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January 2013 Archive for Farmland Forecast

RSS By: Marc Schober,

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

Drought Has Done Little to Stop Rural Growth

Jan 22, 2013

The Rural Mainstreet Index (RMI) remains above growth neutral for the fourth straight month. The farmland price index decreased in January but remains above growth neutral for a record 36th consecutive month.

The RMI dropped to 55.6 from 60.6 in December. According to Creighton University economist Ernie Goss, “Our survey results indicate that the Rural Mainstreet economy continues to expand at a moderate pace. Rural, agriculturally dependent communities in the region appear to have shed the negative impacts of the 2012 drought.”
Rural Mainstreet Index January 2013


The farmland price index decreased to 71.5 from 82.5 the previous month. This marks the 36th consecutive month the index has been above growth neutral. The farm equipment sales index dropped to 63.8 vs. 67.0 last month. Goss commented, “Despite continuing drought conditions in much of the region, growth in farmland prices, cash rents and farm equipment sales remains strong.”

Farmland Price Index January 2013

Bankers were asked this month how the drought has affected farmland prices. Over three fourths, 80%, reported that the drought has had no impact on farmland prices. The majority of bankers believe that livestock producers will be the most negatively affected group if the drought continues into 2013.

The loan volume index decreased dramatically to 39.0 from 62.1 in December. The check deposit index increased to 78.1 from 75.8 last month and the certificate of deposit and savings instruments increased to 42.2 from 40.2 in December. “Banking data appears to indicate that the 2012 drought did not weaken, to any great extent, the financial positions of farms and businesses in the region,” explained Goss.
January's hiring index dropped slightly to 52.4 compared to 53.5 last month. The economic confidence index, which reflects expectations of the economy in the next six months, was unchanged from December at 55.5.
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.

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WASDE: Domestic Demand for Corn Increases

Jan 11, 2013

The USDA's January WASDE and Grain Stocks report was released today at its new time, 11:00AM CST. The highlighted stats included increases in corn yield, offset by an even larger increase in domestic use of corn. Corn, soybeans, and wheat all had a decrease in stocks stored in all positions.


U.S. corn production for 2012/13 was increased by 55 million bushels to 10.78 billion bushels due to a 1.1 bushel per acre increase in average yield. This was slightly offset by a decrease of 346,000 harvested acres.
Corn use in the U.S. for 2012/13 was projected at 11.267 billion bushels, a 100 million bushel increase, due to increased feed and residual disappearance. Ending stocks were lowered by 44 million bushels to 602 million. The stocks-to-use ratio continued to decline by 0.5% to 5.3%.
Exports of U.S. corn was reduced, as the USDA projected a 200 million bushel decrease due to a slow pace of shipments and increased competition from South America. The season average price range remains unchanged at $6.80 to $8.00 per bushel.
Global coarse grain supplies in 2012/13 were estimated to increase 2.9 million tons, mostly due to an increase in the U.S. corn crop and increased production from South America. Global corn consumption for 2012/13 was increased by 5.6 million tons due to U.S. consumption.
USDA reported 8.03 billion bushels of corn on hand for December 1, 2012, a 17% decrease from a year ago. Of the total stocks, 4.59 billion bushels are stored on farms, down 26% to last year. Off-farm stocks were at 3.44 billion bushels, down 1% from a year earlier. September-November 2012 disappearance is 3.74 billion bushels, compared to 3.84 billion bushels a year ago.
Although corn production increased and exports are weak, corn balance sheets will remain tight due to strong domestic demand.
An increase of 44 million bushels to the U.S. production of soybeans was due to an increase in yield and harvested area. The soybean yield increased 0.3 bushels to 39.6 bushels per acre. U.S. 2012/13 ending stocks were increased by 5 million bushels to 135 million bushels. The 2012/13 average soybean price was lowered 30 cents at the midpoint to $13.50 to $15.00 per bushel.
Soybeans stored in all positions decreased 17% compared to last year with 1.97 billion bushels as of December 1, 2012. Stocks stored on farms totaled 910 million bushels, a 20% decrease from a year ago. Off-farm stocks decreased to 1.06 billion bushels, down 14% from last December. September-November 2012 disappearance set a record high 1.22 billion bushels, an increase of 30% from last year.

