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December 2013 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.

Rural Economy Grows at Steady Pace

Dec 23, 2013

The Rural Mainstreet Index (RMI) advanced further above growth neutral this month as bankers believe the rural economy of the U.S., dependent on agriculture and energy, continues to expand at a healthy rate. The farmland price index which has been above growth neutral for almost four years has dropped to slightly below growth neutral.

Dual Farmland Price and Rural Mainstreet Index December 2013

The Rural Mainstreet Index, ranging between 0 and 100 with 50.0 representing growth neutral, increased to 56.1 from a 54.3 in November. Although the rural economy is growing at a steady pace, there are risks as we enter 2014 as Ernie Goss, economist at Creighton University, points out, "This month we asked bankers to name the biggest threat to the rural economy for 2014. Approximately 80.6 percent named lower agriculture prices to be the greatest economic threat in the next year while 10.6 percent said the Affordable Care Act was the biggest economic challenge for 2014."

The farmland price index contracted to 47.0, the lowest level since December 2009. Goss noted, "This is the first time in four years that the farmland-price index has moved below growth neutral. As agriculture commodity prices have moved lower, so have farmland prices."

For the sixth month in a row, farm equipment sales were below growth neutral at 44.3, down three points from last month. "Over the past year, grain prices have declined by roughly 35 percent. This has significantly reduced farmers’ willingness to purchase agriculture equipment," said Goss.

The loan-volume index increased to 66.7, from November's 56.9. The checking-deposit index fell to 66.0, from 72.0 last month.

Bankers were asked this month what the largest threat to community banks will be as we move into 2014. Over half of bankers believe increased regulatory costs were the number one risk to community banks and a fourth of bankers believe low loan demand to be the largest threat. 

Chart of RMI December 2013

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 

WASDE: Ending Stocks Dwindle on Higher Demand

Dec 10, 2013

Demand for feed, seed, and ethanol from across the globe and domestically has strained U.S. corn and soybean supplies. The global demand for these two grains has increased as exports have risen by a combined 75 million bushels, due to lower domestic grain prices. Although demand remains elevated for corn and soybeans, it is being met with increased global production.


Corn 

U.S. corn use for the 2013/14 marketing year increased 100 million bushels due to an increase in exports and a rise in food, seed, and industrial use. Corn use for ethanol is estimated 50 million bushels higher due to attractive blending margins since mid October. Exports are also estimated 50 million bushels higher due to strong sales to date and projected increase in global demand.

Due to the rise in domestic and foreign demand for corn, ending stocks for 2013/14 were decreased 95 million bushels to 1.792 billion, the highest since 2005/06. The season average corn price for 2013/14 was decreased 10 cents at the midpoint to $4.05 to $4.75. Global course grain supplies for 2013/14 were increased by 3.6 million tons due mainly to the increase in global corn production.
 
WASDE Ending Stocks December 2013

Soybeans  

Production for the 2013/14 year was unchanged at 3.258 billion bushels. U.S. soybean supplies for 2013/14 were increased by 10 million bushels due to an increase in imports. Soybean exports were increased 25 million bushels as there have been record commitments through November.

Soybean ending stocks for the 2013/14 marketing year were contracted 20 million bushels to 150 million, due to increased exports. The projected season average price range for 2013/14 was $11.50 to $13.50 per bushel, an increase of 35 cents on both ends of the range.

Wheat  

U.S. wheat supplies for 2013/14 were increased by 10 million bushels due to higher than expected imports. As a result, U.S. ending wheat stocks for 2013/14 were raised 10 million bushels. The season average wheat price for 2013/14 was estimated at $6.65 to $7.15 per bushel, narrowed by 10 cents at the midpoint. 

Global wheat production for 2013/14 was increased by 5.0 million tons due mostly to a projected record crop from Canada. Record production in Canada is expected to spill over into the U.S. market.

Outlook 

Demand for U.S. grain seems to be picking up at home and abroad. Ethanol demand has picked up the past few months due to favorable blending margins and analysts believe this demand will stay or increase in the first part of 2014. Global demand will be the hot topic as we move through the winter months. 
 
For daily articles on farmland and agriculture, visit www.farmlandforecast.com
 

Farmers to Harvest Record Profits in 2013

Dec 02, 2013

Harvest is almost finished in the U.S. Corn Belt due to favorable fall weather, with a majority of farmers reporting higher than anticipated yields. 2013 U.S. farmer income is expected to increase 15.1% to a record $131 billion, due to strong corn and soybean yields, according to the USDA. The total corn yield was estimated at a record 13.989 billion bushels and the soybean crop was estimated at the third largest on record at 3.258 billion bushels. Farmers are remaining cautious going into 2014 with current corn futures in the $4.25 to $4.55 range.

The big news in November was the Environmental Protection Agency (EPA) made drastic cuts to the Renewable Fuel Standards (RFS) blending requirements. Mandated blends were cut by a total of 2.94 billion gallons to 15.21 billion gallons of renewable fuels. The corn based ethanol mandate was retracted to the lowest level since 2011 to between 12.7 billion gallons and 13.2 billion gallons. The EPA's proposal is open to 60 days of public comment before being finalized in spring of 2014. Renewable Identification Numbers (RIN) prices declined significantly following the EPA's announcement as refiners expect these goals are achievable based on expected gasoline consumption in 2014.

