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February 2011 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 Economy Grows in February, But at Slower Rate

Feb 22, 2011

The rural economy grew for the fourth straight month, but the pace of growth slowed in February according to the Rural Mainstreet survey. Rising farm income and improving banking conditions are showing signs of sustained growth in the rural economy.

The overall Rural Mainstreet Index (RMI) declined to 55.3 from 59.3 in January, according to the survey of bank CEOs in a 10-state region. This marks the fourth straight month the index is above growth neutral 50.0 and well above the reading of 36.6 last February.

RuralMainstreetFebruary2011FarmlandForecastColvin

“An expanding global economy, a cheap dollar and alternative energy production are pushing the Rural Mainstreet economy into territory not experienced since the early 1970s,” said Creighton University economist Ernie Goss, co-author of the report.

Agriculture

Farmland prices continue to rise in 2011 as the farmland price index remained above growth neutral for the 13th straight month at 75.9, a slight increase from January’s 75.4. Respondents noted they expect the higher inputs may constrain the rate of growth in 2011 compared to 2010.

“Based on our survey of bankers, farmland prices continue to grow at an annualized rate of more than 15 percent and agriculture equipment sellers are experiencing surging sales across most of the region,” said Goss.

FarmlandForecastPriceIndexGreysonColvin

Banking

The strong rural economy and healthy cash flows have dampened the growth for lending as the loan volume index remained below growth neutral in February at 39.0, but above January’s record low of 33.9. The other two banking indicators, checking deposits and certificate of deposits, remained above growth neutral for the 12 straight month.

The rural economy continued to add jobs in January as the jobs index was above growth neutral, but unchanged from the previous month at 52.5. “For this part of the country, rural areas are clearly outpacing the urban areas in terms of job growth. Even with recent job gains, the Rural Mainstreet economy has 115,100 fewer jobs today (2.4 percent) than before the recession,” said Goss.

Bankers expect sustainable growth over the next six months in the rural economy as the economic confidence index improved to 70.9 in February from January’s reading of 63.4.

Respondents were also asked how the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act would likely affect community banks. Roughly 81% expected negative impacts and only slightly less than 14% anticipated positive impacts. Of those expecting negative results, 44% expected “very negative” impacts.

Outlook

The rural economy continues to lead the way in a slowly improving economy. Strong farm income and farmer spending is keeping the rural economy steaming ahead. High grain prices and expectations of record planted acres could bring record production and profits to the rural economy in 2011.

Remember to visit Farmland Forecast (http://farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Farmland Values Rose Double Digits in 2010

Feb 18, 2011

Record grain prices and farmer income drove farmland prices to double digit gains in the last twelve months, according to the Federal Reserve Bank of Kansas City. The farmland market displayed the strongest year-over-year gains since 2007-08, as high farm income attracted farmer and investors to the market.

The Fed expects the momentum to continue into 2011 with farmland values and farmer income to rise in the coming months, although land values may not continue their rapid pace. Kansas and Nebraska had the strongest gains in 2010, with non-irrigated farmland appreciating 19.5% and 17.6% respectively. Ranchland also benefited across the district, with an average gain of 9.2%.

Brian Briggeman, Kansas City Fed economist, commented, “Rising farm income, especially for crop producers, drove nearly 20% annual value gains for Kansas and Nebraska farmland. In Oklahoma and the Mountain states, annual farmland value gains were not as sharp due to extremely dry conditions threatening crop yields and limiting cattle grazing.”

FarmlandForecast   ValuesKansasColvin cropland invest

The Fed did note a concern as cash rental rates only rose 6.0% over the last twelve months. Briggeman noted, “With farmland value gains outpacing the increase in cash rents, some District bankers were concerned that land values may not maintain their torrent pace.”

Farmland was primarily purchased by farmers looking to reinvest their profits, but 2011 saw a larger number of nonfarm investors looking to capitalize on rising values and cash rents. The amount of sales in 2010 was higher than the previous year, but land buyers did not have a problem consuming the high volume.

