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July 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 Decline for Eighth Straight Week

Jul 30, 2012

Corn conditions have deteriorated every week for the past two months as farmers prepare for the worst drought since the dust bowl.

 

As of July 30, 2012 corn conditions have declined to 24% of the crop in good or excellent condition, a 2% drop from last week and a 38% decline from last year at the same time. 94% of the corn was silking which is above the five-year average of 77%. As of the first week of August, 37% of the corn crop is doughing, compared to the five-year average of only 17%. Corn prices increased by 0.7% over the past week ending at $8.20 per bushel and year-over-year prices have increased by 23.3%.

 

As of the first week of August, 88% of U.S. soybeans have bloomed which is ahead of the five-year average of only 75%. Soybean conditions were 37% in very poor or poor condition compared to 12% a year earlier. Soybeans in good or excellent condition have decreased by 2% from last week to 29%. Soybean prices increased by 1.6% over the past week ending at $17.25 per bushel and year-over-year prices increased by 27.4%.

 

Spring wheat conditions are 63% in good or excellent condition and only 11% in poor or very poor condition. 28% of the spring wheat has been harvested as of July 30, 2012. 85% of the winter wheat has been harvested, compared to 77% at the same time last year. Wheat prices ended the week at $9.14 per bushel, a 0.2% increase from last week. Year-over-year wheat prices have increased 36.0%.

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

 

Importance of Farm Management

Jul 30, 2012

Proper management of farmland is vital for an investor to capitalize on the overall appreciation of the asset. Farming today is more than just producing crops, it requires farmers and landowners to address profitability, fertility, conservation, and tax issues to name just a few. The importance of a knowledgeable and professional farm manager is essential for maximizing the appreciation and income of investment farmland.

All farmland is not created equal and a customized farm management plan and oversight will align the interests of the farmer and landowner to optimize their return on investment (ROI). The key to proper farm management includes focusing on the following areas:

  •  Profitability
  •  Leasing
  •  Production
  •  Fertility
  •  Conservation
  •  Capital Improvements
  •  Additional Revenue Opportunities
  •  Insurance
  •  Taxes
  •  Communication

 

Overlooking just one of these key tasks can lead to a significant loss in the ROI or degradation of the farmland.

Farming over the last decade has become one of the most profitable industries, although the improvement in economics has not necessarily flowed back to the landowners. We estimate that on average, landowners across the U.S. are only receiving 50% of their potential rental income. This means that U.S. farmland owners are leaving $25 billion of rental income on the table.

Professional farm management services will not only allow investors to optimize their ROI, but own an asset that can be passed down for generations.

Profitability

Productive cropland is profitable on multiple levels by producing food to the growing population and also providing its owner with intermittent cash flow with stable appreciation upside. U.S. cropland has returned its investors 10.6% annually over the past 14 years via appreciation and rental contracts according to the USDA. Strong global demand for commodities grown in the U.S., including corn, soybeans, and wheat, has positioned U.S. farmland to continue to appreciate while returning annual rental rates of over 5% of the land's value. Farmland deserves to be a part of every well diversified investor's portfolio.

Farm management is essential for farmland owners to maximize annual ROI and long-term capital appreciation. Any farmland should increase in value and produce annual income to land owners, but with progressive farm management, landowners can expect much higher profitability.

Leasing

A key part of the farm manager's duties are their relations with the tenant operator. Choosing the appropriate operator can make or break an investment in farmland. The operator will help determine the short and long-term fertility, production, conservation, and cosmetics of a property. Even one mismanaged year of farming can cause significant damage to a property.

To ensure the right tenant is chosen, managers will interview many qualified farmers, including a thorough inspection of the tenant's operation. Background checks are also important as lenders and local contacts will give a better insight to the credit worthiness of the farmer.

The manager should have a large pool of potential tenants that are competing for a given property. Competition between operators for leasing a property will give the landlord the highest possible rent. A good manager will know what market rent is in the area and use that as a starting point for negotiating.

