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October 2010 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.

China Running Out of Farmland

Oct 27, 2010

As the Chinese growth engine continues to propel forward, the government is faced with the dilemma: How do we feed our growing and developing population? China’s middle class is expected to double over the next 10 years and will demand a higher protein diet. China has roughly 20% of the world’s population although only 7% of the world’s arable land.

The big problem is that China’s farmland has disappeared at an alarming rate and the country may no longer be able to self-produce its food supply. Between 1997 and 2007, roughly 755,000 hectares were lost each year to development, erosion, and desertification. Farmland that is lost to development or erosion is difficult to recover and put back into crop production.

In order to be self-sufficient in grain production, the Chinese government estimates they need to maintain 120 million hectares for crop production until 2020. Government figures estimate that the current amount of arable land is roughly 122 million hectares, which has been unchanged since 2005.

Arable Farmland China Farmland Forecast Greyson Colvin Marc Schober

In order to prevent the loss of arable farmland, the Chinese government is strictly controlling the conversion of arable land for commercial purposes. In 2007, the government introduced a nationwide land regulatory system to maintain the arable farmland. Nine land inspection bodies were set up to supervise land use and management by local governments, which often approve illegal investment projects despite central macro-control policies.

The Chinese government is doing all it can to protect farmland resources, but it may be too late. Bank of America estimates that China’s arable land has already fallen below the 120 million hectare threshold and could decrease to 117 million hectares by 2015. Urban sprawl, desertification, and illegal commercial conversion are the culprits of the reduction in farmland according to Bank of America.

Signs are pointing to Bank of America’s estimates being correct. China announced this summer they will no longer be self-sufficient in corn production and will rely on imports. The U.S. Grains Council estimates that China will import 15 million tons of corn in 2014 and Bank of America estimates 17.4 million tons of corn imports by 2015.

How will China feed its growing population if it is not self-sufficient in grain production? They will have to use imports to make up for the production shortfall. The first place they will turn to is the U.S., which is the world’s largest corn exporter, accounting for 60% of global corn exports in 2009.

Chinese imports will have a substantial effect on U.S. ending grain stocks over the next few years. Keep close attention to export data as exports will be driving grain prices over the next few years.

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

Crop Progress: Harvest Speeding Along

Oct 26, 2010

Yesterday afternoon, the USDA released its weekly crop progress report. Harvest has been moving along very steadily for corn, soybeans, and most of the other fall crops. Corn harvest is 83% complete while the 5-year historical average is only 49%. Harvest is more than two weeks ahead of the historical averages for corn. By this point in 2009, only 20% of the corn harvest was done. Farmers have been able to harvest quickly due to the dry weather that has been present across much of the Corn Belt throughout the past few weeks.

Of the 18 primary soybean producing states, the USDA estimated that 91% of the soybean crop had been harvested. Last week it was estimated that 83% was harvested, while the 5-year historical average is 72% harvested by this point in the year.

The sugarbeet harvest is 11% further along than its 5-year historical average, with 86% of the harvest complete already. Cotton harvest is also moving along quickly with 53% of the harvest complete while the 5-year historical average is only 36%.

The 2011 winter wheat crop moved ahead of the historical average with 88% planted by this week. The 5-year historical average is 84% planted by this week in October. The winter wheat crop is emerging on schedule. Both the 5-year historical average and USDA weekly estimate are 64% of the crop emerging this week.

Corn prices were up 2.1% over the past week ending at $5.68 per bushel, soybeans were also up 2.8% to $12.17 per bushel, and wheat ended the week down 2.3%, closing at $6.74 per bushel. Year-over-year corn prices are up 53.4%, soybeans are up 25.1%, and wheat is up 33.9%.

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

Agriculture and Banking Driving Rural Economy

Oct 25, 2010

For the fourth straight month, the rural economy contracted due to home foreclosures, high grain prices, high unemployment, and healthcare costs, partially offset by strong farm income and banking. Despite the current weakness in rural economic conditions, bankers are much more optimistic about the economy six months from now.

The overall Rural Mainstreet Index (RMI) improved to 48.4 this month from September’s 47.6, according to the October survey of bank CEOs in a 10-state region. The RMI is well below readings earlier this year and is the fourth consecutive month below growth neutral 50.0.

Farmland Forecast   RMI October 2010 Farmland Forecast Colvin Schober

“Unfortunately, very healthy farm income is not translating to healthy business activity for the Rural Mainstreet economy. Businesses heavily dependent on the domestic economy continue to experience pullbacks in growth,” said economist Ernie Goss, co-author of the report.

Agriculture

Agriculture continues its positive momentum as the farmland price index rocketed to 60.0 in October from 57.7 in September and 55.3 in August. This is the ninth straight month the index has been above growth neutral. Goss noted, “Farm indicators remain very strong, including farmland prices and the sale of agriculture equipment.”

