Corn prices decreased by 11.4% over the past week ending at $5.61 per bushel, soybean prices decreased by 1.9% over the past week ending at $13.85 per bushel, and wheat prices ended the week at $6.56 per bushel, a 6.8% decrease from last week. Year-over-year corn prices are down 24.9%, soybeans are up 0.7%, and wheat is down 16.1%.

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

 

Early Planting Is Driving the Rural Economy

May 23, 2012

The Rural Mainstreet Index (RMI) increased slightly this month as bankers are optimistic about the agriculture environment with historically early planting and above average crop conditions. The farmland price index declined in May, indicating slower growth in values, but remained above growth neutral for the 28th consecutive month.

The Rural Mainstreet Index increased to 58.5, a slight increase from the 57.1 in April. month. This marks the ninth straight month the RMI has been above growth neutral.
Rural Mainstreet Index May 2012

According to Creighton University economist Ernie Goss, "Even though downturns in energy prices are a positive for the Rural Mainstreet economy, I expect softer agricultural commodity prices and slower global economic growth to restrain growth in the months ahead." 

Agriculture
Planting has taken precedence in the agricultural realm resulting in a decrease in farmland sales volume.  Although the farmland price index decreased it remains above growth neutral, posting a 64.6 from a 69.4 in April. This marks the 28th straight month the index has been above growth neutral. The farm equipment sales index increased to 65.1 from April's 62.4.
 
"Economic growth among countries importing U.S. food, along with the Federal Reserve’s cheap money policies, continue to boost farm income and support higher prices for agricultural land and increasing sales of farm equipment," said Goss.
Farmland Price Index May 2012

Bankers were asked this month in regards to the trends in financing of farmland in the past year. 34% indicated that farmland purchases using financing had declined in the past year and only 11% said it had increased. "Very strong farm income has allowed farmers to pay cash for their farmland purchases," said Goss.  

Banking
For the third consecutive month the loan volume index has increased to 56.9 from 52.8 a month prior. The check deposit index decreased to 62.9 from 72.6 in April and the certificate of deposit and savings instruments decreased to below growth neutral to 41.7 from 53.5 in April.
May's hiring index decreased to 59.2 compared to 59.3 in April. "Job growth across the Rural Mainstreet economy is showing a lot of variation with areas with significant energy exposure performing much better than more agriculturally dependent areas. For example, rural areas of Colorado and North Dakota experienced much better job growth than Missouri and Nebraska," said Goss.
The economic confidence decreased to 60.2 from April's 60.6. "Even with the negatives coming out of Europe and U.S. economic questions surfacing, Rural Mainstreet bankers remain very optimistic about the economic future of their local economies," 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 articles on farmland and agriculture, visit www.farmlandforecast.com

Farmland Values Increase 25% in Second Consecutive Year

May 22, 2012

Farmland values increased by over 20% for the second straight year in the Tenth District of the Federal Reserve Bank of Kansas City. Easing drought conditions in the Tenth District and crop prices that increased in the fourth quarter of 2011 lead to increased farmer income which was in turn reinvested in farmland thus driving demand for farmland and prices higher.

Non-irrigated cropland increased by 8.0% in value throughout the first quarter of 2012 and irrigated cropland values increased 9.0% due to strong farmer demand driven by increased farmer income. Bankers in the Tenth District reported a decrease in loan volumes and interest rates while capital available to lend has been ample.

Farmland Prices

Farmland values posted the second consecutive 25% increase year-over-year in the Tenth District that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri. The value of non-irrigated and irrigated cropland in the District climbed 8.0% and 9.0%, respectively, compared to fourth quarter gains of 2011. Year-over-year, non-irrigated cropland values have surged 24.7% and irrigated cropland values have increase 31.8%, the largest single year increase in the history of the 32-year old survey.

District ranchland values increased by over 7.0% in the first quarter of 2012 marking a year-over-year increase of 15.6%. One-third of bankers surveyed forecast farmland values to rise in the upcoming months while the balance of bankers feel that values will hold steady.

