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December 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.

Rural Mainstreet Index highest since July 2008

Dec 28, 2009
The overall Rural Mainstreet Index (RMI) climbed to a 17-month high according to Creighton University’s November survey of bank CEOs in an 11-state region. The RMI rose to 40.9, which is the highest since July 2008, but still considerably below growth neutral 50.0. The farm equipment index, loan volume index, and confidence index all increased, while the hiring and farmland price indexes decreased after November highs.
 
The farmland price index decreased to 44.9 from a 12-month high of 45.6 in November. This marks the 14th straight month that the index has been below 50.0, although some areas with quality land have seen better prices. "Several land auctions in our area this past month have shown steady to slightly stronger prices," said Dan Coup, CEO of First National Bank in Hope, Kansas.
 
The hiring index slipped to 33.6 from an already weak 36.3. The hiring index has not been above 40.0 for over 16 months and only 6% of surveyed bankers reported an upturn in hiring.
 
Farm equipment sales increased during December. The index increased to 40.4, which is the first time it has been above 40.0 since November 2008. Loan volumes also increased. The loan volume index came in at 45.7, rebounding from November’s record low 38.3. The index is the highest since June of this year.
 
The confidence index, which indicates banker’s outlook on the rural mainstreet economy six months out, increased to 53.7. This marks the third consecutive month that the index remained above growth neutral.
 
Outlook
 
Many farmers have not had a chance to even think about buying more land to expand operations this year because of such a late harvest. Land has been selling, but we expect an increase sales and prices in January when farmers will finally have an opportunity to purchase new ground.
 
Credit has been becoming tight across rural mainstreet for a few months now. It was good to see the loan volume bounce back from its low 38.3 last month. The survey revealed that over half of the bankers reported that weak credit conditions were due to bank regulators. "The federal government tells banks to lend to small business, but the regulators don't have the same message," said Pete Haddeland, president of the First National Bank in Mahnomen, Minnesota.
 
Finally, it is promising to see that the confidence index remained above 50.0 in December, pushing the overall RMI to 40.9, marking four months of consistent growth.

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

Preview: The world’s greatest farmland

Dec 23, 2009

Where is the world’s greatest farmland? If an investor is going to purchase land in hopes of getting a consistent return through appreciation, and rent, the investor is probably going to search for the best possible farmland available. When investing in farmland, a great deal of due diligence must be done. Currently, land owners and operators argue over where the greatest farmland in the world is located. Some claim it is in South America, others think it is in Eastern Europe, while some even think it is in the United States.

 

Farmland Forecast has done extensive research to try to answer where the best farmland is located. As an investment, many different characteristics should be evaluated when becoming involved in an investment in farmland. The last thing an investor wants is a rebel group to overtake their productive land; although it has happened.

 

On January 5th, Farmland Forecast will post an article explaining what determines the best farmland on Earth. Topics that will be covered include soils, infrastructure, property rights, climate, and government support.

 

Be sure to read the article on January 5th to find out where the best farmland in the world is located.

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

USDA: U.S. ecosystems are being impacted by climate change

Dec 22, 2009
The U.S. Department of Agriculture (USDA) released a report on the effects of climate change on U.S. ecosystems during the recent United Nations Climate Conference. The report was done in collaboration with the University Corporation for Atmospheric Research and the U.S. Global Change Research Program. The report reveals that a considerable amount of change has already occurred in U.S. ecosystems due to climate change, and the affects will grow. Climate change is affecting U.S. agriculture, land resources, water resources, and biodiversity according to the report.
 
USDA Secretary of Agriculture, Tom Vilsack stated, "Climate change poses significant threats and challenges for farmers, ranchers, and those who make a living off the land, which will have a serious impact on our ability to feed the people of the United States and the world."
 
Here are the effects climate change is expected to have over the next few decades, according to the USDA news release on the report:
 
·         Climate change has had an impact on American farmers, ranchers, rural land owners, and foresters, and will continue to do so, through its influence on production, distribution, and yields.
 
·         Although the report does not reflect the economic consequences of these effects on production, economic implications are inescapable due to the dependence of productivity on climate, both directly (through changes in temperature and precipitation) and indirectly (through the effects of climate on pest outbreaks, weed distribution, water supplies, changes the nutritional content of forage due to elevated CO2, and so on, that in turn influence production).
 