Confirming strong farmland prices, Terry Engelken, CEO of Federation Bank in Washington, Iowa, said, “We have had several farm land auctions recently and several parcels brought over $9,000 per acre.” The farmland price index rose in all 10 states surveyed, with strong gains in Colorado, Illinois, Kansas, Minnesota, and Wyoming.

Farmland Forecast    Farmland Index October Forecast Colvin Schober

Farm equipment-sales index also improved to 61.0 from 56.2 in September as higher grain prices have encouraged farmers to invest in new equipment. Bradley Bauer, president of Pinnacle Bank in Ogallala, Neb, added, “The higher agricultural commodities prices should help stimulate the rural economy in upcoming months.”

Banking

Banking indicators continue to perform well as checking-deposits and certificate of deposits improved, but loan volumes declined below growth neutral to 48.4 from September’s much stronger 57.4. “While businesses on Rural Mainstreet are experiencing tough economic times, banking and farming continue to enjoy solid economic fortunes,” said Goss.

In the October survey, bankers were asked about the mortgage foreclosure moratorium. More than half, or 52%, think the moratorium would delay the housing rebound and 29% expect the moratorium would add incentive for home owners to delay or forgo mortgage payments.

Ethanol

Bankers were also asked a special question regarding ethanol production and profitability. Roughly 56% expect the high corn prices to be a challenge to ethanol profitability, while 31% indicate the expiration of the blender’s tax credit to be the most significant challenge to ethanol profitability.

Outlook

The October survey was comprised of mixed financial signals, but the improvement in the Confidence Index to 57.3 from September’s 54.9 is a sign that bankers are expecting a rebound in the economy.

The bright spot continues to be agriculture. Strong exports, continued ethanol demand, and low supplies have propelled grain prices to multi-year highs. High grain prices and improving economic conditions, should pull the rural economy out of its slump.

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

Crop Progress: Healthy Crops and Healthy Prices

Oct 13, 2010

Yesterday afternoon, the USDA released its weekly crop progress report. The corn crop condition improved by two percent over the past week, and now is only 2% shy of last year’s condition at this point in the season. The soybean crop condition did not change compared to last week’s report. The USDA estimated 68% of the corn crop is in good or excellent condition, while 11% is in poor or very poor condition. During this week in 2009, 70% of the crop was in good or excellent condition and 9% was in poor or very poor condition.

This week, the USDA estimated that 98% of the corn crop was considered mature. 93% was mature last week, and the 5-year historical average is 89% in the second week in October. Corn harvest made its way past the midpoint this week with 51% of the crop already harvested. Last week, 37% had been harvested while the 5-year historical average is only 30% by this week.

Of the 18 primary soybean producing states, the USDA estimated that 95% of soybeans were dropping leaves this week. Last week it was estimated that 88% were dropping leaves, while the 5-year historical average is 93% in the second week in October. Soybean harvest is well ahead of schedule with 67% of the crop already harvested. Last week 37% was harvested and the 5-year historical average for the week is 48%.

The 2011 winter wheat crop is on par with historical averages with 70% planted by this week. The 5-year historical average is 68% planted by this week in October. The winter wheat crop is emerging on schedule as well. Both the 5-year historical average and USDA weekly estimate are 38% of the crop emerging this week.

A dramatic WASDE Report, revealing extremely low ending stocks sent corn prices sky high over the past week. Other grains followed the trend due to the threat of lower planted acres if farmers choose to plant more corn next year and take advantage of the elevated prices. Corn jumped up 17.9% over the past week ending at $5.79 per bushel, soybeans were also up 10.0% to $11.78 per bushel, and wheat also ended the week up 7.0%, closing at $7.10 per bushel. Year-over-year corn prices are up 51.9%, soybeans are up 18.0%, and wheat is up 43.7%.

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

Frost Won’t Hurt Crops in 2010

Oct 12, 2010

When entering the fall season, farmers often become weary of an early frost that can lead to crop damage and yield loss. This fall, frost concerns are minimal as farmers were able to get into their fields in early spring and crops matured ahead of schedule due to favorable weather during the growing season.

For farmer’s schedules, frost is the limiting factor for both planting and harvesting. If farmers plant their crops early and frost hits when the plants are small and emerged, the frost could affect development and lead to yield loss. On the other hand, if frost arrives before the crops are not fully mature, yield loss will also transpire as the plant may no longer be able to grow. A damaging, hard frost occurs when temperatures reach 28 degrees Fahrenheit, according to Iowa State University.

Growing degree days (GDD) dictate how fast corn matures, while moisture levels dictate when farmers harvest. The warmer a day is on average, the more GDD units the crop receives. Typically in fall, farmers are hoping to squeeze in every last GDD before the first frost strikes.