Nebraska lead all states in the increase of farmland values with non-irrigated farmland increasing by 38.6% compared to the first quarter of 2011. Irrigated farmland in Nebraska soared by 41.4% throughout the same time frame according to the survey. The drought of 2011 has continued to fuel irrigated farmland values as farmer demand for irrigated land continued to remain very strong.

Increased farmer income lead to strong farmer demand to purchase farmland in the first quarter of 2012. The easing drought conditions paired with rebounding crop prices at the end of 2011 generated elevated income for farmers. Often the next step farmers took was to expand operations through land acquisitions. An excellent winter wheat crop condition should continue to support elevated farmer income and farmland values.

Farmland Forecast   first quarter 2012 kansas city federal reserve farmland value increase nebraska marc schober

Farm Loan Portfolio

The index of farm loan demand decreased to the lowest level since the late 1980s due to increased cash spending by farmers. In early 2011, bankers reported that of new real estate purchases, slightly over 50% were comprised of debt, but now it stands at 47%. 40% of bankers surveyed said that more funds are now available for lending compared to one year ago with the amount of collateral and interest rates both decreasing as well. The loan repayment index also increased to a new record high surpassing the previous high of 2008, a sign of strong farmer financial stability.

Farmland Forecast   Kansas City federal reserve farmland loan demand funds availability marc schober

"Farmers are cash rich and very liquid. Demand for loans is down," noted one banker in South Central Nebraska. The 2012 first quarter interest rates averaged 6.2% for farm operating loans, and fell to 5.8% on farm real estate loans thus promoting lending opportunities.

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

 

Crop Progress: Corn Condition Well Above Average

May 21, 2012

This afternoon, the USDA released its weekly crop progress report indicating all three crops, corn, soybeans, and wheat are in above average condition due to favorable weather across the Corn Belt.

 

As of May 21, 2012, the 18 primary corn producing states have planted 96% of the U.S. corn crop, compared to 75% one year prior. A total of 76% of the U.S. corn crop has already emerged compared to 38% from a year ago. Corn conditions are very favorable as 77% of the crop is in good or excellent condition and only 3% in poor or very poor condition.

 

As of the third week of May, 76% of U.S. soybeans have been planted, a 41% increase from a year ago, and a 34% increase from its five-year average. Of the 76% planted, 35% has emerged which is an increase from 10% at the same time last year.

 

The six primary spring wheat producing states have planted 99% of their crop, compared to last year of only 50% in the third week of May. Spring wheat conditions are also favorable as 74% is in good or excellent condition and only 5% is in poor or very poor condition.

 

Winter wheat continues to outperform 2011's conditions with 58% of the winter wheat crop in good or excellent condition; a 26% increase from last year. Winter wheat in very poor or poor condition is at 14%, a 31% decrease from one year prior. 79% of the winter wheat crop is headed as only 59% was headed at the same time last year.

 

Corn prices increased by 8.6% over the past week ending at $6.33 per bushel, soybean prices increased by 1.8% over the past week ending at $14.12 per bushel, and wheat prices ended the week at $7.04 per bushel, a 17.7% increase from last week due to dry and hot weather which will reduce wheat production in Ukraine and Russia. Year-over-year corn prices are down 16.6%, soybeans are up 2.3%, and wheat is down 12.7%.

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

 

 

Corn Belt Farmland Values Continue to Rise

May 21, 2012

Farmland values rose 19% over the last twelve months as farmers continued to purchase land to capitalize on high grain prices, according the Federal Reserve Bank of Chicago. The value of "good" farmland increased 5% in the first quarter of 2012 compared to the fourth quarter of 2011. All District states posted year-over-year increases in farmland values and the largest year-over-year land value increases came from some of the largest producers of corn and soybeans in Illinois and Iowa at 20% and 27% respectively.

Chicago Fed Quarterly farmland values first quarter 2012

The outlook for farmland values in the second quarter of 2012 is that of stability. Almost two-thirds of bankers surveyed estimated farmland values will remain stable in the second quarter of 2012, but one third expect values will continue to rise.

