Sep 2, 2014
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May 2014 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.

USDA Weekly Exports: Corn Sales Increase for Third Consecutive Week

May 30, 2014

U.S. corn prices have been falling in recent weeks prompting export sales around the world. Favorable spring planting weather has allowed U.S. farmers to plant their corn crop on time and look forward to what is suppose to be a record crop. 

Weekly U.S. net corn sales for the week ending May 22nd in the 2013/2014 marketing year were 621,300 metrics tons (MT), a 22% increase from the previous week, but a 10% decrease from the prior 10-week average. Increases were reported from Mexico, Egypt, Israel, Colombia, Portugal, and South Korea. Decreases were reported from China, Spain, Costa Rica, and unknown destinations. Exports were 1,210,200 MT, a 4% increase from the prior week, but a 2% decrease from the prior 10-week average. The primary destinations were Japan, China, Indonesia, Brazil, Yemen, Mexico, and Nigeria.

Weekly net soybean sales were 60,300 MT, a 63% decrease from the previous week and a 6% decrease from the 10 week average. Increases were reported from Taiwan, Japan, Indonesia, Mexico, Vietnam, and Canada. Decreases were reported from unknown destinations. Exports were 119,300 MT, a 42% decrease from the prior week and a 74% decrease from the prior 10-week average. Primary destinations were Mexico, Indonesia, Japan, Israel, and Taiwan.

Weekly net wheat sales were 89,800 MT, a 36% decrease from the previous week and a 66% decrease from the prior 10-week average. Increases were reported from Yemen, South Africa, Nigeria, Italy, Nicaragua, and South Korea. Decreases were reported from Taiwan, Israel, Brazil, Mexico, and unknown destinations. Exports were 529,100 MT, a 4% increase from the prior week and a 3% decrease from the prior 10-week average. Primary destinations were Japan, China, Indonesia, Brazil, Yemen, Mexico, and Nigeria.
 
Export Report Sales Volume 5 30 14
Export Report Export Volume 5 30 14
- Colvin

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

Crop Progress Report: Planting is back to Normal as Farmers take Advantage of Great Weather

May 27, 2014

Phenomenal weather last week allowed farmers to catch up on planting. Farmers were beginning to become extremely concerned that this year’s corn acres would be changed to soybeans due to unrelenting weather.

The USDA estimated 88% of corn acres were planted across the U.S. as of May 25th, a 15% increase from the prior week. The progress is even with the five-year average for the first time this year. Farmers in the northern Corn Belt were finally given warm and dry weather. Farmers in Michigan, Minnesota, North Dakota, and Wisconsin made up significant ground after wet and cold weather had delayed their planting season. North Dakota farmers were able to plant 50% of the statewide acres in one week to significantly close the gap on the five-year average. Corn emergence was reported at 60%, a 26% increase from last week and only 4% behind the five-year average.

Soybean planting also took advantage of the nice weather reported last week. Soybean planting was reported at 59%, a 26% increase from last week and 3% ahead of the five-year average. Northern states again took the most advantage of the nice weather, Minnesota lead all states increasing areas planted by 33% from last week. 25% of soybeans were reported emerged, a 16% increase from the prior week and 2% behind the five-year average.

Winter wheat conditions were slightly changed from the past week. The USDA reported that 23% of the wheat was in "very poor" condition, compared to 22% last week. Wheat rated excellent did not change, wheat rated poor decreased 3%, and wheat rated "good" increased 2%. Wheat rated fair was unchanged. 70% of the wheat was headed, 1% ahead of the five-year average.

July futures for corn closed the week at $4.70 per bushel, a 1.5% decline from last week. July soybeans ended the week at $14.89, a 0.3% increase from last week, and July wheat ended the week at $6.41, a 4.9% decrease from last week. Year to year corn prices are down 29.4%, soybeans are down 1.3%, and wheat is down 7.5%.

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

USDA Weekly Exports: Soybean Sales Increase for Second Week in a Row

May 22, 2014

Sales increased for corn, soybeans, and wheat which marked the first time since the end of February that all three crops reported week-to-week increases. Corn sales continued to rebound following a steep decline at the beginning of May. Corn exports increased following the decline reported last week. Corn exports have not increased in consecutive weeks since March. Soybean and wheat exports declined, but stayed within proximity to their respective four-week average.

Planting progress is expected to kick into high gear this week. The northern Corn Belt, an area that has lagged behind their five-year planting average due to persistent cold and wet weather, expects good weather in the coming week. Early indications put Monday’s planting progress report for corn at 80%, the five-year average is 88%. Rain is expected in the south western Great Plains this week and into next. Despite the forecasts, farmers in the wheat growing regions of Kansas and Oklahoma remain pessimistic, suggesting the moisture is too little and too late to help an area that was ravaged by cold this winter and drought throughout the past two years.

Weekly U.S. net corn sales for the week ending May 15th in the 2013/2014 marketing year were 507,900 metrics tons (MT), a 48% increase from the previous week, but a 29% decrease from the prior 10-week average. Increases were reported from South Korea, Mexico, Colombia, Taiwan, the Dominican Republic, and Guatemala. Decreases were reported from Japan, unknown destinations, Egypt, China, and the French West Indies. Exports were 1,023,300 MT, a 13% increase from the prior week, but a 4% decrease from the prior 10-week average. The primary destinations were South Korea, Japan, Colombia, Mexico, Taiwan, Egypt, and Guatemala.