FarmlandForecast   ReasonPurchasesNonfarmersColvin investment value 2010

Farm credit conditions continued to improve in 2011 with farmers paying down debt and pushing the loan repayment index to its highest level in three years. Strong farm income led to fewer requests from farmers for new loans and extensions.

Overview

2010 was one of the most exciting years for agriculture in recent memory, which is reflected in the higher farmland values and farm income. The Fed did note that cash rents are not keeping pace with farmland values, but there is typically a lag and this should adjust over the next 12 months.

Supplies will continue to remain tight over the next few months and we expect farmers and investors to continue to capitalize on the momentum.

Remember to visit Farmland Forecast (http://farmlandforecast.colvin-co.com) for your daily update on news and research about agriculture and farmland.

Ethanol Drives Corn Supplies to 15 Year Low

Feb 10, 2011

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 Wednesday. February’s report is typically quiet, but strong corn demand has driven corn supplies to dangerously low levels.

The cut in corn stocks was substantially higher than analysts’ estimates, which should pressure corn prices higher in today’s session. Corn stocks are now at a 15 year low, which will grab investor’s attention. Prices may test the all time high of $7.56 a bushel in the next few months.

Corn

U.S. corn supplies continue to tighten as demand was increased by 70 million bushels. Ethanol usage was increased by 50 million bushels and food, seed, & industrial was increased by 20 million bushels. Production and yield estimates were unchanged in the February report.

Ethanol production is now at an all time high of 4.95 million bushels, up from 4.568 billion bushels in 2009/10. The USDA reported the ethanol industry’s project ordered for 2010 were 13.01 billion bushels, up 8.4% from last year.

Ending corn stocks for 2010/11 are now at 675 million bushels and leaves the ending stocks to use ratio at 5.0%, matching the pervious lowest ratio in 1995/96. The USDA season-average farm price for corn is estimated at $5.05 to $5.75 per bushel, a midpoint increase of 10 cents and the highest season-average ever.

Ending Corn Stocks Greyson Colvin Farmland Forecast WASDE 2011

World corn ending stocks were moderately lowered to 122.51 million tons due to production in Argentina being reduced by 4.5 million tons, lower beginning stocks, and higher usage. The global ending stocks to use ratio is now at 14.6%, the lowest since 1973.

Soybeans & Wheat

Estimates for soybeans and wheat were unchanged in the February report, although analysts were expecting a cut in ending stocks for both crops. Soybeans and wheat should trade higher on the strong demand for corn.

Overview

Grain stocks continue to become dangerously low each month. There is currently less than a three week supply of corn available. Corn prices above $6.00 will pressure food prices and supply rationing.

All eyes will now be turned to U.S. planting estimates for this spring. We expect that farmers will shift more acres to corn from soybeans to capitalize on the high prices. Analysts expect around 90 million acres of corn to be planted in 2011, with some estimates reaching as high as 93 million acres, compared to 2010’s planting of 88.222 million acres.

Visit http://farmlandforecast.colvin-co.com for daily articles on farmland and agriculture.

Weather and Acreage Driving Factors for Grains

Feb 01, 2011

Wheat and corn lead the grain markets higher in January due to difficult global weather conditions early in the month and increased foreign demand throughout the month. Subsequently, farmland values have steadily been increasing with record sale prices across much of the Midwest driven by high commodity prices and the EPA’s approval of E15 gasoline. The USDA Prospective Plantings report is due out in late March, but analysts and traders will be making plenty of their own predictions in the upcoming weeks which will have an affect grain prices.

Grain Prices

Corn prices increased by 4.8% this month and closed at $6.59 per bushel. The rally in corn was fueled by the USDA estimating ending corn stocks for 2010/11 to be the lowest since 1995/96 at 745 million bushels which leaves the ending stocks to use ratio at 5.5%. U.S. ending stocks were decreased because of a 100 million bushel increase in both ethanol and industrial use. The EPA also ruled that vehicles 2001 and newer are safe to use gasoline blended with 15% ethanol. The current blend is mandated at 10%. This additional ethanol use was very bullish news for the corn markets.

