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February 2012 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

USDA: Runup in Farmland Prices Fueled by Profits, Low Interest Rates

Feb 29, 2012

Mike Walsten

A team of USDA economists digging into the runup in farmland values confirms what we've been writing about in LandOwner the past several years -- gains in the price of farmland are driven by rising farm incomes and low interest rates and possibly not a speculative bubble.

"Trends in farm incomes, cash rents and interest rates suggest that farmland values were supported by farm earnings in 2009 and 2010," they state while pointing out that "there have been periods of imbalances in the recent past. Since 2009. though farmland values have been high, the discounted returns from renting farmland have been higher," the researchers state. "Also, in the last two years, average income from farming has been more than sufficient to service the debt on farm real estate purchases at current mortgage rates. A 'speculative bubble' forming in farmland markets cannot be ruled out, but at a national level, farmland values have been supported of late by fundamental farm factors such as farm earnings.

"However, over 2005-08 and during 1978-85. farming income was insufficient to service debt on farm real estate purchases," they continue. "Historically low interest rates are likely a significant contributor to farming's current ability to support higher land values. Increase in interest rates would likely put downward pressure on farmland values."

The study also had some interesting insights concerning non-farm-operator landowners. "Three of the top four regions in terms of land in agriculture (Northern and Southern Plains and the Corn Belt) have non-operating owners owning more than 30% of the land. Non-operators owned 29% of all land in farms in 2007, and they owned 77% of farmland that is rented. Despite recent increases in foreign ownership of forest land, as of February 2009, only 1.7% of privately owned land in farms or forest, or 22.8 million acres, was owned by foreigners," they state.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

McLean County, Ill. Farm Brings Record $14,100 an Acre

Feb 21, 2012

Mike Walsten

Record prices for quality farmland keep coming. This time it was in central Illinois' McLean County where 160 acres were auctioned today via a sealed-bid auction. The tract is located six miles west of Bloomington in an excellent location along a state highway. There was a total of 159 tillable acres on the property. The soils carried a 139.2 Productivity Index (147 is maximum). There were two grain bins with dryer, a machine shed and a crib. And, best yet, according to auctioneer Wally Yoder of Soy Capital Ag Services, Bloomington, Ill., who handled the sale along with broker Brian Thompson, "it doesn't take water from anyone." All these resulted in a winning bid of $14,100 an acre, a new county record, Soy Cap's David Klein tells us. The tract was offered in two parcels. The winning bidder took both parcels.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Central Corn Farmland Posts 22% Annual Gain; Highest Since 1976

Feb 17, 2012

Mike Walsten

The value of Central Corn Belt cropland rose 22% in 2011, the strongest percentage increase since 1976, reports the Federal Reserve Bank of Chicago which serves the northern two-thirds of Illinois and Indiana, all of Iowa, the Lower Peninsula of Michigan and southeastern Wisconsin. Even after adjusting for inflation, the gain is still the highest (19%) since 1976. For perspective, the value of Central Corn Belt farmland rose by more than 20% for four successive years in the 1970s, 1973, 1974, 1974 and 1976 with 1976's annual increase the strongest at nearly 30%. The bank also notes farmland values in its district rose 4% during the fourth quarter of 2011 compared to the third quarter of 2011.

The bank reports farmland values have recorded a compounded inflation-adjusted annual growth rate of 5.5% since land values bottomed in 1986 and a 2.9% annual compound growth rate since 1970. The bank also reports more than 40% of the bankers responding to its quarterly survey expected farmland values to rise during the first quarter of 2012. Iowa posted the strongest annual increase, 28%, followed by a 27% gain for Indiana, a 21% increase for Illinois and an 18% gain for Wisconsin.

Click here for the full report.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Dryland Cropland in Central Plains Posts 9% Gain in Fourth Quarter

Feb 15, 2012

Mike Walsten

Strong demand and high prices combined to lure increasing supplies to the market during the fourth quarter of 2011, reports the Federal Reserve Bank of Kansas City. The quarterly survey found the value of dryland cropland surged 9% during the fourth quarter versus the prior quarter and rose 25% on an annual basis. Irrigated cropland rose 7.5% during the fourth quarter and increased 25% for the year, as well. District ranchland rose 3.1% during the fourth quarter and 14% for the year.

"Robust bidding by farmers spurred record high land values, which enticed more landowners to place farmland up for auction," says the bank's fourth quarter Agricultural Credit Conditions report. "District bankers noted an increasing number of absentee landowners were putting their farms up for sale and attributed much of the auction activity to landowners seeing top-dollar prices.

"Farmers were the main buyers, and the share of land purchased by farmers has grown during the past years," the bank continues. "Still, outside investor interest in farmland for rental income or capital gains remained high, with farmland sales for recreational or development use dwindling. About a third of district bankers expected both the price and the amount of farmland offered for sale to rise further in 2012," the bank states.