2012/13 U.S. wheat ending stocks were decreased by 38 million bushels to 716 million. U.S. wheat feed and residual use for 2012/13 was increased by 35 million bushels. The season average wheat price for 2012/13 was lowered 10 cents at the midpoint to $7.65 to $8.15 per bushel.
Wheat stocks decreased slightly from last year with 1.66 billion bushels being reported on December 1, 2012. On-farm stocks were estimated at 400 million bushels, down 1% from last December. Off-farm stocks were up slightly from last year, coming in at 1.26 billion bushels. The September-November 2012 disappearance was 445 million bushels, down 8% from December of last year.

The January WASDE and Grain Stocks reports have historically lead to large price shifts, although for the upcoming months we will track forecasts of planted acres and especially how many corn acres are anticipated. The reports coming in the next few months will only be forecasts, the real data will come when farmers are in the fields planting the 2013 crop.
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Watch Out for the Corn Cliff

Jan 10, 2013

Politicians in Washington were able to avoid going off the fiscal cliff at the last moment, but in 2013, farmers are staring at a new cliff of their own. Expectations for record corn production in South America and the U.S. in 2013 may send grain prices, and farmers, off a cliff. The fiscal cliff had negative long-term implications, but the good news is, the corn cliff may be temporary and result in a race back to the top for prices.


Corn prices are near record highs and U.S. corn supplies are the lowest since 1995. If the U.S. stopped producing corn, we would run out in a quick 21 days. In order to capitalize on the high corn prices, U.S. farmers are expected to plant 99 million acres of corn in 2013, according to Informa Economics. This is the highest acreage since the 1930s and a 12% increase over 2010.


US Corn Planted Acres


Farmers are removing soybeans and cotton from their planting rotations in order to plant as much corn as possible. The Corn Belt is also moving farther west and north into areas that may have never planted corn. North Dakota is expected to plant 4.3 million corn acres in 2013, nearly double the 2011 total, according to Informa Economics.

Despite the worst drought in over 50 years in the U.S. last year and disappointing yields the prior two years, most analysts expect 2013 corn yields to return to trend line averages of 160 plus bushels per acre. Trend line corn yields and 99 million acres could translate to production of over 15 billion bushels and ending stocks above 2 million bushels in 2013.
High corn prices are encouraging South America farmers to increase corn acreage by 5.6% in 2013, which may lead the continent to produce over 100 million tons of corn for the first time ever. Ukraine is also expanding corn production to 25 million tons in 2013 and will position itself as a competitor in the global export market.
As planting expectations continue to mature this spring and the South American crop continues to develop, corn prices may react negatively to the expectations of an increase in supplies. At the end of 2013, the U.S. could potentially have the highest supplies since the mid-1980s. Combined with the largest corn crop ever in South America, corn prices may fall off a cliff to the $4.00 range in the spring of 2013.
2013 Bumper Crop Unlikely
Expectations are for 2013 to be on pace for a global bumper crop, but a good farmer knows that things don’t always happen as expected. Analysts and the market always price in the optimal expectations, which almost never happen in reality.
At the end of 2012, 61% of the U.S. is in moderate or worse drought. Most farmers are not expecting a significant increase in corn yields for 2013 and expect moisture levels to continue to be sub-optimal. Aquifer water levels remain low and farmer’s access to water may be restricted.
The return to trend line yields in 2013 is nearly impossible as the incremental acres allocated to corn are marginable at best. Yields from additional acres in the western Corn Belt, Reserve Programs, and the South, will be well below the national average. With the addition of marginal acres, we see the trend line corn yield between 140 to 150 bushels at best.
Another risk to 2013 production is that farmers may not be able to plant 99 million acres of corn as there may not be enough adequate seed. We expect there to be a shortage of top corn seed varieties in the 2013 planting season, which will leave farmers planting lower yielding corn seeds.
Difficult weather during the planting season in South America may derail their record setting crop. Heavy rainfall in Argentina’s Pampas region and hot dry weather in Brazil has delayed planting and may lead to sub-optimal yields. Brazil’s average corn yield in 2012 was only 63.7 bushels per acre, so there isn’t much margin for error.
Despite the bearish outlook we expect to develop over the next few months, any sell off in corn prices we see as on overreaction. In reality, we expect a decent corn crop in 2013, but nowhere near the levels to add substantially to supplies.
If corn prices decline to the $4.00 a bushel range, we see corn as one of the best investments of 2013 and expect prices to be back to $6.00 by the end of the year. Corn buyers, including China, livestock producers, and investors, are optimistically waiting on the sidelines.