Identifying the right type of lease will differentiate a good farm manager from a great farm manager. Each lease presents different cash flow and risks. It is imperative that the owner and manager are on the same page and comfortable with the chosen lease and the amount of risk exposure to the landlord.

There are four commonly used leases:

• Cash Rent Lease: Tenant pays a specified amount of cash per acre per year to farm the property. The payment is made in full before any seed is planted; typically paid on March 1st of the leased year.

• Flex Lease: This lease is a variation of the Fixed Cash Lease. Rent will vary based on yields and crop prices throughout the year. This lease gives the landlord a share of the risks associated with farming in a given year.

• Crop-Share Lease: Tenant pays landlord with a percent of the crop or income that is produced. In a typical lease, the landlord would split the input farming costs of fertilizer, seed, pesticides, etc. In some instances, the landlord is responsible for marketing their share of the crop as well.

• Custom Farm Lease: This is the most involved an owner can be in a farming operation without actually farming. The owner takes on the input costs including fertilizer, seed, pesticides, herbicides, etc. while an operator is contracted out by the owner for performing farming tasks throughout the year. 100% of the production is retained by the owner.

Although each lease has its differences, there are two important aspects in common; price and length.

Price of rent can be the deciding factor on whether or not to purchase a property for investment. A good manager will not only use market averages, but also forecast an income statement for the property to estimate what the owner’s share of income should be.

The second part of negotiating a lease is the length. A long-term lease is not always in the landlord's best interest. If a lease is signed for $100 per acre for five years, and after two years the market rent increased from $100 to $125, the landlord is missing out on $25 per acre. Negotiating a one to three year lease ensures the landlord will be receiving the current fair market rent.

Production

It is always important to track crop conditions, but for certain leases, including flex and custom farming where the landlord has upside potential in the production of the property, crop conditions are of utmost importance. Farm managers work with farmers to ensure planting was successful and the correct seed varieties were planted for the climate forecasted during the upcoming growing period.

Throughout the planting season, farm managers keep in contact with operators to note how the crops are progressing which will help build a strong historical file for the property. Farmland with consistent proven yields of 200 bushels of corn will have a higher value than a property that has a volatile production history of similar soil quality as future buyers prefer consistent yielding properties.

Harvest will produce yield data that farm managers record for the property's historical file. Often operators will have a yield map that will be supplied to the farm manager, helping the manager understand where the strongest yielding areas of the field are located along with other features like compaction or poor drainage. Matching soil types from a soil map to the yield map often will reveal where the poorly drained areas of the property are located. A manager will then explore where additional drainage relief is needed, let it be tile, surface intakes, or a waterway.

 
Farmland Forecast   Soil Map MN Farm yield map overlay marc schober colvin cheney farm management 2012

Fertility

Once harvest is complete and farmers begin to plan their input purchases for the following year, farm managers will work with farmers to gauge the fertility of the property with the use of soil samples. Farmers test soil fertility via soil samples at least every other year to make sure the correct amount of fertilizer is used to achieve optimum yields.

Additionally, farmers do not want to apply too much fertilizer than their soil Cation-Exchange Capability (CEC) can handle which would lead to wasted fertilizer and money. Soil CEC refers to the amount of nutrients a soil can absorb efficiently at a given pH level. If a soil has a low CEC, then over fertilizing can lead to fertilizer runoff and waste.


Farmland Forecast   potassium soil sample ppm marc schober colvin farm management cheney cec mn farm (2)

Farm managers work with the farm operator after comparing yields maps, soil maps, and soil sample maps to discuss the property's nutrient program moving forward to meet fertility goals while maximizing yields.

