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March 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 Speeds Ahead in March

Mar 21, 2011

The rural economy grew at a rapid pace in March as improving home sales, expanding farm equipment sales, and strong farmland values have improved the rural economic outlook.

The overall Rural Mainstreet Index (RMI) improved to 56.7 from 55.3 in February, according to the survey of bank CEOs in a 10-state region. This marks the fifth straight month the index is above growth neutral 50.0 and well above the reading of 47.4 last March.

Farmland Forecast   March RMI 2011

“Expanding global and domestic economic growth is pushing the Rural Mainstreet economy into solid growth territory,” said Creighton University economist Ernie Goss, co-author of the report.

Agriculture

Farmland prices continue to remain above growth neutral for the 14th consecutive month, but March’s reading declined slightly to 75.0 from it recent high of 75.9. Bankers continue to note strong sales in their region, but some are concerned rising fuel prices could pressure farm income.

Farmland Forecast   March Farmland Price Index 2011

The farm equipment sales index substantially improved to 75.9 from 63.5 in February. “Farm implement producers and dealers are experiencing a banner year as farmers spend their higher income,” said Goss.

Banking
Loan volumes improved in March to 47.1 from a weak reading of 39.0 in February. Checking deposits increased to 68.7 from 67.8 in February, but certificate of deposits declined to 45.5 in March from 50.8.

Bankers were asked how the recently passed Dodd–Frank Wall Street Reform and Consumer Protection Act would likely affect community banks. 96% expect to charge customers additional fees to cover their higher transaction costs and 99% of bankers advocate modification or further analysis of that portion of the bill, known as the Durbin Amendment.

Rural bankers continue to expect sustainable growth over the next six months in the rural economy, although the economic confidence index declined to 65.2 in March from February’s reading of 70.9.

Outlook

The rural economy continues to lead the way in a slowly improving economy. Unexpected economic challenges may cause some bumps in the road, but strong farm income and farmer spending will keep the rural economy steaming ahead.

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

Acreage Reports and Political Unrest Affecting Grain Markets

Mar 01, 2011

The USDA announced an early planting acreage estimate for the 2011 crop year this month. 92 million acres are forecasted to be planted with corn in the U.S. this spring; a 4.3% increase from 2010. Soybean acres were forecasted 0.7% higher and wheat acres 6.3% higher than in 2010. Any land that is capable of being farmed this year will be put into production by farmers capitalizing on high commodity prices.

An unseasonably warm weather pattern moved across the Midwest midmonth, bringing temperatures into the 50’s melting a lot of the current snow cover. This winter has brought above normal snow fall amounts and any sign of an early thaw will be welcomed by farmers. Flood risks have been increased by government forecasts due to increased snow fall totals and thawing that is already occurring across the southern portion of the Corn Belt. Any amount of precipitation above monthly averages in March will increase the risk of a delayed planting season due to excess moisture in farm fields.

Grain Prices

Corn prices increased by 9.6% this month and closed at $7.22 per bushel. The rally in corn was again due to the USDA estimating ending corn stocks for 2010/11 to be the lowest since 1995/96 at an alarming 675 million bushels which leaves the ending stocks to use ratio at 5.0%. Political unrest in Northern Africa and the Middle East negatively affected corn prices midmonth, but prices recovered within a few trading sessions to monthly highs due to strong demand.

Soybean prices decreased by 4.0% in February, to $13.56 per bushel due to the political issues in Northern Africa and the Middle East. Traders have recently cut long positions in the grain markets. Roy Huckabay, an executive vice president for the Linn Group in Chicago said, “Today is all about speculators reducing riskier positions and consumers waiting for lower prices before buying.” The underlying supply and demand of soybeans should still be supportive of high prices, but short-term factors are delaying a sustainable rally.

Wheat prices also decreased this month to $7.82 per bushel, a 7.4% decrease. Factors affecting wheat’s price were similar to the case in soybeans. The political problems in Egypt have a direct correlation to the grain markets as Egypt is among the world’s largest wheat importers. Estimates for soybeans and wheat were unchanged in the February WASDE 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.

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 on February 9th. 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.
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.

Acreage

A 10 million planting acre increase in the 8 major U.S. crops was forecasted by USDA for the 2011 season this month. 255.3 million acres of planted farmland are now being forecasted, up from 2010’s 245.3 million acres. Corn acres are estimated to have the largest acreage increase, up 3.8 million acres to 92.0 million from 88.2 million in 2010. Farmers are looking to take advantage of the very high corn prices by expanding their corn acres.

“Despite an anticipated 4 percent increase in planted acreage, the corn market will continue to be tight in 2011/12. Assuming harvested acreage of 84.9 million acres and a trend yield of 161.7 bushels per acre, corn production for 2011/12 is forecast at a record 13.73 billion bushels. Because of this year’s smaller carryout, total supply for 2011/12 is estimated at 14.425 billion bushels, an increase of only 250 million bushels over 2010/11 levels,” according to Joseph W. Glauber, Chief Economist at USDA.

The USDA report also noted that ethanol usage will continue to increase through 2011/12 and could account for 36% of the total domestic corn crop. If this increase in usage outpaces the increase in yields, expect corn prices to continue to rise long-term.

Farmland

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 Ernie Goss.

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.

Outlook

Now that the initial USDA planting acreage estimates have been released, expect any adjustments to have an immediate impact on the grain markets. Although soybean and wheat prices decreased in February, corn, a farmer’s most profitable crop, continued its rally. High grain prices paired with very strong comparable sales are still justifying the high farmland sale prices across the U.S. Expect farmland values to continue their upward trend throughout 2011.

We would like to remind our readers about the Farmland Outlook for 2011 conference on March 14, 2011 at The Inn of Naples in Naples, Florida. The conference is an exclusive event, open to the public at no cost. Visit www.colvin-co.com for RSVP information on the conference.

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