Click here for the full report.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

USDA Forecasts $92 Billion in 2012 Net Farm Income

Feb 13, 2012

Mike Walsten

USDA today projects another highly profitable year for the nation's farmers, which is positive for land demand. But it does show net farm income slipping from last year's record while costs continue to rise, but at a slower pace. USDA pegs total 2012 net farm income will reach $91.7 billion in 2012, down $6.3 billion (6.5%) from last year's record and the second highest on record. On the income side, USDA forecasts a 0.7% rise in crop income and a 0.1% decline in livestock income. On the production cost side, USDA projects a 3.9% increase for 2012 compared to last year. While an increase, the rate is gain is much more moderate compared to an estimated 12.5% increase in production costs in 2011. Total farm debt is also expected to increase to $254.1 billion, a 3.8% rise. Farm equity is expected to rise to $2.22 trillion. The debt-to-equity ratio is expected to decline slightly to 11.4% in 2012 compared to 11.7% in 2011. The debt-to-asset ratio is expected to decline from 10.5% in 2011 to 10.3% in 2012.

Click here for the full USDA report.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Nebraska Sees Record $12,000 an Acre

Feb 10, 2012

Mike Walsten

After several sales just shy of the mark, Nebraska saw as some very productive cropland pass under the gavel for $12,000 an acre -- believed to be a state record. The auction, conducted by Ruhter Auction and Realty Inc., Hastings, Neb., occurred Monday February 6. It featured 160 acres of flat, highly productive soil types just northwest of Harvard in Clay County. A large portion of the cropland is gravity irrigated from an eight-inch well located on the north edge of the property. For those not familiar with the area, the south-central Hastings area features intense seed-corn production. It is a high-yield, highly reliable producing area.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Iowa Cash Lease Auction Sees $400 to $530 Winning Bids

Feb 06, 2012

Mike Walsten

A ray of sunshine in the normally opaque Iowa cash lease market was cast last week as 3,300 acres were auctioned for lease. Terms: two years with 25% of 2012's lease due February 1 and 75% due March 1, 2012; 25% of 2013's lease due January 15 and 75% due March 1, 2013.

The land offered ranged from Cass and Guthrie Counties to Hardin, Butler, Hancock, Franklin, Cerro Gordo and Mitchell. Basically the auctions ranged from $400 an acre to $530 an acre. One tract of 52 CSR soils, prone-to-flooding soils brought $325. Here are other samples: CSR 78 to 92 ground in Hardin County brought $460 to $530; CSR 62 ground in Mitchell Co. brought $400 an acre while CSR 86 Mitchell soil brought $530 an acre; CSR 76 to 81 ground in Cass and Guthrie brought $475 and $525 an acre; CSR 67.7 ground in Butler Co. brought $435 while CSR 71.6 land brought $520; CSR 71.4 and 72 ground in Cerro Gordo brought $490 and $500 an acre; 214 tillable acres of CSR 55.2 ground in Hancock County brought $450 an acre; Franklin county tracts with CSRs ranging from 68 to 84 ranged from $425 to $520.

Click here to look at the details more closely. Al Hughes Auction Service, Glenwood, Iowa, handled the auction for owner Charles E. Lakin.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Survey Suggests Leveling Off of Rural Economy

Feb 06, 2012

Mike Walsten

Considering the breath-taking explosion in the price of farmland in 2011, this should come as no surprise. A recent survey by midwestern bankers suggests the rural economy is leveling off. The survey in question is the monthly Mainstreet Economy survey conducted by Creighton University economics professor Dr. Ernie Goss. Frequent readers of Your Precious Land have seen our previous coverage of this leading-indicator survey as it attempts to monitor conditions in rural communities and rural community banks across 10 Midwestern states.

The current survey finds the Rural Mainstreet Index (RMI) rose in January and is at its highest level since June 2007. Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, advanced to 59.8 from 59.7 in December. However, 26% of survey respondents rated a decline in commodity prices as the largest threat to the rural mainstreet economy. Survey supervisor Goss said, "We are detecting a leveling off in the growth of the Rural Mainstreet economy. While slower global economic growth, higher energy costs, and softer agriculture commodity prices will mean somewhat slower growth for the first few months of 2012, our surveys continue to show healthy growth for the area." 

After rising to a record level for December, the farmland price index fell to a still healthy reading for January. The index for January sank to 74.3 from 84.1 in December. This is the 24th straight month the index has been above growth neutral. The farm equipment sales index slipped to 72.3 from 73.8. "Very healthy farm income has encouraged farmers to purchase new equipment and to expand operations. This has pushed up farm land prices at rates that are, in my judgment, unsustainable in the long run. Air will come out of the farmland price bubble when agriculture commodity prices soften in the months ahead," said Goss. 

Bankers reported on likely outcomes from the end of the blender’s tax credit for corn-based ethanol at the end of 2011. Almost one in 10, or 9 percent, expect the termination of the credit to have significant negative impacts on the Rural Mainstreet economy. However, a majority, 51 percent, anticipate that the ending of the tax credit will have a modest negative economic impact.  The remaining 40 percent expect only slight or no negative impacts. None of the bankers reported a positive impact due to the expiration of the credits. 

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

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