Tracking soil fertility through soil samples is essential for future property value increases. Typically, purchasers do not want to buy a property with poor nutrient levels. Although poor fertility is not typically permanent, application of macro and micro nutrients along with lime are required to bring fertility up to adequate levels over a period of multiple years which can carry significantly high costs and lead to lower rents. If a landowner currently holds a property with poor fertility, it is important to have a farm manager work with the operator to build a nutrient program to rebuild the property's fertility.

Conservation Management

Farmland is arguably the most important asset to sustaining life on an ever growing planet. World population is growing at an exponential rate, and taking care of and conserving farmland is essential to feeding the growing population. In order to conserve our precious asset, the USDA developed the Natural Resource Conservation Service (NRCS). The NRCS helps land owners reduce soil erosion, enhance water supplies, improve water quality, increase wildlife habitat, and reduce damages from floods and other natural disasters.

There are a variety of programs a farmland owner could sign up for; the programs most used by farmland owners include the Conservation Reserve Program (CRP), Grassland Reserve Program (GRP), Water Bank Program (WBP), Wetland Reserve Program (WRP), and Emergency Watershed Program (EWP). Each has its own unique characteristics, but in general when land is enrolled in these programs, the owner receives yearly payments and the contracts typically last 10 to 15 years.

In order to sign up for these programs, the farm manager must put in a considerable amount of work and due diligence. Having a good relationship with the local NRCS office can help simplify signing up for a conservation program. Depending on when a landowner starts to sign up for a program, communication with the NRCS office will last for one to two months. Weekly interactions via phone or e-mail are a must and having a good relationship with an NRCS representative is essential for a smooth process.

To start the process of signing up for a conservation program, a manager must first have detailed knowledge of the land and what areas they would like to have signed into a program. Aerial maps showing outlines of possible areas will need to be procured and presented to the NRCS. Upon review of maps and physical examination by the NRCS, they will determine what type of conservation program the land falls under. Each program has its own due dates for signing up. It is crucial that the work and due diligence be done in a timely manner as these sign ups typically only come once a year.

Upon approval of the conservation program, a manager will have to work with the current operator to make sure they meet all the requirements the NRCS has set forth. This may include seeding grass, plugging drains, spraying for weeds, or excavating. Getting these requirements completed correctly and in a timely manner is essential as the NRCS does periodic, onsite, evaluations. If the requirements are not met or part of the agreement is breached, it could result in fines or payment stoppage. This should not happen if the manager has done their due diligence and seen the process through to the end.

Adding Value Through Capital Improvements

In order to maximize appreciation, ideal farmability should be targeted by the farm manager and owner which will include capital improvement projects. By taking a diverse approach to capital improvements, farm managers can present projects that can fit any landowner's budget. Common capital improvements cover drainage, erosion, and access.

Adding drain tile is one of the single best additions one can make to a property. The primary reason to install drainage tile in a farm field is to increase productivity through healthier crops. Ideal soil is made up of 50% soil, 25% water, and 25% air. When a heavy rain elevates the water table, the soil loses its 25% air make-up, which will hurt crop growth and increase soil pH levels. Fixing drainage issues by installing drainage tile typically pays for itself through increased yields within five years of installation by farmers paying higher rent. Tile projects have a wide range of cost from small localized projects totaling $1,000 to $2,000 to large scale parallel pattern tile projects running upwards of $750 per acre.

The cost of adding drainage tile can often be immediately added on to a property's value. Since drainage tile is eligible for accelerated depreciation, farm managers work with accountants, farmers, excavators, and previous owners to assign a value to any tile in a property so the landowner can write off the cost as a 100% tax deduction. An accurate tile depreciation valuation can save landowners tens of thousands of dollars on taxable income. Additionally, working installation of drainage tile into a lease can provide opportunity for a landowner to get discounted tile if their operator installs the tile at a reduced rental price.

Precious soil can erode away via the wind, rain, or other weather elements thus striping a landowner of their asset. Farm managers are aware of erosion issues and should be constantly monitoring every property for signs of erosion so they may act fast to limit any soil loss. Simple solutions to localized erosion including installing a berm or retaining wall and extreme measures including installation of waterways, ditches, terraces, or other major excavation work which would be administered by the farm manager.

