Farmland Values and Farmer Income Continue to Rise
Mar 04, 2013
Temperatures in the Corn Belt have been steadily increasing throughout February and improved amounts of precipitation have been reported across much of the Midwest to help moderate drought conditions. Subsurface soil moisture levels are still dangerously low though as 57% of the U.S. is still in a moderate to worse drought. Farmers are hoping for abundant spring rainfall and for drainage tile lines to start flowing again; a sign of increased moisture deep beneath the surface. Agricultural commodity prices have been volatile while analysts have been tracking the latest planting estimates for corn, soybean, and wheat acreages in the Corn Belt. The looming threat of automatic U.S. Government spending cuts have also put investors on edge.
Corn prices decreased by 2.8% this month, closing at $7.19 per bushel on the front month contract. Reports by USDA and other independent third party companies of record corn production in Brazil and the U.S. led prices lower in early February. The USDA estimated Brazil's corn production at 72.5 million metric tons, a 2.1% increase from January's estimate. Additionally, the USDA estimated U.S. ending corn stocks 30 million bushels higher due to a 50 million bushel reduction in exports, primarily driven by increased Brazilian exports. Currently, the 2013 U.S. corn crop is projected at a record 14.350 billion bushels, up 35% year over year, according to the USDA.
Soybean prices slightly increased by 0.4% this month to close at $14.74 per bushel. U.S. soybean ending stocks were estimated 10 million bushels lower due to increased domestic soybean crush usage. The USDA increased the estimated production of Brazil's soybean crop to 83.5 mmt from 82.5 mmt due to a 10.4% increase in planted area from last year. Currently, the 2013 U.S. soybean crop is projected at 3.405 billion bushels, up 13% year over year, according to the USDA.
Wheat prices decreased by 9.2% this month, closing at $7.09 per bushel. The USDA estimated domestic ending wheat stocks 25 million bushels lower to 691 million bushels due to increased domestic feed and residual use primarily driven by favorable wheat prices compared to corn. Increased precipitation across much of the Wheat Belt throughout February led to an ongoing bearish month. Ukraine is rumored to start exporting up to 2.0 mmt of wheat in late March. The U.S. Dollar will affect future domestic wheat prices due to the large amount of wheat competition around the globe.
Midwestern farmland values increased 16% in 2012, the third largest gain in the last 35 years, according a survey from the Federal Reserve Bank of Chicago. Farmland values increased 20% to 25% in the Southern Plains in 2012. The seventh consecutive quarter that both irrigated and non-irrigated farmland appreciated more than 20% year over year, according to a survey by the Federal Reserve Bank of Kansas City. Despite the worst drought in over 55 years, high commodity prices and record farm incomes drove demand for agricultural land. Survey respondents expect the momentum to continue the next twelve months based on the record income expectations for 2013.
The Creighton University farmland price index decreased for the third straight month to 67.0 from 71.5 in January. This marks the 37th consecutive month the index has remained above growth neutral. The farm equipment sales index rose to 65.8 vs. 63.8 last month. Economist Ernie Goss commented, “Based on our surveys over the past several months, 2013 is stacking up to be a good year for farm income according to bankers. This is showing up in healthy growth in farmland prices and the sales of farm equipment.”
Bankers were asked questions this month in regards to corn prices in the coming year. Bankers believe that a price below $3.86 per bushel would threaten repayment of farm loans. They also estimated that a corn price of $4.84 per bushel would be the breakeven point for farmers who rent their land.
South American Crop Conditions
The USDA estimated Argentina's soybean production 3.7% lower this month at 53.00 mmt and Brazil's soybean production 1.2% higher this month at 83.50 mmt. The weather in Argentina has been very dry and we are monitoring the production outlook and weather forecasts for precipitation. Brazil's soybean crop appears to be very healthy, although wet conditions have delayed harvest in many regions, thus even further delaying the planting of corn which follows soybean harvest.
Total corn production was estimated 3.6% lower this month to 27.0 mmt in Argentina by the USDA, due to persistent hot and dry weather. Brazil's 2013 corn crop was estimated 2.1% higher due to favorable conditions.
Brazil is experiencing major logistical issues at their ports as waiting times to load ships are as high as over 50 days in Paranagua and over 40 days in Santos. The Brazilian infrastructure is proving that it cannot handle exporting additional crops.
In the upcoming weeks, planting acreage forecasts and weather in the U.S., soybean yield data in South America, and the strength of the U.S. Dollar will affect the grain markets. Despite the enthusiasm surrounding agriculture, we feel farmland can still be sourced at undervalued prices and the growing demand for crops produced on land located in the Corn Belt will accelerate well past 2013. Farmers are expected to plant 254 million acres, the second highest acreage on record in the U.S., but demand has continued to strengthen as well.
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