May 22, 2013

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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.

Farmland Values Increase by 20% in Plains States

May 21, 2013

For the third straight year, farmland prices in the Tenth Federal Reserve District have increased by double digits year over year, a record for this survey. Farmer income also remained elevated, but bankers are concerned going forward as low crop prices and higher input costs may curb farmer income.

Farmland Prices

Year over year cropland values increased 20% in the first quarter of 2013. Although values continue to move upward, the pace of that increase has slowed down. Non-irrigated farmland rose 3.4% over the first quarter of 2013 compared to a 7.7% increase in 2012. Irrigated farmland rose 2.9% versus a 9.0% gain in 2012. The slight slowdown in the quarterly value can be attributed to a deceleration of farmer income.

Kansas City Fed Farmland Values first quarter 2013

Farm Income

Income remained elevated for farmers in the first quarter of 2013, but the growth was limited due to declining crop prices and increased prices for inputs. Input, especially seed and fertilizer, expenses increased as planting season approached. Crop prices were held in check due to higher than expected inventories reported toward the end of the quarter.

Although farmer income remains stable, one out of three bankers indicated that a large share of their clients had debt-to-asset ratios above 40%. They noted that the rising value of land and production costs was increasing young and beginning farmers’ debt responsibility.

Farm Loan Portfolio

Demand for operating loans decreased as farmers used revenue from crop sales and insurance payments to pay for inputs such as seed and fertilizer. As lenders compete for borrowers, interest rates continue to drop for short-term operating loans, intermediate-term machinery loans, and long-term farm real estate loans.

Tenth District Farm Loan Demand and Funds Availability First Quarter 2013

Bankers commented that credit conditions are stable as farmers paid down debt. Bankers also noted that loan repayments in the first quarter of 2013 were not as strong as last year. Farmers took advantage of tax incentives in the fourth quarter of 2012 which resulted in a surge of capital spending. The spending continued into 2013 as the tax incentives were extended.

Survey

A total of 223 banks responded to the First-Quarter Survey of Agricultural Credit Conditions in the Tenth Federal Reserve District, an area that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri.

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Crop Progress: Corn Acres Planted Jumps to 71%

May 20, 2013

Improved weather opened up a window for farmers to plant the 2013 crop, resulting in a 43% increase in week to week corn acres planted. Farmers in the Corn Belt will see increased moisture at the beginning of this week, favoring developed crops but slowing down planting the remainder of the crop.

As of May 19, 2013 71% of the U.S. corn crop has been planted. This was a huge jump in acres planted and only 8% behind the five year average of 79%. Corn that has emerged was at 19%, down 27% from the five year average.

Soybeans planted were at 24%, well behind the five year average of 42%. Last year at this time 32% of soybeans had emerged, but only 3% have emerged as of May 19, 2013.

Winter wheat conditions were 41% of the crop in poor or very poor condition compared to only 14% at the same time last year. Winter wheat in good or excellent condition is 31%, compared to 58% last year. Last year at this time 80% of winter wheat had headed, but only 43% has headed this year.

As of May 19, 2013 67% of the spring wheat has been planted, lagging the five year average of 76%. Of the spring wheat crop, 22% has emerged compared to the five year average of 49%.

The July corn contract decreased by 1.0% over the past week ending at $6.49 per bushel, soybean prices increased by 3.2% over the past week ending at $14.64 per bushel, and wheat prices ended the week at $6.85 per bushel, a 3.4% increase from last week. Year-over-year corn prices are up 2.5%, soybeans are up 3.7%, and wheat is down 2.7%.

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Farmland Values Increased 4% in First Quarter of 2013

May 20, 2013

The value of "good" farmland increased 4% in the first quarter of 2013 compared to the fourth quarter of 2012, and year over year values have increased by 15%. Of the five states included in the 7th District, four states posted double digit year over year increases, masking Wisconsin's 3% decrease.

Chicago Fed Quarterly farmland values first quarter 2013

Demand and volume of farmland sales increased in the first quarter of 2013. Additionally, cash rental rates increased 11% compared to 2012, but mark the smallest annual increase in the past two years. When comparing value increase to rental increase (15% vs. 11%) the percentage difference fall in line with historical averages as cash rent usually lags values. Over three quarters of bankers believe values will stabilize in the second quarter.

Earnings

Grain prices are following the trend and according to the USDA's most recent data, corn prices in the first quarter of 2013 were estimated at $7.06 per bushel, a 2.5% increase. Soybean prices were estimated at $14.47 per bushel, a 1.4% increase.

Credit

Credit conditions remain positive for producers but the demand for agriculture related loans fell to its lowest level since 1986.

The average loan-to-deposit ratio was 63.7, the lowest level since 1994. Bankers are concerned because this is 13 percentage points below what they desire. A whopping 89% of bankers are below their desired level of lending.

Interest rates for operating loans and agriculture real estate loans fell to 4.91% and 4.60%; both rates are record lows.