·         Grain and oilseed crops will mature more rapidly, but increasing temperatures will heighten the risk of crop failures, particularly where precipitation decreases or becomes more variable.
 
·         Marketable yield of horticultural crops (such as tomato, onion, and fruit) are more vulnerable to climate change than grains and oilseed crops due to the high sensitivity of their quality and appearance to climate factors.
 
·         Livestock mortality will decrease with warmer winters but this will be more than offset by greater mortality in hotter summers. Hotter temperatures will also result in reduced productivity of livestock and dairy animals, due to changes in consumption and lower pregnancy rates.
 
·         Weeds that can thwart agriculture production grow more rapidly under elevated atmospheric CO2, extend their range northward, and are less sensitive to herbicide applications.
 
·         Disease and pest prevalence will escalate as a result of shorter, warmer winters, challenging crop, livestock, and forest systems.
 
·         The trends toward reduced mountain snowpack and earlier spring snowmelt runoff in the Western U.S., and toward increasing drought in the West and Southwest, imply changes in the availability of water and a need to monitor the performance of reservoir systems with implications for water management and irrigated agriculture in that region.
 
·         Climate change is inducing shifts in plant species in rangelands, favoring the establishment of perennial herbaceous species that reduce soil water availability early in the growing season. Shorter winters, however, decrease the need for seasonal forage reserves.
 
·         Forests in the interior West, the Southwest, and Alaska are already being affected by climate change as demonstrated by increases in the size and frequency of forest fires, insect outbreaks, and tree mortality over large areas.
 
Future of agriculture
 
The USDA released this report so everyone can be aware of the changes that could occur due to climate change. It is important that farmers recognize the expected changes and make adjustments accordingly. Organizations and government will continually make suggestions on reducing greenhouse emissions for everyone, including agriculture.
 
Food security issues will continue to increase as climate change increases. Along with the growing world population, climate change will add concern to the growing demand for food and limiting supply of farmland.

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

Kazakhstan to provide 3.5 million hectares of farmland

Dec 21, 2009
Many Kazakhs are protesting after the president of Kazakhstan, Nursultan Nazarbaev, reportedly told the Foreign Investors Council that China had asked about leasing 1 million hectares of Kazakh farmland, according to Spero News. The Chinese deny any talks of leasing the farmland. Vice Minister of Agriculture of Kazakhstan, Armand Evniev claimed, "It is not a lease, it is a question of joint manufacture. In this case, it is soya and later it will be corn and rape," according to the Gazeta newspaper. The joint manufacture is set to start in early 2010.
 
Investors are not interested in Kazakhstan’s farmland because of its poor climate and transport infrastructure, Spero News reported.
 
If the Kazakh government goes in favor of a Chinese deal, it could lead to a “Chinese colonization of Kazakhstan,” according to Chinese expert Murat Auezov. Auezov suggests Kazakhstan deal with China carefully.
 
Land grabs are becoming more common, and can be great if both sides benefit from the deal. It’s reported that Kazakhstan is willing to deal 3.5 million hectares of their farmland. In return, the Kazakhs deserve improved transport infrastructure.
 
Protestors outside of the Chinese Embassy in Almaty did not like the idea of leasing out precious farmland. Citizens of Madagascar protested when the government sold half of its farmland for $12 per acre. The government was eventually overthrown and the land deal with South Korea was thrown out.
 
Outlook
 
Farmland is depleting fast, and there is no way to create more high quality land. Large land grabs, such as Kazakhstan’s, will become more widespread as wealthy countries try to solve food security issues by attaining more farmland. First-class farmland values will continually benefit, because while the supply for farmland is decreasing, the demand is severely increasing with each land grab.

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

WASDE: Corn 2009/10 ending stocks higher on lower exports

Dec 11, 2009
The USDA updated the US and World 2008/09 and 2009/10 balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report on Thursday. Forecasted US corn ending stocks for 2009/10 increased on a reduction of expected corn exports of 50 million bushels (2%). The USDA decreased the domestic consumption of US wheat by 15 million bushels to 1.208 billion bushels, which increased the forecast of ending US wheat stocks for 2009/10 by 15 million bushels as well. The forecast for US soybean exports increased by 15 million bushels (1%), decreasing the 2009/10 ending stocks of soybeans by 15 million bushels.
 
The January Crop Production Annual Summary will give more color on crop size and prices.