Farmland Forecast   After erosion issue mn fixed by colvin farm management marc schober cheney colvin top soil clay

Another excellent way to increase property value is by adding field access points. On a yield map managers will note poor yields that were caused by soil compaction. Often soil compaction is caused by heavy machinery running over the same area repetitively; often near field access points. By adding multiple points of access, farmers can cut down their traffic on compaction areas, thus increase total production over time.

In years of drought, any farmland would benefit from an irrigation system. Farm managers will work with irrigation outfitters to price an irrigation system and generate a long-term economic analysis of installing an irrigation system. Depending on the property's location and soil makeup, irrigation can substantially increase yields, cash rents, and position the property for ultimate appreciation.

Additional Revenue Opportunities

Revenue can be created on farmland, not just via farming operations, but also through other means including wind easements, hunting rights, and advertisements.

Landowners can benefit from having a wind farm a part of their property by leasing the property's wind rights. These contracts are created in the first process of building a wind farm, so land owners get paid prior to any building. When the wind farm is finalized and constructed, land owners will receive fixed and variable payments based on electricity production. Landowners could receive up to $15,000 per year on a 160 acre parcel, although each wind company’s contract will differ. Farm managers will handle agricultural impact and economic research behind any such wind project, keeping in mind the property's future for appreciation at all times.

Farmland Forecast   Farm Management Services Schober Cheney Colvin Wind Turbine Wright County Iowa Value 2012

 

Midwest farmland produces the best corn yields in the world, but also some of the best hunting as well. Upland birds, waterfowl, and deer hunting are some of the most sought after hunting experiences that outdoorsmen demand. By leasing out farmland to hunters for hunting rights, landowners can generate increased annual ROI on top of their crop production lease. Farm managers will source tenants, work with an attorney to draft a proper lease, recommend insurance protection, and manage the hunting rights lease on farmland.

Often farmland is located on a desolate gravel road upwards of 15 miles from the nearest housing development or town, but sometimes farmland will be located on a busy highway or interstate with high amounts of traffic. Roadways with high traffic levels lead way for advertisement potential on neighboring farmland. Progressive farm managers will investigate advertisement potential of property and work with a billboard company to put together an investment proposal to see if billboard advertisement would generate additional ROI via rent payments and increased land value.

Insurance

A good farm manager will go above and beyond standard management to insure a client has protection against liability. Farming can be a dangerous job with many hazards as large machinery will be used on a given property throughout the year. Accidents can happen, and making sure a client is protected from liability is important. Typically a farm manager will not administer insurance, but pointing the client in the right direction and helping with the process is a duty a manager should embrace.

Taxes

Property taxes are paid each year, due on specific dates that vary by state. A manager will need to be familiar with each state's due dates to ensure their client is compliant as clients might have multiple properties across several states. Failure to pay property taxes could result in fines on the property, so educating a client on property taxes is essential to a manager's duties.

Communication

Communicating with clients is vital throughout the management process to ensure the client and managers are in collaboration to meet shared goals. As described in detail in the paragraphs above, each management duty is conducted for a reason. Communicating why certain duties are performed will keep all parties on the same page.

Typically, the farm manager will provide a written annual report, highlighting the previous farming season, the outlook for the coming season, and potential capital improvement projects. This will assist the client in documenting the farming operation and better understanding the economics of their investment.

Essential Management

The unique investment opportunity farmland provides to investors requires hands on management unlike other asset classes. Farmland is exposed to not only economic elements, but the tangible weather elements as well, making oversight of the asset more important and strenuous. High-quality farm management will help add value and maximize ROI by providing proactive guidance and supervision to farmland property.