Weekly net soybean sales were 164,400 MT, a 123% increase from the previous week and a 178% increase from the 10 week average. Increases were reported from Mexico, Indonesia, Taiwan, unknown destinations, Venezuela, and Japan. Decreases were not reported. Exports were 204,900 MT, a 24% decrease from the prior week and a 61% decrease from the prior 10-week average. Primary destinations were Mexico, Japan, Indonesia, China, and Taiwan.

Weekly net wheat sales were 142,000 MT, a 159% increase from the previous week, but a 53% decrease from the prior 10-week average. Increases were reported from Taiwan, Ecuador, Brazil, Algeria, South Korea, and Venezuela. Decreases were reported from unknown destinations, Jamaica, Nigeria, and Peru. Exports were 507,500 MT, a 20% decrease from the prior week and a 6% decrease from the prior 10-week average. Primary destinations were Mexico, the Philippines, Thailand, Nigeria, Algeria, Ecuador, and Brazil.

5 22 14 Sales
Source: USDA Foreign Agricultural Service

5 22 14 exports
Source: USDA Foreign Agricultural Service

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

Farmland Values Appreciate in Great Plains

May 21, 2014

Farmland Values in the Great Plains continued to rise despite falling grain prices and a dreadful year for the winter wheat crop in the region. Irrigated and nonirrigated farmland both increased from the first quarter last year rising 6.4% and 4.4% respectively. Kansas irrigated farmland increased 15.8% from last year, the largest increase for irrigated land. Oklahoma nonirrigated farmland increased 13.5%, the largest increase for non-irrigated land. Missouri and Nebraska fared worst in nonirrigated farmland, reporting an increase of 5.5% and a decline of 1.2% respectively. Nebraska and parts of Wyoming, Colorado, and northern New Mexico increased the least from the first quarter of 2013, increasing 2.3% and 5.5% respectively. Nonirrigated farmland did see a decline from the fourth quarter of 2013, falling 1.4% quarter-to-quarter. The fall in expected farm income was suggested as the reason for the decline. While crop prices have come down in the past year, input costs have remained relatively unchanged, squeezing farmers margins.

KC Q1 2014 pic1
Source: Federal Reserve Bank of Kansas City Tenth District Agricultural Credit Conditions report

Credit

High operating costs and a decline in grain prices is expected to lead to lower farm incomes in 2014. Slightly more than 50% of bankers surveyed reported a moderate deterioration in the financial condition of farmers from last year. Farmers struggled to payoff operating notes from the 2013 season due to lower than expected crop prices. That led to an increase in requests for loan renewals, extensions, and carry-over debt in the first quarter of 2014.

Bankers reported that there was an ample supply of capital available for farm loans, and that they expect interest rates to remain steady through the second quarter. Little to no change was reported in collateral requirements despite the decline in loan repayment levels.

Outlook

The outlook for the Tenth Federal District is positive for the remainder of the year. Despite a fall in grain prices, farmland values increased year-to-year, and the majority of bankers surveyed feel confident that land values will stay consistent throughout the remainder of 2014. Forecasts showing rain in the western Great Plains should give the district some much needed moisture and improve this year’s crop moving forward.

The Federal Reserve Bank of Kansas City’s fourth quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the Tenth District’s value of farmland, farm loan portfolio performance, and on-farm income. The Tenth District consists of 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

Rising Crop Prices Boost Rural Economy

May 20, 2014

The rural economy rallied to its highest level in 2014 this past month because of increasing crop prices and economic conditions. Farmland values declined slightly but the belief is that the increase in crop prices over the last several months should boost land values over the summer. Extreme support for the Keystone XL Pipeline construction was expressed by bankers surveyed.

The Rural Mainstreet Index (RMI), ranging between 0 and 100 with 50.0 representing growth neutral, increased to 55.6 from 53.2 in April. The RMI has increased the last three months following two months of decline to start off 2014. Levels are still short of where they were this time last year, but the steadily increasing pace is positive news as we monve into the summer months.

Ernie Goss, Ph.D, Economics Professor at Creighton University stated, ""The overall index for the Rural Mainstreet Economy indicates that economic conditions of the areas of the nation highly dependent on agriculture and energy are improving. Recent gains in agriculture commodity prices are boosting the farm/rural economy,"

RMI May 2014 Rural Mainstreet Index
Source: Rural Mainstreet Index Creighton University

The farmland price index increased to 46.7 from 42.9. This is the second consecutive increase in the farmland price index, following four months of decline starting in November 2013. Though the measure remains below growth neutral, the continued increase is a good sign. "This is the sixth straight month that the farmland and ranchland-price index has moved below growth neutral. Stronger farm commodity and grain prices over the last several months should put a floor under farmland prices in the months ahead. I expect the index to move above growth neutral before Labor Day," said Goss.