Besides the forecast for a decrease in US corn exports, resulting in an increase of ending stocks for 20009/10, other forecasts remained unchanged. The USDA maintained its 2009/10 farm price for corn at $3.25-$3.85 per bushel. World corn trade was unchanged due to Ukraine’s increase in exports, which offset the United States’ decrease in exports.
 
US wheat’s estimated farm price for the 2009/10 season remained unchanged by the USDA at $4.65-$5.05. The midpoint in price at $4.85 per bushel is $1.93 below last year’s estimated price of $6.78. The USDA forecasted 2009/10 ending stocks of wheat to increase by 15 million bushels to 900 million bushels because of a slight decrease in domestic consumption. Higher wheat production from Canada, China and the EU-27 increased world wheat production by 2 mmt. World wheat consumption decreased this month, affecting world 2009/10 ending stocks to increase by 2.6 mmt.
 
Again, many of the USDA’s forecasts remained unchanged for US soybeans. Soybean yields are still forecasted at 43.3 bushels per acre, according to the WASDE. Exports of US soybeans were forecasted to increase by 15 million bushels, which will decrease the 2009/20 ending stocks by 15 million bushels, to 255 million bushels. The farm price for the 2009/10 soybean crop was increased to $8.75-$10.25 per bushel, from $8.20-$10.20.
 
Click on the link for the full WASDE report: http://www.usda.gov/oce/commodity/wasde.

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

Corn refuge acres decrease from 20 to 5 percent

Dec 10, 2009

The agriculture world has drastically changed over the past 15 years through genetically modified seeds, and now corn is going to change again in 2010. Since 1996, corn seeds containing the bacteria protein, Bacillus thuringiensis (Bt) have become farmer's staple corn seed because it has a natural insecticide built into its DNA that protects the plant against many insects, including the European Corn Borer.

Monsanto's new seed called SmartStax, has been approved by the Environmental Protection Agency (EPA) for a reduction in refuge acres from 20% down to 5%. The SmartStax technology was developed by Dow AgroSciences and Monsanto through a cross licensing agreement and research and development collaboration signed in 2007. "The technologies at work in SmartStax will provide increased value on the farm through more thorough control of insects and weeds and from the significant upside potential through refuge reduction. All totaled, we estimate the SmartStax hybrid system could provide an estimated yield benefit of an additional 4% to 10% on the farm," Carl Casale, executive vice president, strategy and operations, Monsanto Company.

The Bt trait is present in each cell of a Bt corn plant. The Bt in each cell emits a toxin that kills many insects. By having the Bt trait built into a plant's DNA, farmers do not have to worry about spraying or handling Bt.

Refuge acres

Ever since in-plant protection technology has been used in fields, the EPA requires farmers who plant Bt corn to sign a statement that promises farmers to plant 20% of their fields as refuge acres. Refuge acres are acres of corn that cannot contain in-plant protection technology, such as Bt. The government runs checks on farms, and will hand out large fines if farmers do not follow the Bt planting guidelines.

The reasoning behind refugee acres is quite simple. Bt kills roughly 99% of European Corn Borers, but a small percentage of borers will survive. The survivors will reproduce larva that will contain a greater number of borers that are immune to Bt. Refuge acres promote the reproduction of standard insects, in hopes that the insects will never become completely resilient to Bt.

Refuge acres are typically planted in the outside rows of a field, or in a corner of a field. That way, farmers can keep track of them easier, and treat those acres with spray insecticides if necessary.

Future of Bt corn

Monsanto has recently announced that their new SmartStax Bt corn seed will be ready for market in 2010. More importantly, the EPA has reduced the amount of refuge acres necessary with SmartStax. Currently, all Bt corn must be accompanied by 20% refuge acres in the corn belt or 50% refuge acres in the cotton belt, now those refuge acres have been decreased to 5% and 20% respectively.

The EPA has said that Bt proteins are not toxic to people, domestic animals, fish, or wildlife; and they have no negative impacts on the environment. The proteins break down rapidly inside humans, according to the Food and Drug Administration.

The reduction in refuge acres for Monsanto's new SmartStax could make an immediate impact for corn farmers. The price tag will certainly be high for the 2010 release, but a 4% to 10% increase in yield should cover any cost increase. Monsanto reported that they plan on having enough SmartStax seeds for 4 million acres, so farmers should be able to run their own trials on this new seed during the 2010 season.

