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November 2009 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.

Monsanto: Growing Need for Food

Nov 30, 2009
Monsanto recently released a campaign highlighting the importance of sustainable farming and food production. The campaign highlighted the fact that agricultural output will likely need to double by 2050 to meet the growing global demand. The campaign also discussed the growing importance of non-irrigated agriculture, (currently producing 60% of global food supplies), and how this type of farming will become more and more important in the future as water resources continue to be regulated. Currently, agriculture irrigation uses two-thirds of global freshwater withdrawals.
7 of the last 8 years, the global consumption of grain has outpaced total production. To meet future demand, some experts are predicting that we will need to produce more food in the next 50 years than what was produced during the previous 10,000, putting more and more pressure on future farmers and the land they use to produce our food.
To meet these accelerated demands and improve yields, seed and agricultural companies have been developing new innovative ways to grow crops as well as new biotech engineered seeds. A study completed in the Philippines in 2006 showed that yields from biotech corn were 37% higher per acre than conventional seeding.
Another recent study suggests that advances in biotech seeds and agricultural innovations added 100 million tons of global agricultural production between 1996 and 2006, translating into food for 310 million people per year.
Clearly, innovation in the industry is a good thing and required to meet future demand as the world’s population continues to grow. Food production and the land that produces the food, will not only be important to the citizens of the U.S., but will be driven by global demand, putting more pressure on current farmland to produce more and more of the world’s food supply.

Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

Rural Mainstreet Index at 14 month high

Nov 24, 2009
The overall Rural Mainstreet Index (RMI) climbed to a 14-month high according to Creighton University’s November survey of bank CEOs in an 11-state region. The RMI rose to 38.4, which is the highest since September 2008, but still significantly below growth neutral 50. Farm equipment sales, hiring, and retail sales all increased to 12-month highs during November.
 
The farmland price index of 45.6 continued its steady increase from last month’s 43.0 and September’s 41.1. The index has been below growth neutral for 13 consecutive months, but well above its record low in March 2009 of 33.1.
 
The farm equipment area sales index increased to 39.9 this month from 36.7 in October. Hiring increased as well, from October’s 35.6 to 36.3 this month. The retail business index rose to 38.5 from 36.0 in October. The retail business index is at its highest since April of 2008. Sales have picked up across rural mainstreet, but these indexes still indicate a weak economy.
 
The confidence index, which gives an outlook on the economy six months from now, decreased to 50.1 from last month’s 58.7, still representing positive growth. The index is still much higher than its record low from November 2008 of 13.0.
 
Credit has tightened on rural mainstreet. The loan to volume index decreased to a record low 38.3 from October’s 42.4. Bankers are getting mixed messages from the federal government regarding lending. The Treasury Department is encouraging increased lending while bank regulatory oversight is negatively affecting lending by the banks, according to the survey from last week.
 
Outlook
 
As indexes increased this month, many remained below growth neutral. Over the past year, five of the nine indexes that make up the RMI have been below growth neutral.
 
Bankers are forecasting a recovery. The overall RMI is at a 14-month high of 38.4 and the confidence index remained in positive growth.



Farmland values have stabilized according to recent Federal Reserve Bank reports, and the RMI farmland price index. Farmland values decreased across much of the US during the fourth quarter of 2008, but have since stabilized in 2009 due to stronger economic conditions and recovering commodity prices. This has been observed by the RMI farmland price index increasing from its March 2009 low 33.1 to its November 45.6.

Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

Farmland values increase during third quarter of 2009

Nov 23, 2009
Farmland values increased 2% during the third quarter of 2009 across the Chicago Federal Reserve's Seventh District, according to 225 surveyed agricultural bankers. The Seventh District includes Illinois, Indiana, Iowa, Michigan, and Wisconsin.
 

"Good" farmland has historically held its value more effectively than poor farmland. During the third quarter of 2009, good farmland increased 2%, while respondents forecast for fourth quarter values to be down on decreased demand from farmers and investors. The decrease in farmland demand can be attributed to the costly delay of the 2009 harvest across the Midwest and Great Plains.
 

During the third quarter of 2009, farmland in Iowa, Illinois, and Michigan increased the most; 4%, 2%, and 1% respectively. Indiana and Wisconsin experienced a decrease of 1% over the last quarter.
 

Even though Iowa farmland increased the most over the past quarter, it still decreased the most over the last 12 months. Iowa, Illinois, and Wisconsin experienced the largest decreases in farmland values over the past year at 7%, 4%, and 3% respectively. Overall, farmland across the Seventh District decreased 4% over the past 12 months.
 