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

 

Severe Drought Affecting Rural Economics

Jul 24, 2012

The Rural Mainstreet Index (RMI) decreased to its lowest level in two years, to below growth neutral, as severe drought conditions continue to have an adverse effect on the rural economy . The farmland price index declined this month to its lowest level since September of 2010, but remained above growth neutral for the 30th consecutive month.

The Rural Mainstreet Index decreased to 47.9 from  56.7 in July to its lowest level since September of 2010. This month's data broke a ten month streak of being above growth neutral.

Rural Mainstreet Index July 2012

According to Creighton University economist Ernie Goss, “The drought is putting a dent into the economies of the agriculturally dependent areas of the 10-state area. Just as the region has benefited mightily from very healthy farm income over the past few years, we are now detecting warning signals of a significant economic reversal for rural areas.” 

Agriculture
Although the farmland price index decreased, it remains above growth neutral, posting a 58.6 from a 60.0 in June. This marks the 30th consecutive month the index has been above growth neutral. The farm equipment sales index decreased significantly to 46.1 from June's 54.7, its lowest level since 2009.
 
“Much weaker economic conditions are slowing growth in farmland prices. Furthermore, farmers are clearly reducing their purchases of agriculture equipment. This pullback will soon affect urban areas of the region,” said Goss.
Farmland Price Index July 2012
Bankers were asked this month how the drought has impacted ethanol and biodiesel production. Of bankers with plants in their area, 64.3% reported negative impacts, 21.4% indicated plant closures and 42.9% reported cutbacks in operations. "The lack of available crops and higher prices for corn and soybean are having significant and negative impacts on ethanol and biodiesel producers in the area,” said Goss.   
Banking
For the fifth consecutive month the loan volume index has increased to a 65.3 from 64.2 a month prior. Bankers were asked how the drought has affected borrowing, and approximately 29% reported an increase in borrowing. The check deposit index decreased to 47.9 from 55.3 in June and the certificate of deposit and savings instruments increased slightly to 41.7 from 38.9 in June.
July's hiring index decreased to 52.8 compared to 59.1 in May. “Even though we tracked hiring growth for the month, the index was down for June. I expect hiring to drift lower with job losses in the months ahead as the impacts of the drought spread,” said Goss.
The economic confidence index decreased to 40.9 from June's 58.5. “This is the largest one month decline that we have recorded since we began this monthly survey in December 2005. The drought has turned economic optimism into economic pessimism,” 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 

Crop Progress: Bad Gets Worse

Jul 23, 2012

Corn and soybean conditions declined from their already critical state. Prices for all three grains are hitting all time highs as supply is expected to be slim come harvest.

 

As of July 23, 2012 corn conditions have declined to 26% of the crop in good or excellent condition, a 5% drop from last week and a 36% decline from last year at the same time. 86% of the corn was silking which is above the five-year average of 59%. As of the fourth week of July, 22% of the corn crop is doughing, compared to the five-year average of only 7%. Corn prices increased by 4.9% over the past week ending at $8.14 per bushel and year-over-year prices have increased by 18.0%.

 

As of the fourth week of July, 79% of U.S. soybeans have bloomed which is ahead of the five-year average of only 60%. Soybean conditions were 35% in very poor or poor condition compared to 11% a year earlier. Soybeans in good or excellent condition have decreased by 3% from last week to 31%. Soybean prices increased by 4.0% over the past week ending at $16.98 per bushel and year-over-year prices increased by 23.0%.

 

Spring wheat conditions are 60% in good or excellent condition and only 11% in poor or very poor condition. 82% of the winter wheat has been harvested, compared to 71% at the same time last year. Wheat prices ended the week at $9.12 per bushel, a 3.2% increase from last week. Year-over-year wheat prices have increased 31.8%.

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

 

Corn Crop in Critical Condition

Jul 16, 2012

Corn and soybean conditions have yet again plummeted as hot and dry weather continues to abuse the crops along the Corn Belt.

