May 22, 2013

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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 Economy Continues to Grow

May 22, 2013

The rural economy is still the bright spot as the Rural Mainstreet Index (RMI) strengthened to its highest level since December 2012. Strong farm income and high commodity prices have driven the farmland price index above growth neutral for the 42nd consecutive month.

The RMI increased to 58.8 from 58.3 in the April survey. Bankers were asked what the biggest risks were to the rural economy and 60% indicated a decrease in commodity prices was the biggest risk for 2013.

Dual Farmland Price and Rural Mainstreet Index May 2013

Agriculture

The farmland price index decreased to a still strong 62.1from 66.9 in April but has decrease five of the last six months. Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University, commented, "Since the beginning of the year, the U.S. dollar has climbed in value by 5 percent, this has been a factor pushing farm commodity prices downward. For example, corn prices have slumped by almost 10 percent since December of last year. This trend, which I expect to continue in the months ahead, has taken a bit of the air out of farmland price growth and farm-implement-sales growth."

Bankers pointed fingers at federal policy makers and their impacts on the economy, " The Healthcare Reform Act will likely affect employment in this area in the months ahead. The Dodd-Frank regulations will adversely affect community banks," said Michael Flahaven, president of Wenona State Bank in Wenona, Ill. Some bankers went into more detail, "Dodd-Frank and new regulations from the Consumer Financial Protection Board are strangling us. New regulations are going to cause us to quit making residential real estate loans hurting the people these regulations are supposed to be helping," remarked Larry Rogers, president of the First Bank of Utica, Utica, Neb.

Survey

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The RMI is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.

For daily articles on farmland and agriculture, visit www.farmlandforecast.com

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Farmland Values Increase by 20% in Plains States

May 21, 2013

For the third straight year, farmland prices in the Tenth Federal Reserve District have increased by double digits year over year, a record for this survey. Farmer income also remained elevated, but bankers are concerned going forward as low crop prices and higher input costs may curb farmer income.

Farmland Prices

Year over year cropland values increased 20% in the first quarter of 2013. Although values continue to move upward, the pace of that increase has slowed down. Non-irrigated farmland rose 3.4% over the first quarter of 2013 compared to a 7.7% increase in 2012. Irrigated farmland rose 2.9% versus a 9.0% gain in 2012. The slight slowdown in the quarterly value can be attributed to a deceleration of farmer income.

Kansas City Fed Farmland Values first quarter 2013

Farm Income

Income remained elevated for farmers in the first quarter of 2013, but the growth was limited due to declining crop prices and increased prices for inputs. Input, especially seed and fertilizer, expenses increased as planting season approached. Crop prices were held in check due to higher than expected inventories reported toward the end of the quarter.

Although farmer income remains stable, one out of three bankers indicated that a large share of their clients had debt-to-asset ratios above 40%. They noted that the rising value of land and production costs was increasing young and beginning farmers’ debt responsibility.

Farm Loan Portfolio

Demand for operating loans decreased as farmers used revenue from crop sales and insurance payments to pay for inputs such as seed and fertilizer. As lenders compete for borrowers, interest rates continue to drop for short-term operating loans, intermediate-term machinery loans, and long-term farm real estate loans.

Tenth District Farm Loan Demand and Funds Availability First Quarter 2013

Bankers commented that credit conditions are stable as farmers paid down debt. Bankers also noted that loan repayments in the first quarter of 2013 were not as strong as last year. Farmers took advantage of tax incentives in the fourth quarter of 2012 which resulted in a surge of capital spending. The spending continued into 2013 as the tax incentives were extended.

Survey

A total of 223 banks responded to the First-Quarter Survey of Agricultural Credit Conditions in the Tenth Federal Reserve District, an area that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri.

For daily articles on farmland and agriculture, visit www.farmlandforecast.com

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Crop Progress: Corn Acres Planted Jumps to 71%

May 20, 2013

Improved weather opened up a window for farmers to plant the 2013 crop, resulting in a 43% increase in week to week corn acres planted. Farmers in the Corn Belt will see increased moisture at the beginning of this week, favoring developed crops but slowing down planting the remainder of the crop.

As of May 19, 2013 71% of the U.S. corn crop has been planted. This was a huge jump in acres planted and only 8% behind the five year average of 79%. Corn that has emerged was at 19%, down 27% from the five year average.

Soybeans planted were at 24%, well behind the five year average of 42%. Last year at this time 32% of soybeans had emerged, but only 3% have emerged as of May 19, 2013.