Grain Prices

December corn prices decreased in November by 3.1% to close at $4.15 per bushel. Following the EPA's announcement, corn prices tested 38-month lows. Weather throughout harvest was very favorable, which also allowed new crop corn to enter the market without delay. U.S. corn production was estimated 146 million bushels higher this month to 13.989 billion bushels in the November WASDE Report. The average U.S. corn yield was also increased by 5.1 bushels per acre to 160.4 bushels per acre, more than offsetting a 1.9 million acre reduction in harvested acres.

January soybean prices increased by 5.5% this month, closing at $13.36 per bushel. The USDA estimated the U.S. average soybean yield 1.8 bushels per acre higher in November to 44.8 bushels per acre. Total production was in turn increased 109 million bushels to 3.258 billion bushels, which more than offset a 0.7 million acre decrease in harvested acres. Ending soybean stocks were estimated 20 million bushels higher this month, but are still extremely low at 170 million bushels. The very tight U.S. supply of soybeans has led to an even faster pace of sales to foreign buyers, including China this month. If any issues arise in the South American crop, expect soybean prices to quickly advance.

December wheat prices declined 1.8% in November, closing at $6.55 per bushel. The increased value of the U.S. Dollar has put downward pressure on U.S. wheat prices throughout the month. U.S. wheat production was increased 14 million bushels on late, unaccounted for, harvest data in North Dakota and Montana. The average U.S. wheat yield was increased by 1.0 bushel per acre in this month's WASDE Report to 47.2 bushels per acre.

Harvest/Planting Update

Weather throughout November was very favorable for harvest as 95% of U.S. corn had been harvested as of November 24th, compared to the average of 91%. North Dakota, Wisconsin, and Michigan are the only lagging states with 14% to 18% of corn yet to be harvested.

The condition of U.S. winter wheat is significantly better than one year prior. 62% of winter wheat was estimated in good or excellent condition by the USDA and only 8% in poor or very poor condition. In 2012, only 33% was in good or excellent condition and 26% was poor or very poor as of November 24th.

The South American corn and soybean crops are currently being planted without much delay or weather issues thus far. 78% of the Brazilian soybean crop has been planted and 44% of the Argentine soybean crop, according to Safras. The Argentine corn crop is about one to two weeks behind average planting dates, although there aren't major yield concerns over the slight delay. An interesting statistic emerging from the South American planting data is the soybean to corn acreage ratio of 3.1. On average, the ratio is near 2.3 and farmers look to be favoring soybean planting over corn this upcoming year.

In late November, the Commodity Weather Group (CWG) reported cautiously warm ocean temperatures which could be an early sign of drier weather in Argentina and southern Brazil. Excess moisture in both regions will welcome drier weather, but CWG forecasts the drier than normal weather may persist through February causing yield concern. The South American crop season is in its infancy, but an El Niño weather pattern would be cause for yield risk.

Farmland Values

The Chicago Federal Reserve Bank reported that farmland values increased 14% year over year in the Seventh District encompassing Iowa, Wisconsin, Illinois, Indiana, and Michigan. Indiana and Michigan led all state value increases with 18% and 17% year over year, respectively. Throughout the third quarter of 2013, farmland values increased by 1% in the Seventh District.

In the Tenth Federal Reserve District, non-irrigated farmland values increased 18.7% over the past 12 months, irrigated farmland values increased 21.5%, and ranchland values increased 14.6%. The Kansas City Fed cited limited farmland sales and continued strong demand for the supported increase in farmland values throughout 2013. The Tenth District includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, a portion of New Mexico, and Missouri.

The Creighton University farmland price index increased by 3.4 points in this month's survey and has been above growth neutral for an astonishing 46 months. The farmland price index increased for only the second time in the last 12 months to 54.3 from 50.9 in October. Professor Ernie Goss noted, "Despite the expansion in the index for the month, I expect farmland prices to grow at significantly slower rates for the first six months of 2014 than they did for the same period in 2013.."

Outlook

The weaker grain prices have led to an opportune time for investors to enter into the farmland asset class. Our long-term outlook on corn and soybean prices remains very strong due to increasing global demand over the next decade. The recent decline in corn prices has led to many great opportunities to buy farmland across the Corn Belt. Investors who missed the excellent opportunity to buy farmland in 2009 should strongly consider today's rare opportunity.

Although the EPA's proposed cuts to the RFS mandate pushed corn prices to record lows, it is important to understand the mandates are the minimum amount of renewable fuels required to be produced. Refiners are able to produce well above the mandates, which we expect in 2014 as foreign ethanol demand remains very strong.

In each year since the inception of the RFS, U.S. renewable fuel blenders have exceeded the RFS mandate, putting more renewable fuel into the domestic market and also exporting U.S. blended renewable fuels to other areas of the world, including Brazil and Europe. The emergence of E15 gasoline and the major delay of cellulosic ethanol infrastructure being built should continue to support corn based ethanol production in 2014.

Moving into December, we will be monitoring the South American weather, watching for any abnormalities which could send U.S. commodity prices higher overnight. Even a minor delay in estimated harvest times could send spring U.S. futures prices higher due to the risk of a lapse in the global commodity supply chain.

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

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