Credit
 
27% of bankers responded that they have more funds available for loans compared to a year ago, while only 1% have less funds available. As agricultural interest rates have decreased to the lowest levels since 2004, 21% of respondents reported a decrease in repayment rates on loans, while 10% experienced higher repayment rates. 49% forecast a decrease in these repayment rates over the next three to six months.
 
Outlook
 
69% of survey respondents forecast stable farmland values during the fourth quarter of 2009. As values stabilize, investment opportunity rises. We expect the long-term demand for farmland to continue.
 
During the fourth quarter of 2009, 37% of the respondents forecast that there will be fewer land sales compared to 2008's fourth quarter. The late harvest has set back many farmers and decreased the probability of expanding their farms by buying more land.

Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

Management Adds Value

Nov 19, 2009
We came across an interesting article from The Christian Science Monitor, about women farmland owners in Iowa. The article highlights Margaret Doermann, whose husband had passed away and was left in charge of the farmland. Doermann's husband had always farmed the land, but she now leased it out to a local farmer. She realized one day her stream on her property had turned brown from field runoff and her hills were plowed vertically. "That hill had been tilled up and down so the soil would wash right off," explained Doermann. Her concerns landed her in court with the local farmer and they ended up having to renegotiate the farmland lease.

With limited farmland management knowledge, Doermann ended up getting herself into quite a mess with her farmland lease with the farmer. If she would have been aware of how to properly negotiate the farming contracts and what all to include, Doermann could have saved herself a lot of time and money.

A farmland manager may be helpful if a farmland owner has:
·    Conservation as a high priority
·    Little farmland management experience
·    Never negotiated a farmland lease
·    Needs steady income
As a land owner, it is always a good idea to be aware of conservation practices when considering the leasing of farmland. According to the US Department of Agriculture's Natural Resources Conservations Service, some common conservation of farmland practices include:
·    Crop Rotation
·    Contour Buffer Strips
·    Contour Farming & Stripcropping
·    Pasture Planting
·    Grass Waterways
·    Critical Area Planting
·    Manure Storage and Runoff Control
·    Nutrient Management
·    Wetland Restoration
·    Windbreaks
·    Tree Planting
 
The more knowledge and management skills a farmland owner has, the more success will come from their land.
 
Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

Banker survey shows farmland values are steady

Nov 18, 2009
Farmland values have stabilized across the Federal Reserve Bank of Kansas City’s Tenth District. Irrigated land, as well as pasture land, decreased in value approximately 1%, while nonirrigated land slightly increased in value during the third quarter of 2009.

In comparison to one year ago, nonirrigated land is down 1.7%, irrigated land is down 3.0%, and pasture land is down 4.2%. By the end of the third quarter of 2008, there had been a severe spike in values before they began to decrease in the fourth quarter of 2008.




The survey revealed that District farmland values have reached a nadir. Bankers stated that they think that farmland values should hold steady over the next three months. During the fourth quarter of 2008, farmland values decreased for only the third time in the past 100 years across the US.

Farmland sales have had a slow start during the typical selling season. “Real estate values have maintained with few sales occurring,” noted one banker from Southeast Wyoming. Although there were less sales, bankers feel that the demand for farmland is still solid, while farmland values continue to hold. As harvest has been dragged out much longer than expected in many parts of the US, land sales have been continually postponed.

Credit has remained tight in many areas of the Tenth District according to the 263 banks that were surveyed. Loan repayments have decreased again, now equal to six year lows, while loan renewals and extensions have increased to six year highs. Bankers assure that they still have funds available to loan to qualified borrowers.

The livestock sector continues to decline according to the survey results. On average, bankers estimated that livestock incomes would decline about 10% below last year’s levels on high supplies of meat and still relatively high input costs.

Outlook

Farmland proved it can retain its value during hard economic times. It is reassuring to see that nonirrigated farmland values held steady during the third quarter of 2009, compared to a decrease of nearly 1.5% during the second quarter of 2009. Bankers forecast that farmland values will continue to hold steady through the end of 2009 as well, creating a perfect time to invest in farmland.

Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

How can the world feed 3 billion more people?

Nov 16, 2009
By 2050, the world will have to feed 3 billion more humans. How can we do such a task when currently one out of eight, or people 850 million, are malnourished?

Feeding the growing global population was one of the topics at the recent World Agricultural Forum. One speaker, Carl Hausmann, president and CEO of Bunge North America, claimed that science has to play a role in solving this problem of feeding more people.

Hausmann warned that anti-trade or anti-technology political agendas could hurt finding a solution in the future. One interesting point he made was that by, “letting countries concentrate on the food production that they do best means the world maintains production on the most sustainable croplands.” Other speakers argued that high export taxes, such as the 35% soybean tax in Argentina, are hurting the global food market.
 