Winter wheat conditions were 41% of the crop in poor or very poor condition compared to only 14% at the same time last year. Winter wheat in good or excellent condition is 31%, compared to 58% last year. Last year at this time 80% of winter wheat had headed, but only 43% has headed this year.

As of May 19, 2013 67% of the spring wheat has been planted, lagging the five year average of 76%. Of the spring wheat crop, 22% has emerged compared to the five year average of 49%.

The July corn contract decreased by 1.0% over the past week ending at $6.49 per bushel, soybean prices increased by 3.2% over the past week ending at $14.64 per bushel, and wheat prices ended the week at $6.85 per bushel, a 3.4% increase from last week. Year-over-year corn prices are up 2.5%, soybeans are up 3.7%, and wheat is down 2.7%.

For daily articles on farmland and agriculture, visit www.farmlandforecast.com

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Farmland Values Increased 4% in First Quarter of 2013

May 20, 2013

The value of "good" farmland increased 4% in the first quarter of 2013 compared to the fourth quarter of 2012, and year over year values have increased by 15%. Of the five states included in the 7th District, four states posted double digit year over year increases, masking Wisconsin's 3% decrease.

Chicago Fed Quarterly farmland values first quarter 2013

Demand and volume of farmland sales increased in the first quarter of 2013. Additionally, cash rental rates increased 11% compared to 2012, but mark the smallest annual increase in the past two years. When comparing value increase to rental increase (15% vs. 11%) the percentage difference fall in line with historical averages as cash rent usually lags values. Over three quarters of bankers believe values will stabilize in the second quarter.

Earnings

Grain prices are following the trend and according to the USDA's most recent data, corn prices in the first quarter of 2013 were estimated at $7.06 per bushel, a 2.5% increase. Soybean prices were estimated at $14.47 per bushel, a 1.4% increase.

Credit

Credit conditions remain positive for producers but the demand for agriculture related loans fell to its lowest level since 1986.

The average loan-to-deposit ratio was 63.7, the lowest level since 1994. Bankers are concerned because this is 13 percentage points below what they desire. A whopping 89% of bankers are below their desired level of lending.

Interest rates for operating loans and agriculture real estate loans fell to 4.91% and 4.60%; both rates are record lows.

Outlook

Farmers trying to plant the 2013 crop have been met with heavy precipitation, preventing them from getting into the fields; last year at this time almost the entire corn crop was planted compared to only 28% this year. The USDA expects the 2013 crop to be large due to increased production and planted area, but history has show that late planting, especially deep into May, decreases yield significantly. We expect soybean acreage to increase at the expense of corn acreage if late planting persists.

The Federal Reserve Bank of Chicago’s first quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the 7th District’s value of farmland, farm loan portfolio performance, and on-farm income. The 7th District consists of the entire state of Iowa, and portions of Illinois, Indiana, Wisconsin, and Michigan.

For daily articles on farmland and agriculture, visit www.farmlandforecast.com

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Crop Progress: 37% Lag in Corn Planting

May 13, 2013

Wet and cold weather persisted throughout the Corn Belt last week, although some farmers have been able to plant due to improving, regional, conditions. Anxious farmers sowed 16% of the 2013 corn crop last week alone. The weather forecast moving forward is warmer with a chance of a storm system moving into the Corn Belt later this week.

As of May 12, 2013 only 28% of the U.S. corn crop has been planted. Farmers are concerned as the five year average at this point of the year is 65% planted. Corn that has emerged was at 5%, down 23% from the five year average. Soybeans planted as of May 12, 2013 was at 6%, behind the five year average of 24%.

Winter wheat conditions are at 39% of the crop in poor or very poor condition, compared to only 14% at the same time last year. Winter wheat in good or excellent condition is 32%, compared to 60% last year. Last year at this time, 51% of winter wheat had headed, but only 29% has headed this year. As of May 12, 2013, 43% of the spring wheat crop has been planted, lagging the five year average of 63%.

The July corn contract increased by 3.0% over the past week ending at $6.55 per bushel, soybean prices increased by 3.7% over the past week ending at $14.19 per bushel, and wheat prices ended the week at $7.09 per bushel, a 1.0% increase from last week. Year-over-year corn prices are up 3.1%, soybeans are up 1.0%, and wheat is up 2.0%.

Please visit www.farmlandforecast.com for daily articles on farmland and agriculture.

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