Farmers continue to be the support behind auction sales, driving up sales bids. Although investors were looking to purchase farmland, farmers purchased a higher share of acres sold in the past three months due to increased farmer income over the last year. Demand to purchase farmland was on the rise as 74% of bankers reported higher demand to purchase farmland.

Along with farmland value increases, cash rental rates are following the same trend. Cash rental rates in 2012 increased 17% from 2011, the second largest increase in the history of the survey. This is to no surprise as cash rental rates go side by side with farmland values, although rental rates typically lag behind land value increases due to terms of contract length.

Earnings

According to the USDA's most recent forecasts, average corn prices for the 2012-13 crop year are estimated at $4.20-$5.00, a significant decrease from 2011. The lowered price range is attributed to an anticipated record fall harvest, of 166 bushels per acre.
Input costs from the first quarter of 2011 to the first quarter of 2012 rose 6.6% according to the USDA index of prices paid by farmers.
Farmers will find it difficult to reach the record high incomes of 2011, due to a decrease in corn prices, compared to last year, and input costs on the rise.

Credit

The agricultural credit condition continues to improve across the 7th district from 2011 to 2012, due to strong farmer balance sheets. Of the total respondents, 56% reported higher rates of loan repayment compared to last year and the index of non-real-estate agricultural loan repayment rates reached its highest level in the surveys history.

The index of funds available in the first quarter of 2012 hit an all time high as 64% of bankers had more funds available. Farmers seem to be funding their operations more heavily with cash earned rather than bank credit.

Demand for non-real-estate loans continued to decline and reached its lowest level since 1987. Only 19% of respondents reported higher demand for non-real-estate loans over last quarter, and 47% reported a decrease in demand.

Interest rates for agricultural loans continued to declined in the first quarter of 2012 as well. Farm operating loan's average interest rate was 5.34% and real estate loans fell to 5.08% resulting in the lowest level for both interest rates in the surveys history.

2nd Quarter Outlook

The trend of increasing farmland values could ease in the second quarter of 2012, according to bankers surveyed. A decrease in the volume of non-real-estate loans is expected in the second quarter of 2012 compared to the second quarter of 2011. According to bankers growth is expected in farm machinery, grain storage construction, and real estate loan volume in the second quarter of 2012 compared to the second quarter in 2011.

The Federal Reserve Bank of Chicago’s first 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.

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

Protectionism in Argentina Threatens Foreign Investment

May 14, 2012

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.  

Rural Land Law
 
Law 26,737, the Rural Land Law of Argentina, will limit foreign ownership of any rural land in Argentina to 1,000 hectares (2,471 acres). Additionally, the country will cap total foreign investment of rural land at 15% of the total domestic rural land with a 30% cap per nationality. Other restrictions include zero foreign investment of coastal land or land that boarders a large body of water.
 
The Rural Land Law will immediately impose problems for new and existing investors seeking to place capital in Argentina's arable land by limiting the amount of acreage that can be purchased. Current holdings are grandfathered in under the Rural Land Law.
 
Complications could also arise within corporate acquisitions that involve land. The new law is not only limited to farmland, but all rural land located anywhere outside of urban areas. The purchase of Fondomonte S.A. by the Saudi dairy giant, Almarai Co. involved 30,000 acres of Argentine farmland, according to CBS. Fortunately, this transaction occurred just days prior to the passing of the Rural Land Law, otherwise the purchase would have been void.
 
Foreign investors have been attracted to Argentina as it is one of only four major agricultural regions with mollisol soil types that are optimal for growing corn and soybeans. Investors have favored farmland in Argentina over other South American countries due to its favorable soils, infrastructure, and optimal access to ports.
 
Protecting Resources
 
Argentina has been taking drastic actions to protect their natural resources, including the nationalization of key assets. In April, Argentina announced the nationalization of Treasury Petroleum Fields (YPF) from the Spanish based, majority owner, Repsol. YPF will now be owned 51% by the federal government and 49% by the Argentine states. The nationalization of YPF was done to help lower energy costs in Argentina, according to President Cristina Fernandez de Kirchner, and to also reduce foreign oil dependency. In 2010, Argentina became importers of fuel for the first time since the early 1990's, according to the BBC.
 