For farmers in the Corn Belt, October is corn harvesting season. In early October, corn kernels can dry down about 0.50% to 0.75% per day in good weather, according to Iowa State. In late October, kernels will only dry down about 0.33% per day. The ideal harvest moisture for corn is around 15%.

The average first fall frost varies as the further North you travel. In Cedar Rapids, Iowa the average first fall frost occurs on October 7th, giving the area a 161 day growing season, according to the Farmer’s Almanac. About 300 miles to the North, Bismarck, ND receives its first frost on September 20th on average, giving the region about 129 days to its growing season.



2010’s Difference

The planting season started early for the Corn Belt in 2010. The warm spring lead to an early thaw and fields were dry and ready to be planted as soon as crop insurance allowed farmers to start. Since crops were planted early, and favorable weather was present throughout the summer, corn matured quickly. In the end of May, 71% of the U.S. corn crop had already emerged compared to the 5-year historical average only 62%, according to USDA Crop Progress Reports. In mid-August, 74% of the corn crop had entered the dough stage, compared to the 5-year historical average of only 58%. Throughout the 2010 growing season, crops were well ahead of schedule.

Since this season has allowed corn to mature faster than in previous years, some agriculture specialists feel that the crop may have actually matured too quickly and may suffer some yield loss. If the weather continues to remain favorable and dry, expect farmers to finish their harvest early, and move right on to fall tillage in preparation for the 2011 season.

Often an early frost will send grain prices on the rise because of the risk of lower production. Recently, we have seen a rise in grain prices, but not because of frost concerns, rather decreased production estimates due to the fast maturity of the corn crop and unfavorable weather in August. The most recent USDA WASDE Report from last week estimated the average U.S. corn yield at 155.9 bushels per acre compared to last year’s 162.5.

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

Corn Stocks Below Critical 1 Billion Mark

Oct 11, 2010

The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report on Friday. Wet weather in June and July, followed by a hot, dry August has led to substantial reduction in U.S. corn yields to 155.9 bushels per acre from 162.5 bushels per acre last year. The USDA also now estimates domestic corn supplies for 2010 to be 902 million bushels, below the critical 1 billion mark.

Corn

2010/11 U.S. corn production was decreased by 496 million bushels to 12,664 million bushels due to lower yields, partially offset by a slight increase of 0.3 million acres planted. The USDA reduced yield estimates in all major corn producing states including (-14 bushels per acres), Indiana (-10), Iowa (-10), and Nebraska (-9). Despite the drop in estimated production, the 2010/11 corn crop is still expected to be the third largest on record.



U.S. corn beginning stocks were increased by 322 million bushels based on last week’s still surprising and confusing Quarterly Stocks Estimate. Domestic corn use for 2010/11 was increased by 40 million bushels due to a 150 million bushel increase in feed, partially offset by a 100 million bushel reduction in exports. Tighter available supplies, higher prices, and increased competition led to the reduction in exports.

Ending domestic stocks were reduced by 214 million bushels to 902 million, well below the critical 1 billion mark and the lowest since 2003/04. This now puts the stocks to use ratio at 6.7%, a 15-year low. The USDA season-average farm price for corn is estimated at $4.60 to $5.40 per bushel, a midpoint increase of 60 cents.



World corn production was lowered 6.4 million tons due to lower production in the U.S. and Russia, partially offset by increases in Argentina, Europe, Serbia, and Sub-Saharan Africa. Production in Argentina was raised by 4.0 million tons to reflect higher corn prices and favorable planting conditions which should encourage early corn planting.

Soybeans

Soybeans also continued the bullish theme, as the USDA reduced its estimate of U.S. soybean production by 75 million bushels to 3.408 billion bushels due to a 1.2 million planted acreage reduction and a slightly lower yield of 44.4 bushels per acre. 2010/11 exports were increased by 35 million bushels to 1.520 billion bushels on strong export sales and reduced export prospects for Argentina.

This reduced ending soybean stocks to 265 million bushels, a decrease of 85 million bushels. Stocks to use ratio is now at 8.0%, but well above last year’s 4.5%. The USDA season-average farm price for soybeans is estimated at $10.00 to $11.50, up 85 cents from last month.

Global soybean production was estimated at 255.3 million tons, up 0.4 million tons, due to a 2 million ton increase in Brazilian soybean production due to larger plantings. India’s soybean production was raised by 0.4 million tons to increased plantings as well.

Wheat

U.S. 2010/11 wheat ending stocks were decreased to 853 million bushels because of the slightly lower yield estimate and decreased planted acreage. There was also a 10 million bushel increase to feed and residual usage. The USDA season-average farm price for wheat is estimated at $5.20 to $5.80, up 20 cents from last month’s estimate.