Outlook

Farmers trying to plant the 2013 crop have been met with heavy precipitation, preventing them from getting into the fields; last year at this time almost the entire corn crop was planted compared to only 28% this year. The USDA expects the 2013 crop to be large due to increased production and planted area, but history has show that late planting, especially deep into May, decreases yield significantly. We expect soybean acreage to increase at the expense of corn acreage if late planting persists.

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.

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Crop Progress: 37% Lag in Corn Planting

May 13, 2013

Wet and cold weather persisted throughout the Corn Belt last week, although some farmers have been able to plant due to improving, regional, conditions. Anxious farmers sowed 16% of the 2013 corn crop last week alone. The weather forecast moving forward is warmer with a chance of a storm system moving into the Corn Belt later this week.

As of May 12, 2013 only 28% of the U.S. corn crop has been planted. Farmers are concerned as the five year average at this point of the year is 65% planted. Corn that has emerged was at 5%, down 23% from the five year average. Soybeans planted as of May 12, 2013 was at 6%, behind the five year average of 24%.

Winter wheat conditions are at 39% of the crop in poor or very poor condition, compared to only 14% at the same time last year. Winter wheat in good or excellent condition is 32%, compared to 60% last year. Last year at this time, 51% of winter wheat had headed, but only 29% has headed this year. As of May 12, 2013, 43% of the spring wheat crop has been planted, lagging the five year average of 63%.

The July corn contract increased by 3.0% over the past week ending at $6.55 per bushel, soybean prices increased by 3.7% over the past week ending at $14.19 per bushel, and wheat prices ended the week at $7.09 per bushel, a 1.0% increase from last week. Year-over-year corn prices are up 3.1%, soybeans are up 1.0%, and wheat is up 2.0%.

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WASDE: Initial Report on 2013/14 Crops

May 10, 2013

The May WASDE marks the first report estimating the 2013/14 crops and usually packs a punch of surprises. 2013/14 corn yield was lowered from February's early projections, as expected, but was offset by increased planted acres. Soybean balance sheets for 2012/13 remain unchanged. Wheat decreased in almost every aspect of its balance sheet from year to year.

Corn

U.S. corn production for 2013/14 was estimated 3.4 billion bushels above 2012/13 to 14.1 billion bushels. Corn yields for the upcoming year were projected at 158.0 bushels per acre, a 5.6 bushel decrease from the USDA's Agriculture Outlook Forum in February. The decrease in yields is due to delays in planting in some of the highest producing corn states.

Planted acres was estimated at 97.3 million acres and harvested acres at 89.5 million. U.S. corn supplies for 2013/14 were estimated at 14.9 billion bushels, an increase of 3.0 billion from last year's drought stricken crop. The season average price for 2013/14 is projected at $4.30 to $5.10.

An increase of 16% was expected for U.S. corn use from 2012/13 to 2013/14. Feed and residual use was expected to increase 925 million bushels year over year. Corn use for ethanol was expected to elevate 250 million bushels through the end of 2013 due to a decrease in corn prices.

Exports for U.S. corn are projected at 1.3 billion bushels, an increase from last year's 750 million bushels which was the lowest level since 1970/71. Increased competition from South America and FSU-12 is expected. Ending stocks for 2013/14 was estimated at 2.0 billion bushels.

Global course grain supplies for 2013/14 were estimated to increase by 113.8 million tons from 2012/13 to 1,407.6 million tons. Large production increases are expected from EU-27, FSU-12, China, Brazil, and Argentina.

Many factors remain vulnerable to weather, especially planted acres and yield. We will keep a close eye on planted corn acreage because if it persists it will be converted to soybean and wheat acreage.

Soybeans

U.S. 2012/13 soybean balance sheets remain unchanged this month.

U.S. soybean yields in 2013/14 were estimated at 44.5 bushels per acre, a 4.9 bushel jump from 2012/13. Increased harvested area and yield for 2013/14 has soybean production at 3.390 billion bushels, a 375 million bushel increase from last year.

Due to increased supplies and competitive pricing U.S. soybean exports for 2013/14 were estimated at 1.450 billion bushels, a 100 million bushel increase from 2012/13. The projected season average price range for 2013/14 was $9.50 to $11.50 per bushel.

Global oilseed production in 2013/14 was increased by 4.7% compared to last year, to 491.3 million tons due mainly to increases in soybean production from South America.

Wheat

U.S. wheat supplies in 2013/14 were estimated at 2.917 billion bushels, a 7.0% decrease from 2012/13. Wheat production was decreased by 9.0% compared to last year, to 2.057 billion bushels. Yields for the 2013/14 crop year were projected at 44.1 bushels per acre, a drop of 2.2 bushels from 2012/13. The season average wheat price for 2013/14 was estimated at $6.15 to $7.45 per bushel.

Total U.S. wheat use for 2013/14 was decreased year over year by 7.0% due to decreased exports (down 100 million bushels from 2012/13) and a decrease in domestic use.

Outlook

While this report was slightly bearish, many factors can change due to weather within the next month to affect yield, total production, planted acres, harvested acres, etc. We will keep a close eye on the wet weather pattern in the corn belt and whether farmers will be able to plant the corn crop in time for optimal growing days.

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

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