Soybean prices increased slightly by 0.7% in January, to $14.13 per bushel due tightening global supplies. News that the Chinese demand may be decreasing due to negative crush margins may curb soybean demand to a certain extent. In addition, Brazil is ready to export a record amount of soybeans this year; 31 million tons.

Wheat prices continued their rally this month to $8.40 per bushel this month, a 5.9% increase, due increased global demand. Countries such as Egypt, Morocco, and Yemen have been facing protests on food and unemployment. If any country starts to stockpile grains as a safety net, it will create false demand which could increase prices even further. Wheat prices have the potential for stockpiling since wheat is essential for flour and can be a substitute to other animal feed grains.

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 mid-month. January’s report is typically one of the most anticipated and it was not a letdown.

U.S. grain supplies were substantially reduced for the 2010/11 marketing year due to lower grain production estimates and higher use. A late harvest in the U.S. led the USDA to reduce U.S corn yield estimates to152.8 bushels per acres from 154.3 bushels. Grain supplies are now critically tight and discussions may turn to rationing.

Grain stocks continue to become tighter as every day passes. There is currently less than a three week supply of corn available. Corn prices above $6.00 will pressure food prices and supply rationing.

Crop Conditions

The regions on Argentina that so desperately needed rains in early January got the precipitation, but it may have been too late. Strong storms systems dropped heavy rains in South America throughout the middle on the month, but this after many farmers had already given up on planting their second soybean crop. For those who got the soybeans planted, the rain may have saved the entire crop. Corn conditions continue to look weak across much of Argentina.

Areas across the Midwest have received elevated amounts of snow which have come earlier than in recent years. More snow historically leads to a wetter spring for farmers which could delay planting and hurt overall yield potential. The difference this year is the timing of the first heavy snow amounts.

The frost depth in southern Minnesota is currently 55”, according to the Minnesota DOT. The average maximum frost depth for the region is 65” to 70”. If our weather doesn’t significantly change, 2011’s frost depth should follow the 2010 trend of a maximum frost depth reached in early February. If the frost depth is below average, then it will allow soils to thaw out earlier in spring and drain excess snow faster than normal. We are keeping an eye on the maximum frost depth for the rest of winter and how it could affect spring planting.

Farmland

Farmland prices continue to be robust as the Creighton University farmland price index remained above growth neutral for the 12th straight month at 75.4, but down a tick from December’s 76.9. Respondents noted they expect the strong farm economy to drive cash rental rates for farmland in 2011.

“More than three-fourths of the CEOs anticipate cash rents to rise by more than 5 percent in 2011, and approximately one-fifth expect these rents to grow by more than 10 percent,” said Ernie Goss.

Land values have sharply increased over the past couple months due to a high volume of comparable sales throughout this selling season. When a farm sells for $6,500/acre, the neighbor next door will imagine the possibilities now in place.

"I would say in some areas of Iowa and Minnesota land values may have jumped as much as $1,000 an acre in the last 60 days, with prices at $6,200 per acre in Minnesota," said Sam Kain, area sales manager for Farmers National Company.

Outlook

The typical farmland selling season is in full swing and we believe there may be an extension to this year’s selling season. Grain prices are high and many landowners have seen the recent sales in their county giving more reason for some of these hesitant sellers to list their farms. Although prices have been very high, we still think farms are going for a discount in many cases. If the cash price of corn remains above $5/bushel, farmland sale prices can still be justified at over $6,500/acre on Iowa ground.

The commodity markets are certainly volatile, and that is one reason why we prefer cash rent contracts to share cropping. The markets are going to key in on two major factors moving forward in 2011; the weather and the planted acres.

Global weather patterns have caused huge rallies in commodities over the past 12 months and this could certainly continue, but the long-term weather cannot be predicted to a certain extent. The amount of acres allocated to corn, soybeans, or wheat this year will have large roles in each of their market prices. If wheat stays at its elevated price due to the 2010 drought in Russia and floods in Australia, expect farmers to cut into corn and soybeans acres to plant more spring wheat in the western Corn Belt.

Please visit http://farmlandforecast.colvin-co.com for daily articles on farmland and agriculture.

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