 

As of July 16, 2012 corn conditions have declined to 31% of the crop in good or excellent condition, a 9% drop from last week and a 35% decline from last year at the same time. 71% of the corn was silking which is above the five-year average of 36%. Corn prices increased by 0.1% over the past week ending at $7.76 per bushel and year-over-year prices have increased by 13.0%.

 

As of the middle of July, 66% of U.S. soybeans have bloomed which is ahead of its five-year average of only 42%. Soybean conditions were 30% in very poor or poor condition compared to 10% a year earlier. Soybeans in good or excellent condition have decreased by 6% from last week to 34%. Soybean prices decreased by 1.9% over the past week ending at $16.33 per bushel and year-over-year prices increased by 16.6%.

 

Of the six primary spring wheat producing states, 94% of the wheat has headed compared to only 54% at the same time last year. Spring wheat conditions are 65% in good or excellent condition and only 8% in poor or very poor condition. 80% of the winter wheat has been harvested, compared to the five year average of only 65%. Wheat prices ended the week at $8.84 per bushel, a 6.8% increase from last week. Year-over-year wheat prices have increased 31.0%.

 

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

WASDE: Largest Corn Yield Reduction in a Decade

Jul 11, 2012

The USDA projected corn yields in 2012 have dropped 12% month-to-month, the largest monthly reduction in the last decade, due to the worst drought in the Midwest since 1988. As expected, the USDA offset part of the yield loss with decreased feed and ethanol demand for corn. The July WASDE also estimated that soybean yields have deteriorated by 3.4% to 40.5 bushels per acre.

Corn

 

Due to the rapid decline in U.S. corn conditions, average yield for 2012 has been reduced by 20 bushels per acre to 146 bushels per acre. Total U.S. production has been lowered 1.8 billion bushels from June's report, equal to the total annual production of Mexico and Argentina combined!

 

2012/13 U.S. corn usage has been projected down 650 million bushels due to higher prices and reduced supplies. U.S. corn usage to produce ethanol in 2012/13 was also projected 100 million bushels lower. Corn exports were projected to decline by 300 million bushels as U.S. shipments will be limited due to higher prices, tight supplies, and competition from South America 

 

2012/13 ending stocks were reduced to 1.2 billion bushels, a 698 million bushel reduction from last month. The 2012/13 projected range for season-average corn prices was increased slightly to $5.40 to $6.40 per bushel.

 

Global coarse grain supplies in 2012/13 were estimated to decrease 47.6 million tons mostly due to the reduction in the U.S. corn crop. Partly offsetting the reduction were increases in production in EU-27 and Canada.

 

This year's drought conditions are the worst since 1988 when production fell 31% from the previous year and crops along the eastern Corn Belt have already been damaged beyond repair. We will keep a close eye on weather patterns as we see weather as the key driver for the grain complex.

Soybeans

2012/13 U.S. soybean production has been projected down 155 million bushels, to 3.050 million bushels. Average soybean yield was projected at 40.5 bushels per acre, a 3.4% drop from last month due to lack of rain and hot weather across the Corn Belt.

 

2012/13 U.S. soybean exports were decreased this month by 115 million bushels to 1.37 billion bushels. U.S. ending stocks for 2012/13 were projected down 10 million bushels, to 130 million bushels. The 2012/13 average soybean price was projected at $13.00 to $15.00 per bushel, a $1.00 increase on both ends of the range.

Wheat

 

2012/13 U.S. wheat supplies were increased this month by five million bushels due to increased beginning stocks. Production in 2012/13 has been reduced by 10 million bushels due mainly to the reduction in winter wheat production.

 

U.S. wheat exports for 2012/13 were projected 50 million bushels higher due to the lack of competition from the Black Sea exporters. The season average wheat price for 2012/13 was projected $0.60 higher on both ends at $6.20 to $7.40 per bushel.

 

Global wheat supplies for 2012/13 were decreased by 5.1 million tons. Global production for 2012/13 was lowered as there were reduced crop prospects for several exporting countries including Russia, Kazakhstan, and China.