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

Soil Erosion: The Silent Killer

Dec 08, 2009
"The nation that destroys its soil destroys itself", President Franklin D. Roosevelt

The value of soil is something that is taken for granted. Soil is the foundation for all living things and without it, life on earth is not sustainable. Soil is a complex mixture of rock, organic matter, water, air, and living organisms that produces our food, cleans our water, and sequesters carbon. Despite this importance to the human population, soil is eroding faster than it is being replaced. In the last 30 years, roughly 30% of the Earth's arable land has eroded according to a David Pimentel, professor at Cornell University.

"Soil erosion is second only to population growth as the biggest environmental problem the world faces," said Pimentel.
 
Over half of America's best cropland is experiencing an erosion rate 27 times the natural rate or 11,000 pounds per acre according to the Department of Agriculture. The natural, geological erosion rate is about 400 pounds of soil per acre per year.
 
Iowa, which has some of the best topsoil is the world, has seen its topsoil erode from a depth of 18 inches down to 10 inches according to the Department of Agriculture. Productivity drops off sharply when topsoil reaches 6 inches or less, the average crop root zone depth, notes the Soil and Water Conservation Society.
 
According to Andres Arnalds of the Icelandic Soil Conservation Service, roughly 38,000 square miles of land (100,000 square kilometers) each year becomes severely degraded or turns into desert due to erosion.
 
"We are overlooking soil as the foundation of all life on Earth," said Arnalds. "Soil and vegetation is being lost at an alarming rate around the globe, which in turn has devastating effects on food production and accelerates climate change."
 
Cause
 
The primary cause of rapid soil erosion is modern farming techniques. Tilling and the removal of crop residues after harvest are the key culprits of erosion. The tracks left by tractors in the soil are the erosion route for half of the soil that washes or blows away. Row crops, such as corn and soybeans, result in roughly 50 times more soil erosion than sod crops, such as redtop and clover.
 
The economic impact of soil erosion in the United States costs the nation approximately $37.6 billion each year in productivity losses and damage from soil erosion. Worldwide it is estimated to be $400 billion per year, according to Cornell University.
 
One way to reduce soil erosion is to use no-till farming methods, which leaves crop residue (corn stalks) in the ground. The crop residues provide soil nutrition, water retention, and soil carbon. Currently, only 20% of corn in the U.S. is grown using no-till.
 
Iceland
 
Iceland is a prime example of the dangers of soil erosion. Since the country was settled in the ninth century, over half of the vegetative cover has been destroyed and 40% of its soil has eroded according to a national survey completed in 1997. Now desert covers 45,000 square kilometers, or 40% of the country.
 
Despite spending the last 100 years trying to improve its soil, Iceland needs to import a large portion of its food supply and is continually battling climate change. Arnalds noted that Iceland should serve as a warning to other countries. "It is far better to preserve than restore," he said.
 
Carbon Storage
 
Soil stores carbon as it is one of the key ingredients for plant growth. The amount of carbon stored in soil is roughly twice the amount of carbon found in the atmosphere and three times the amount in vegetation. Across the US, agricultural methods have removed approximately 20% to 50% of the Earth's original soil carbon, and up to 70% in some regions according to the USDA.
 
Land degradation may account for up to 30% of the world's green house gas releases according to Ohio State University. While tillage of crop residue still locks carbon into the ground for a short period of time before it is released into the atmosphere, no-till methods lock carbon into the crop residue for a longer period of time, delaying the release into the atmosphere.
 
Water
 
In many areas of the US, there becomes a problem when there is not enough moisture in the soil. Often times, irrigation is a last step for solving the low moisture dilemma, but no-till farming can be the first step. No-till farming locks in moisture throughout the entire year. Since the top portion of soil is not broken, moisture stays in the soil and will naturally work out any compaction layers within the soil through freezing and thawing.
 
On the other hand, some farmland experiences too much soil moisture. In these areas, typically in river valleys or other often flooded areas, soil must be tilled so the dark soil can be exposed to the sun and heat up in early spring, drying it out. If tillage is not done to moisture rich soils, the entire planting season is at risk because farmers cannot get into the fields.
 
Soil acts as one of the best natural water filters. For example, a substance will be absorbed into the ground by topsoil. Topsoil filters out many of the impurities and harmful makeup of the substance. After draining through the topsoil, the substance travels through a sandy gravel layer which will further filter the substance before it enters an aquifer, according to the University of Missouri. Surface water sifts through soil and by the time it reaches an aquifer, it is some of the purest, cleanest water on Earth.
 