The nationalization of YPF and the passing of the Rural Land Law may be the first steps to greater protection of Argentine natural resources. If Argentina is concerned by growing foreign investor interest, eventually an entire nationalization of rural land could occur and the country would be closed to outside investors.
 
Restrictions in Other Countries
 
Argentina is not the only country limiting foreign investment in arable land as the concern of foreign ownership of natural resources is growing across the world. Some countries completely ban foreign investment of farmland, including China who is the second largest producer of corn worldwide.
 
Brazil, located to the northeast of Argentina, historically has been an option for farmland investors due to the large amount of unused arable land and favorable growing weather, but the current disarray of foreign ownership rights have sent investors flocking to other parts of the world. In August of 2010, Brazil suspended sales involving foreign purchasers of land due to a review of their land law that only restricts foreign investors from owning more than 100 "modules" of land which may vary from 100 to 10,000 hectares in size. It is likely that Brazil will alter its law to ban land investments by foreign entities while private sales to individuals will be considered on a case by case basis, according to the Financial Times.
 
Additionally, there is a landless movement in Brazil where Brazilian citizens are trying to take over foreign farmland holdings because the constitution states every Brazilian citizen has the right to own land. A few of these land takeovers have been successful by the movement and supported by the Brazilian government.
 
Importance of Property Rights
 
Where does this leave foreign farmland investors? Identifying investment opportunities in countries with stable property rights will be key. The U.S. is not only home to some of the best farmland in the world, but also property rights and a legal system that will allow investors to sleep well at night. Even the U.S. is home to a diverse set of foreign land ownership restrictions, but will allow for investments per state regulations.
 
Government support for agriculture is also very strong in the U.S. as the country was founded on agriculture. Subsidized loans and crop insurance ensures profitability for the American farmer. Once owning farmland in the U.S., landowners can rest assured that their land is being taken care of by the most progressive farming operators in the entire world.
 
There are a small number of countries that are also open to foreign land investment as an avenue to increase domestic development, including Mongolia, Nepal, and Cambodia, according to World Crops Ltd. Uruguay also has friendly foreign land ownership laws and is home to premier soils. Approximately 25% of the arable land in Uruguay is already owned by foreigners. Uruguay is relatively small in size, thus the entry to ownership is more difficult than in larger countries.
 
Outlook
 
Argentina's new land law is a major problem for farmland investors seeking to deploy capital to farmland investments in the fertile regions of Argentina, but luckily other countries will allow these same investors equivalent or superior opportunities. When investing in farmland, taking a value oriented approach is important and will benefit an investor regardless of the country if adequately executed.
 
The additional risk of owning farmland in a country with foreign ownership restrictions does not necessarily outweigh the potential for increased appreciation. The nationalizing of domestic natural resources will increase globally and thus investors need to identify areas that allow for outside investment in farmland either in the U.S., your own homeland if outside the U.S., or another country with stable property rights.
 
For daily articles on farmland and agriculture, visit www.farmlandforecast.com

WASDE: Corn Stocks Surprise to the Upside

May 10, 2012

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

Projected U.S. 2011/12 ending corn stocks were increased 50 million bushels to 851 million bushels due to larger than expected wheat supplies and the competitive pricing wheat has compared to corn, implying  wheat will be the choice of feed this summer. The 2011/12 projected range for season-average corn prices was $5.95 to $6.25.
 
2012/13 U.S. corn production was estimated to increase by 2.4 billion bushels from 2011/12 to 14.8 billion bushels due to increased harvested area and higher than expected yields. Average corn yields for 2012/13 were projected at 166.0 bushels per acre which was a 2.0 bushel per acre increase from the 1990 to 2010 trend due to the early planting. Domestic corn supplies were expected to increase by 2.2 billion bushels to a record 15.7 billion bushels. The 2012/13 projected range for season-average corn prices was $4.20 to $5.00, a $1.50 lower than 2011/12.
 