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Grain Prices Lower on Higher Production in 2013

Jan 03, 2013

As 2012 comes to an end, farmers are strategizing planting for next year, while politicians are trying to avoid falling off the fiscal cliff. Most of the U.S. Corn Belt has a solid frost which is starting to kill soil pests, fungus, and other crop nuisances which gives U.S. farmers an advantage unseen in South America. Grain prices suffered in December due to expectations for higher grain production worldwide in 2013 and budgetary concerns in Washington. China has been restructuring their soybean purchases by cancelling multiple 2012/13 orders from the U.S. in hopes of buying at lower prices, although a weak U.S. Dollar may provide the stability grains need.

Grain Prices

Corn prices decreased by 6.7% this month, closing at $6.98 per bushel. Higher corn acreage in the U.S. and South America in 2013 lead to a decline in corn with spillover from the soybean market. The USDA kept corn balance sheets unchanged this month in the WASDE Report. Supplies are still very tight as the stocks-to-use ratio is at 5.8%, the lowest since 1995.

Year-over-year, more than 2.1 million more acres of corn will be planted in the U.S. in 2013 according to Informa Economics, putting the total acreage at 99 million acres. Informa's corn acreage forecast increased due to additional acres projected in the Western Corn Belt, including 500,000 additional corn acres in North Dakota.

Soybean prices decreased 1.3% this month to close at $14.18 per bushel. In early December, soybean prices rallied due to excess moisture delaying the planting in Argentina and the USDA decreasing the amount of estimated ending stocks in the U.S. by 10 million bushels to 130 million bushels on increased crush usage. The hot and dry weather improved in Brazil and soybean prices declined mid-month. China has cancelled U.S. soybean orders totaling close to 1 million metric tons to purchase later at cheaper prices.

Wheat prices declined this month by 7.8%, closing at $7.78 per bushel. U.S. ending wheat stocks were estimated 7.1% higher by USDA to 754 million bushels due to slowed exports and strong competition globally for the second straight month. The drought in the U.S. Plains is a growing concern although recent snowfall has helped conditions.

Farmland Values

Farmland sale prices have continued to increase throughout December as the typical selling season is in full motion. Landowners hoping to take advantage of smaller long-term capital gain taxes were eager to sell and close in 2012 providing opportunity for farmland purchasers.

The amount of investors buying farmland in the U.S. has continued to decline. Farmers have increased from comprising of 70% of all farmland buyers in 2010 to now 78% with only 18% being investors, according to Iowa State University's Land Value Survey released in early December.

The price of Iowa farmland increased by 23.7% from 2011 according to Iowa State's recent land survey. This is the third year in a row that Iowa farmland values increased by more than 15%. High grade farmland, on average, is now valued at $10,181 per acre in Iowa. Low interest rates and increasing commodity prices were two key factors for such an increase in value, according to Professor Mike Duffy.

The Creighton University Farmland Price Index decreased slightly to 82.5 from 83.9 the previous month. This marks the 35th consecutive month the index has been above growth neutral. The farm equipment sales index increased to a 67.0 vs. 60.4 last month. Bankers were asked where cash rents have moved over the last 12 months and respondents believe cash rents have increased by 15%.

South America Crop Conditions

Heavy rainfall totaling over four inches in Argentina's fertile Pampas region in late December has put more pressure on farmers trying to finish planting corn and soybeans before it's too late. The long-term weather forecast appears to be drier in Argentina as a final hope for farmers.

In northern Brazil, the first harvest has recently started on early maturing soybeans. Hot and dry weather had given farmers problems while trying to plant soybeans last month, but cooler weather and adequate rainfall has since helped insure planting was successful. We are closely monitoring any further delay in the South American growing season as it may position U.S. exports to fill a worldwide short-term supply void.


Farmers are preparing for the upcoming planting season by purchasing inputs and trying to acquire additional acres by means of renting or purchasing. Investors will also be sourcing farmland for sale as the typical buying season is still in session for a few more months. We will be closely monitoring planting expectations for 2013 as farmers strategize to take advantage of high commodity prices.

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