World wheat supply estimates were reduced by 1.0 million tons, reflecting the lower U.S. production. Total world wheat production is now estimates at 641.44 million tons, down from last month’s estimate of 643 million tons. Global consumption of wheat was raised 2.1 million tons for 2010/11 with higher expected use for Europe, Canada, and the U.S.

Overview

We have been warning our readers to be aware of the day that corn ending stocks fall below the 1 billion mark. This statistic occurred much faster than we were expecting and is a sign of how fast things can change in the grain markets. We see this as a warning sign to the world that supplies are very low and the ability to feed itself should not be taken for granted.

Click on the link for the full WASDE report: http://www.usda.gov/oce/commodity/wasde.

Get a daily update on farmland and agriculture news from Farmland Forecast: http://farmlandforecast.colvin-co.com/.

Grain Prices Rally in September as Harvest Begins

Oct 04, 2010

September rewarded nearly all asset classes as investors became more confident about the economy and that the Federal Reserve will support the markets. The Dow gained 7.7%, the strongest September since 1939. Grain markets also continued their rally due to decreased yield estimates and increased demand outlooks. Farmland has also been gaining investor interest as famed investors such as, Michael Burry, Nassim Taleb, and Barton Biggs, have recently recommended arable farmland as an investment.

Commodity Prices

The grain market performed exceptionally well throughout September due to weather related supply losses and concern over global supplies. December corn prices increased by 16.8% and closed the month at $4.95 per bushel. The rally in corn this month was driven by the USDA decrease in average yields per acre estimate in the WASDE report and strong demand from non-commercial buyers.

Soybean prices increased by 10.16% in September to $11.06 per bushel due to concerns over South American production this upcoming year, unrealized global demand potential, and the possibility of lower production next year if farmers plant more corn due to higher corn prices.

Wheat prices continued their momentum to $6.74 per bushel, a 3.3% increase in September due to concerns of global wheat supplies. Delays to Russian winter wheat plantings will continue the bullish momentum for wheat in the near term.

Harvest

A strong weather system dumped upwards of ten inches of rain across areas of South Dakota, Minnesota, Iowa and Wisconsin last week delaying harvest in isolated regions. Besides the recent precipitation, harvest has been progressing well across the nation. Soybean harvest is 17% complete as of the fourth week in September, while the 5-year historical average is 13%. Corn harvest is also moving along faster than in recent history. 27% of the corn crop has been harvested in the 18 primary producing states. The 5-year historical average is that only 15% of the crop has been harvested by the fourth week in September.



Many farmers were weeks ahead of schedule when planting this spring, which has lead to favorable maturity and moisture levels for the harvested crops. Farmer’s shouldn’t have much dockage for low test weights or high moisture when selling this new crop at the local elevators.

Farmland

Agriculture continues to be the bright spot in the economy as the Creighton University Farmland Price Index rocketed to 57.7 in September from 55.3 August. This is the eighth straight month the index has been above growth neutral. Economist Ernie Goss, co-author of the report noted, “Farm indicators remain very strong, including farmland prices.”

The farmland price index rose in all 10 states surveyed, with strong gains in Iowa, Minnesota, Nebraska, and the Dakotas.

“The general economy is still struggling, but the crop and livestock producers are looking at an exceptional year. Growing conditions are the best in decades, yields are up and prices are good,” commented Kathy Thuman, President of Farmers State Bank. Thuman also noted she is concerned thought about rising farm input costs.

WASDE

The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report in mid-September. Hot and dry weather across much of the U.S. caused a reduction in corn yields, especially in the Midwest. Estimates of U.S. corn yields were decreased to 162.5 bushels per acre, below last year’s record of 164.7 bushels per acre.

The USDA increased its estimate of U.S. soybean production by 50 million bushels to 3.483 billion bushels due to an increase in yields to a record 44.7 bushels per acre. 2010/11 exports were increased by 50 million bushels to 1.485 billion bushels on strong early season sales and an anticipated increase in global import demand lead by China.

Outlook

Agriculture has done extremely well throughout the first three quarters of 2010, while the final quarter looks very strong as well. Grain prices should continue to appreciate over the long-term as global demand is continues to increase and global supplies wither.

Farmland, as an asset, should also continue to appreciate as the upcoming months should provide an elevated amount of land sales to use as comparables when valuing land. The sale prices that have occurred in the last three months have reported gains of 4-8% across the Corn Belt.

The typical selling season for farmland is after harvest because farmers, who make up the majority of farmland buyers, have cash on hand after their crop is in and sold to a certain extent. The end of 2010 should have above average land sales compared to recent years as the harvest is ahead of schedule. Also, many land owners that have been looking for a time to sell may be pressured into selling prior to December 31 due to the potential expiration of the Bush tax cuts. A lot of parcels of land have been held for decades, and for a seller to take advantage of a lower capital gains tax could save them thousands of dollars.

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

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