U.S. corn usage in 2012/13 is expected to increase by 9% on increased usage of sweeteners and starch, higher feed and residual use, and increased exports. Corn exports were estimated to increase by 200 million bushels due to increased supply, lower prices, and increased demand from China. 2012/13 U.S. ending corn stocks were estimated to increase to 1.9 billion bushels, a 1.0 billion bushel increase from 2011/12.
 
Global corn production in 2012/13 was projected to at a record 945.8 million tons, the 6th straight year that world corn production would set a new record. Global consumption was estimated to rise 53.7 million tons to a record 921.0 million tons. Ending 2012/13 stocks are projected at 152.3 million tons, the highest level in more than 10 years.
 
The USDA's projections were a surprise. We expect corn supplies will be tighter due to global demand, light carry over, and high expectations. The ending U.S. corn stocks for 2011/12 of 851 million bushels was the biggest surprise as we, and other analysts, felt this number would significantly decrease from the 801 million bushel projection in April.

Soybeans

2011/12 U.S. soybean exports were increased this month by 25 million bushels due to the lack of production in South America. The increase of soybean exports resulted in a 40 million bushel decrease in U.S. soybean ending stocks for 2011/12.
 
U.S. soybean production for 2012/13 was projected at 3.205 billion bushels, an increase from 2011/12 due to increased yields that will more than offset decreased harvested area. Average soybean yields in 2012/13 were projected up 2.4 bushels per acre to 43.9 bushels per acre. Supplies of domestic soybeans were estimated at 3.43 billion bushels, a 4.0% increase from 2011/12.
 
U.S. soybean exports in 2012/13 were estimated at 1.505 billion bushels, an increase of 190 million bushels from a year prior. The stocks-to-use ratio in 2012/13 was projected at a historically low rate of 4.4% due to the ending stocks estimate of 145 million bushels which was a 65 million bushel decrease from 2011/12. The 2012/13 average soybean price was projected at $12.00 to $14.00 per bushel.
 
Global production of soybeans in 2012/13 was projected to increase 15.0% to 271.4 million tons. Argentina and Brazil were estimated to increase production due to improved yields and a record harvested area.

We will continue to watch South American production as it will serve as a catalyst for expected U.S. exports.

Wheat

U.S. wheat ending stocks for 2011/12 were adjusted down by 25 million bushels to 768 million bushels. The ending stocks adjustment came from an increase in 2011/12 U.S. wheat exports which increased by 25 million bushels to 1.25 billion bushels.

2012/13 projected production for U.S. wheat was at 2.245 billion bushels, the highest since 2008/09. Average yields were estimated at 45.7 bushels per acre, an increase of 2.0 bushels per acre from 2011/12. Wheat supplies for 2012/13 were projected up 5.0% to 3.133 billion bushels.
 
U.S. wheat exports for 2012/13 were expected to be 1.150 billion bushels, an increase of 125 million bushels from 2011/12. Ending stocks for 2012/13 were projected down 33 million bushels to 735 million. The season average wheat price for 2012/13 was projected lower than the 2011/12 price of $7.25, at $5.50 to $6.70 per bushel.
 
Global wheat supplies are expected to decrease in 2012/13 by 2.0% as U.S. increased production will more than offset a reduction in foreign production. Global wheat supplies in 2012/13 are projected at 677.6 million tons, a 17.1 million ton reduction from 2011/12.

Outlook
 

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 

Colvin & Schober’s Guide to Investment in Farmland

May 10, 2012

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. 

Investors Guide to Farmland   Greyson Colvin Marc Schober Book 2012 Buy Now

About the Authors:

Investors Guide to Farmland   Greyson Colvin Bio Picture

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.

Investors Guide to Farmland   T Marc Schober Bio Picture

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.

Crop Progress: Majority of U.S. Corn in the Ground

May 07, 2012

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 

 

Soybeans End April at Three-Year High

May 01, 2012

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.

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