Demand rises for US farmland
 
Obviously science must be a factor in feeding 3 billion more humans, but the crops still need land to grow on. With so much farmland being lost every year by urbanization, the supply of good farmland is disappearing. The demand for this farmland is going to rise because of the need to feed so many more people.
 
Demand for global farmland will undoubtedly increase. Jerry Hatfield, the director of the National Soil Tilth Laboratory in Ames, Iowa, said “Each human on earth lives off the farming equivalent of about a third of a football field today. Population growth and urbanization will shrink that available land base in half by 2050.” No more farmland is being created to help solve this dilemma.
 
The supply is shrinking, and the demand is bound to rise exponentially. This gives farmland the potential to become one of the best investments available over the long run.
 
Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

Higher yields on Brazil’s horizon

Nov 11, 2009
Brazil has its eyes set on much higher grain yields. Through genetically engineered seeds, double cropping, market changes, and exchange rates Brazil could emerge as one of the top exporters of corn and other grains according to an article from The Progressive Farmer.

Brazil’s current corn crop production is about 1/10th the size of the U.S. Of the corn produced, 80% is kept for domestic use and the other 20% is exported. After the approval of genetically engineered seed last year in Brazil, farmers will be able to produce much higher yields and broaden Brazil’s export market.

Genetically engineered corn seeds made up about 30% of Brazil’s corn crop this past year while next year, 50% of the crop could be GE corn. According to Eugenio Stefanelo of the national grain supply agency Conab, genetically modified corn should boost yields by an average of 15 to 20 percent while lowering chemical costs, making way for more fertilizer. Higher fertilizer use could boost yields even higher.

Brazil will also produce more corn is as more are planted. According to Kieran Gartlan of The Progressive Farmer, Brazil’s second crop planting area is expanding. About one third of the normal crop area could be double cropped. This year, the areas that are double cropped are 50% greater than last year.

The Asian rust disease, Ug99, made this all possible. Because of Asian rust, Brazilian farmers plant shorter cycle soybeans which allow for another corn season to fit into their rainy season from September to May. Double cropping is a risky operation though. The risk increases for drought, frost, and poor grain prices; which could make or break an entire crop.

Brazil will also gain market share of corn exports as Argentina is producing significantly less corn due to droughts. According to Steve Cachia, a grains analyst for Cerealpar brokerage in Curitiba, “Argentine farmers are seen shifting away from corn even more next season as capital is scarce. Brazil could gain even more space on the international market as many importers no longer trust Argentine supply.” Brazil’s export market is expanding to Asia as well, which has eased the pressure from European producers.

The final reason lies in the exchange rate of the Brazilian Real. Currently the exchange rate is at roughly 2:1 with the US Dollar. If the Real weakens, exports will be hurt, but if the Real strengthens, corn exports may increase even more.

Brazil’s grain future is very bright. While their current yields are significantly lower than US yields (50 bushels per acre versus roughly 150 bushels per acre in the U.S.), Brazil’s yields will increase substantially as more GE seeds are used. Once technology is caught up in Brazil, their yields and exports will undoubtedly increase.

Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

Don't take dirt for granted

Nov 09, 2009
Top soil depletion could rival global warming as the next natural global dilemma according to the Seattle Post-Intelligencer's article "The lowdown on top soil: It's disappearing."

Currently in the US, there is about 3 feet of top soil that is made up of many micro organisms and fungus that help support growth. According to David Montgomery, a geologist at the University of Washington, the problem is that this priceless dirt is disappearing at a rate of about 1% per year. The culprit is water and wind erosion. The National Academy of Sciences claims that top soil is being eroded in the US 10 times faster than it can be replaced.

When the Spring rains come, they carry loose soil out of fields, into small creeks and eventually into a bigger river that empties into an ocean. Some believe the public is not taking this issue seriously enough. According to John Reganold, a soils scientist at Washington State University, "It's hard to get people to pay much attention to this because, frankly, most of us take soil for granted."

What is being done to help this issue

The US Department of Agriculture has been trying to solve this problem for many years with spotted success. The USDA has created many different programs to promote conservation farming practices.

The Natural Resources Conservation Service claims, "The Food Security Act of 1985, as amended, provides dis-incentives to farmers and ranchers who produce annually tilled agricultural commodity crops on highly erodible cropland without adequate erosion protection."

The USDA has the right to say what land is or isn't classified as highly erodible land. If land is classified as HEL, then even more regulations are placed on the farming techniques used, to prevent more soil loss. In a 1996 Farm Bill, "violations of the HEL requirements could disqualify a person from the direct (AMTA) payments and formalizes the development of the conservation plans."