Outlook

 

Although this report is important and showed an extreme change in yield prospects, it will be looked at and quickly thrown to the side; the market will change its focus back to the weather. The weather in the Corn Belt will dominate the headlines as sustained hot and dry weather will continue to deteriorate crop conditions and power the grain complex.

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

Crop Progress: Corn Crop at Irreversible Condition?

Jul 09, 2012

Corn and soybean conditions declined by another 8% this week due to continued hot and dry weather across the Corn Belt. Farmers are starting to realize that a large chunk of their corn crop has been lost to the heat wave.

 

As of July 9, 2012 corn conditions have again declined to 40% of the crop in good or excellent condition, compared to 48% last week and 69% last year. 50% of the corn was silking which is above the five-year average of 19%. Corn prices increased by 12.0% over the past week ending at $7.75 per bushel and year-over-year prices have increased by 20.7%.

 

As of the second week of July, 44% of U.S. soybeans have bloomed which is ahead of its five-year average of only 25%. Soybean conditions worsened as 27% is in very poor or poor condition compared to 22% last week. Soybeans in good or excellent condition have decreased by 5% from last week to 40%. Soybean prices increased by 8.7% over the past week ending at $16.65 per bushel and year-over-year prices increased by 23.7%.

 

Of the six primary spring wheat producing states, 88% of the wheat has headed compared to only 24% at the same time last year. Spring wheat conditions are 66% is in good or excellent condition and only 7% is in poor or very poor condition. As of the first week of July, 75% of the winter wheat has been harvested, compared to the five year average of only 56%. Wheat prices ended the week at $8.10 per bushel, a 7.4% increase from last week. Year-over-year wheat prices have increased 24.4%.

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

 

Crop Progress: Corn Crop at Alarming Conditions

Jul 02, 2012

Corn and soybean conditions declined by an alarming 8% as the Corn Belt continues to see hot and dry weather. Abundant rainfall would help, but not replace the record 2012 corn crop that was predicted. Farmers are starting to find crop conditions beyond repair this summer and losing a significant portion of their crop.

 

As of July 2, 2012 corn conditions have again declined to 48% of the crop in good or excellent condition, compared to 56% last week and 69% last year. 25% of the corn was silking which is above the five-year average of 8%. Corn prices increased by 9.7% over the past week ending at $6.92 per bushel and year-over-year prices have increased by 9.8%.

 

As of the first week of July, 26% of U.S. soybeans have bloomed which is ahead of its five-year average of only 12%. Soybean conditions worsened as 22% is in very poor or poor condition compared to 15% last week. Soybeans in good or excellent condition have decreased by 8% from last week to 45%. Soybean prices increased by 3.4% over the past week ending at $15.32 per bushel and year-over-year prices increased by 15.9%.

 

Of the six primary spring wheat producing states, 73% of the wheat has headed compared to only 12% at the same time last year. Spring wheat conditions are favorable as 71% is in good or excellent condition and only 5% is in poor or very poor condition. As of the first week of July, 69% of the winter wheat has been harvested, compared to the five year average of only 43%. Wheat prices ended the week at $7.54 per bushel, a 4.1% increase from last week. Year-over-year wheat prices have increased 29.1%.

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

 

Hot Weather Sets Grain Market on Fire

Jul 02, 2012

Extremely hot weather in the Corn Belt has left crop conditions at dangerously low levels and grain prices reaching nine month highs. Illinois and Indiana have been the hardest hit by drought, which rank second and fifth in corn output respectively. Expectations for a record corn crop in 2012 are all but eliminated and the question now is “How tight will stocks be?”

The weather concerns offset macro issues and the latest USDA acreage report, which said farmers planted more corn and soybeans than traders had expected, with the corn acres the largest since 1937 and soybeans the third highest ever.