Value of Farmland
 
No two parcels of farmland are identical when it comes to soil content. Soil classes have a direct correlation to the productivity of land. Farmland values differ due to variations of soil content. Soils are rated by class. Within each class, soils can be noted with a problem, such as erodible, or wetland. Farmland appraisers take soil contents into great consideration when valuing land.
 
Soil erosion is a growing concern across the globe. The demand for farmland is growing with the increasing population and food demand. Farmland is being lost to development at a rate of two acres per minute in the US according to the American Farmland Trust, while erosion is thinning the fertile topsoil of some of the most productive farmland in the world. It is very important that erosion is kept to a minimum because without a strong top soil, food production will decrease significantly.

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

Grain production could decrease by 37% in China

Dec 04, 2009
Climate change could decrease China's grain production by 37% according to a recent study done by the International Food Policy Research Institute (IFPRI). For every degree Celsius that the temperature increases, grain production will decrease by 10%. If no changes are made, and climate change continues, by 2050 in South Asia, wheat yields will decrease by 50%, rice will decrease by 17%, and corn will decrease by 6%.

China's 2009 corn crop decreased by 13% because of a severe drought, according SGS SA. China is the second leading corn producer behind the United States.

The IFPRI study noted that major weather disasters have become more common. During the 1990's, five times more major meteorological disasters occurred in the world. If current methods are not changed, and climate continues its warming trend, weather will become even more extreme and agriculture will become unstable. China's 30 year drought will not lessen in the next 10 years the study noted as well.

Back in September, Farmland Forecast featured an article about China's grain production (http://farmlandforecast.colvin-co.com/2009/09/30/chinese-corn-crop-down-10.aspx). The US Grains Council stated that it is cheaper for China to import corn into Southern ports, rather than transport it from Northern parts of China because of price differentials.

Outlook
 
"Trying to make up the difference of lower output by relying on imports doesn't look very optimistic," noted Zheng Guoguang, Administrator of the China Meteorological Administration (CMA).
 
If China's grain production continues to decrease because of climate change, they will be forced to import grain to cover for their lower output; increasing the overall demand for grain. In addition, China's population is changing from a grain based diet to a protein base. Since it takes roughly seven pounds of grain to produce one pound of meat, the demand for grain in China will greatly increase.
 
Research and development has helped in fighting climate change. China has used weather modification technology to promote rain in drought stricken areas, but the long term solution lies in changes on a much larger scale.

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

Preserving Farmland

Dec 01, 2009

Preserving farmland in Wisconsin is becoming a major issue because it is vanishing at one of the highest rates in the nation. Wisconsin Governor Jim Doyle is developing a plan to preserve Wisconsin farmland according to the Wisconsin State Journal.

From 1978 to 2008, Wisconsin's farmland decreased by 19%. Although the trend has slowed down in the past year, Bruce Jones, a farm economist at UW-Madison claims that the loss of farmland has slowed in recent years because of higher farm profits and turmoil in the housing and lending markets. But losses could pick up again in future years.

The history of Wisconsin's attempt to preserve its farmland:

1977 - Tax credits were given out to farmers to help them save land.

2000 - Farmland is valued at what it produces, not development speculation.

2009 - Governor Doyle is trying to pass a plan to add upon the 1977 law.

The new plan would team the state government up with local governments to buy the farmland rights for development. This plan could get Federal attention as well. The plan would also push local governments to update their zoning rules along with identifying farmland that should be preserved. Finally, the plan would update tax credits for farmers.

What does this mean for the outlook of farmland?

First, farmland has been identified as a dying breed. Second, these government programs could be utilized to expand farm operations.

Wisconsin has admitted that they are losing farmland fast, and southern Wisconsin is losing it as fast as any other place in the US. If farmland is decreasing and the need for farm products is increasing, it displays that farmland is going to go up in value because the demand is rising for it.

According to an article in the Star Tribune this week, there is a steady increase in demand from poorer countries for grains, as people there eat more food, especially more protein. More people are better nourished thanks to a bit more grain, a lot more meat and much more milk.

The last important piece to take from Wisconsin's plan is how to use the program money. Some farmers say that with the money they get from selling their development rights, they can buy more farmland and expand their operations. If they intend on farming the land, might as well buy more with the government money.

There is only a limited supply of farmland to feed the mouths of the world and remember, "You can't make any more of it."

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

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