No-till practices are the best way for the average farmer to do their part to help stop erosion. These practices do have their downsides. They require learning new techniques along with a large capital investment of some new equipment. Also, more use of herbicides is necessary to control weeds that are not tilled under. Farmers who have switched to no-till farming claim that the soil can grip to the old matter left in the fields from prior seasons, thus slowing erosion.

Read more about agriculture and farmland at farmlandforecast.colvin-co.com.

A code of conduct for land grabs

Nov 03, 2009

An international code of conduct for land deals should be completed by the end of the year, according to the head of the United Nations’ International Fund for Agricultural Development (IFAD). In 2008, food prices increased and many countries tried securing their food supply by buying foreign farmland, or entering into long-term leases on foreign farmland. These sales and leases have often been referred to as “land grabs” because both the buyer and seller do not always benefit.

 

We have the Kimberley framework for mining, so why don't we put together a framework in the agricultural sector?" Kanayo Nwanze, president of the IFAD said in a recent article from Reuters. The Kimberley Process helps prevent diamond trading that will fund civil conflicts.


The code of conduct for land grabbing will help set in place guidelines so that both parties, the buyer and host country, will benefit from a land sale or contract. The guidelines will certainly help less powerful countries since often times, land grabs are negotiated behind closed doors.


Benefits

Host countries should benefit by receiving new technology and creating opportunities for local farmers to grow and sell crops, according to the Reuters article.

Supporters of the IFAD have increased pledges by 67%, allowing the program to run from 2010 through 2012.

The guidelines are being compiled by the IFAD, UN's Food and Agriculture Organization, the UN Conference on Trade and Development, and the World Bank, according to Nwanze.

Future

Land grabbing has recently become a big issue in developing countries. When powerful countries had negotiated a land sale, often times the host country had not seen many benefits besides monetary payments. The code of conduct will push for technology since many farmers have not been able to increase crop yields in developing countries in over 40 years, according to a recent article in Business Week.

Land deals over the last 50 years often would bring schools, infrastructure, roads and clinics. Nwanze thinks that those benefits for host country local economies need to be updated in current land deals.

Read more about farmland and agriculture at farmlandforecast.colvin-co.com.

Investors interested in farmland once again

Nov 02, 2009

Investors are showing interest in global farmland again. Besides individual investments in US farmland, foreign farmland has taken the spotlight. Areas like Canada, Africa, and Australia are becoming targets for farmland investors.

In 2008, while food prices soared to all time highs, farmland values increased by double digits across the US and globally. In the second half of 2008, food prices fell and so did farmland values. The difference between farmland and other investments is that farmland was able to fare the economic storm without too much lost value.

According to the Wall Street Journal, the fundamentals of farmland as an investment are improving due to limited supply, water scarcity, increasing food demand, and food security concerns. These factors are leading analysts to anticipate recovery faster in some areas than others.

Andrew Shirley, head of rural property research at U.K.-based Knight Frank, said this about farmland prices: "I do not expect farmland prices to increase at the same double-digit rate that we saw in the first two quarters of 2008, but the recovery has started earlier than some people expected and average values should steadily climb back compared to other investment and property sectors, farmland values on average have remained relatively unscathed by the economic downturn."

Despite the global recession, land prices are growing in many areas, including in Saskatchewan, Canada. Saskatchewan farmland prices are up 15% year-over-year. Prices have recently grown partially because Canadian citizens from outside of the province can now own Saskatchewan farmland.

The Wall Street Journal noted that agricultural funds are the fastest way to invest. It is very hard for an individual investor to buy farmland because of the amount of capital needed, not to mention the amount of research necessary to make an knowledgeable purchase. Also, like we have been saying as well, farmland is a great hedge against inflation and a good investment during economic adversity.

Global Farmland

Globally, farmland values have acted erratic in some areas. As we spoke about above, Canada is experiencing large increases of values along with parts of Australia. On the other hand, Ukraine farmland, which interested investors in the past, has dropped 75% in value because of speculative investments. Also, South America is experiencing some of the same situations.

US Farmland

The USDA just announced that US farmland has decreased in value for the first time in more than 20 years, though this is not necessarily a bad statistic. US farmland is obviously weathering this economic storm better than many other countries, and with its extraordinary history of consistent gains, US farmland is poised to increase once again. This leaves investors a limited window to acquire land at lower prices.

Farmland is a different kind of investment as it not only provides appreciation, but pays you to hold it.

Read more about farmland and agriculture at farmlandforecast.colvin-co.com.

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