Grain Prices

Corn prices closed at $6.72 per bushel and increased by 21.0% in June due to a substantial deterioration in crop conditions. As of June 25, 2012 corn conditions have deteriorated to 56% of the crop in good or excellent condition, compared to 72% last month and 68% last year. In the June WASDE, the USDA kept the average corn yield for 2012/13 at 166.0 bushels per acre, but we expect a substantial decrease in the yield and ending stocks in the July report.

Corn stocks as of June 1, 2012 were estimated at 3.15 billion bushels, a 14% decrease from last year. Of the 3.15 billion bushels, 1.48 billion are stored on farms, down 12% from 2011. 1.67 billion bushels were being held in off-farm locations, a 16% decrease from last year. Disappearance from March 2012 to May 2012 was 2.87 billion bushels a year prior.

Hot weather and fears of tight supplies left soybean prices 12.9% higher in June to close at $15.13 per bushel. Soybeans in good or excellent condition are at 53% compared to 65% last year. As with corn, we expect a major change to the soybean balance sheet in the July WASDE.

Soybean stocks as of June 1, 2012 were estimated at 667 million bushels, a 8% increase from 2011. On-farm stocks were 179 million bushels, a 18% decrease from a year prior. 488 million bushels were located in off-farm locations, a 22% increase from last June. Disappearance from March 2012 to May 2012 was 707 million bushels, a 12% increase from last year.

Wheat prices increased by 14.2% this month, closing at $7.39 per bushel on the back of the strength in the corn market. Spring wheat conditions are favorable as 77% is in good or excellent condition and only 4% is in poor or very poor condition. Winter wheat conditions continue to outpace last year's conditions with 54% of the winter wheat crop in good or excellent condition, a 19% increase from last year.

Wheat stocks as of June 1, 2012 were estimated at 743 million bushels, a 14% decrease from a year prior. 112 million bushels were held in on-farm locations, down 14% from last June. Off-farm stocks were estimated at 631 million bushels, a 14% drop from a year ago. Disappearance from March 2012 to May 2012 was 457 million bushels, a decrease of 19% from last year.

Planted Acres

U.S. farmers are expected to plant 228.5 million acres of corn, soybeans, and wheat for the 2012 crop year, a 3.3% increase from 2011's 221.3 million acres. Improving agricultural economics and grain prices are incentivizing farmers to plant as many acres as possible.

Corn planted acres for 2012 were estimated at 96.4 million acres, the largest acreage since World War II and a 5% increase from 2011's 91.9 million acres. This is an increase from March's estimate of 95.9 million acres, but not surprising as on average the USDA increases planted corn acreage by 1.3% from the March to June acreage report.

Soybean planted acres were estimated at 76.1 million acres, an increase of 1% from last year's 75.0 million acres and the third highest on record. Record breaking planted acreage is expected in New York, North Dakota, and Pennsylvania. South Dakota expects to tie its previous record high. The increase in soybean acres planted was due to an early winter wheat harvest which allowed farmers the potential to double-crop with soybeans.

Wheat planted acres were estimated at 56.0 million acres, an increase of 3% from 2011's 54.4 million acres. Not much has changed since March's Prospective Planting report of 55.9 million acres as high wheat supplies provided little incentive for farmers to plant wheat.

Outlook

We expect crop conditions will continue to deteriorate, but over the next few weeks corn pollination will dictate how severe yield damage will be due to harsh weather conditions. The U.S. corn crop is entering the critical pollination growth stage which is when kernels become pollinated and grow. If extreme hot and dry weather persists throughout the pollination period, major yield loss will be felt throughout the Corn Belt.

Poor crop conditions have lead to higher crop prices which will help offset farmer yields losses. The farmers that have above average crop conditions paired with the high new crop prices will have much higher income post harvest which could translate to even higher farmland values. Because farmers make up the overwhelming majority of farmland buyers, farmers will be willing to pay higher prices from property within their farming operation radius.


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