RIM May 2014 Farmland Price index
Source: Rural Mainstreet Index Creighton University

The farm equipment sales index also rose for the first time since November 2013 increasing to 33.6 from 36.7. Goss said, "Propelled by rising farm income, farm equipment manufacturers in the region have experienced healthy growth since 2009. However agriculture equipment and implement dealers in the region are experiencing very weak sales to farmers in the region even as the farm equipment manufacturers are experiencing positive growth due to healthy sales abroad."

Bankers were asked if they were in support or opposed to the construction on the Keystone XL pipelines and the impact on agriculture if the GMO law passed in Vermont were to be adopted across the U.S. An overwhelming 93.6% either supported or strongly supported the idea, with 6.4% saying they were indifferent to the idea. No banker answered in opposition to the pipeline. DeWayne Streyle, CEO of Unity Community Bank of North Dakota in Leeds, N.D. said, "Farmers have shouldered the cost of inadequate access to rail cars due to increasing oil car shipments. The Keystone XL pipeline would benefit agriculture and energy independence."

Bankers were also very one sided on the GMO labeling issue. 49% of bankers surveyed thought the requirement would have a negative impact on the agriculture industry, and only 3.3% believing that the labeling would positively impact the industry. Jim Shafer, CEO of the First National Bank in Tremont, Ill., summarized much of the banker sentiment saying, "Over-regulation always has a negative impact on all of us."

RMI table May 2014

Source: Rural Mainstreet Index Creighton University

Survey

This survey represents an early snapshot of the economy of rural, agricultural 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

Crop Progress Report: Corn Planting Near Five-Year Average

May 19, 2014

Last week’s accelerated planting progress for corn acres was not duplicated as wet and cold weather kept farmers on the sideline.

The USDA estimated 73% of corn acres were planted across the U.S. as of May 18th, a 14% increase from the prior week. Cold and wet weather prevented farmers from repeating the prior week’s progress of 30%. Overall corn planting progress is only 3% behind the five-year average. Michigan, Minnesota, North Dakota, and Wisconsin are all 20% or more behind their five-year average due to colder temperatures and above average rainfall. Corn emergence was reported at 34%, the five-year average is 42%.

Soybean planting lost some ground on the five-year average due to wet and cold weather in the major growing regions. Soybean planting was reported at 33%, 5% behind the five-year average. Michigan, Minnesota, North Dakota, and Wisconsin are well behind in planting progress due to the continued wet and cold temperatures in the northern states. 9% of soybeans were reported emerged, 2% behind the five-year average.

Winter wheat conditions were slightly changed from the past week. The USDA reported that 21% of the wheat was in "very poor" condition, compared to 20% last week. Wheat rated excellent decreased 1%, wheat rated poor decreased 2%, and wheat rated "good" increased 2%. Wheat rated fair was unchanged. 57% of the wheat was headed, only 1% behind the five-year average.

July futures for corn closed the week at $4.77 per bushel, a 4.4% decline from last week. July soybeans ended the week at $14.83, a 1.2% increase from last week, and July wheat ended the week at $6.75, a 5.6% decrease from last week. Year to year corn prices are down 26.5%, soybeans are up 1.3%, and wheat is down 1.5%.

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

Increase in Farmland Values Held back by Waning Grain Prices

May 19, 2014

Farmland values increased year-to-year in the Seventh Federal district by 1%, but decreased 1% relative to the fourth quarter of 2013. The quarter-to-quarter decrease was the first in five years, Indiana and Wisconsin led the district with 7% and 2% year-to-year increases in their farmland value. Iowa and Wisconsin were the only areas that saw increases from last quarter. A greater increase in year-to-year value was stymied by a fall in crop prices from a year ago. Corn and soybean prices decreased 37% and 8.5% respectively from the first quarter last year.

Farmland Values and Credit conditions Q1 2013 pic 1 2

 

Of the bankers surveyed over three-quarters anticipated farmland values to remain stable or increase during the second quarter of 2014. Demand for farmland decreased in the first quarter, with 26% bankers reporting lower demand and only 19% reporting greater demand. The amount of farmland available for sale also decreased in the first quarter, with 51% of bankers reporting less farmland for sale in their area. Farmers were more active in purchasing farmland, increasing their amount of acres purchased during the quarter relative to investors. The increase in grain prices this spring was suggested as the reason for the increase in farmer purchases.

Cash rent values fell 2% year-to-year. This is the first time since 1999 that there was an annual fall in cash rents. The cause for the decline was due to lower expectations for profits in 2014, crop prices have declined since last fall providing farmers with leverage to negotiate lower rates for leases.

Credit

Credit conditions were mostly positive in the first quarter 2014 when compared to 2013. Loan demand and available funds were both up for non-real estate loans. Loan repayment rates were down in comparison to the same time last year. The decline was due to the drought that has persisted through much of Iowa for longer than much of the surrounding area. The lasting drought effected last year’s production preventing farmers from repaying their debt used to finance their 2013 crop. This was made apparent by the increase in responders reporting loan renewals and extensions from 2013 into 2014, as well as the increase in required collateral for loans during the first quarter 2014.

Outlook

As farmers continue to struggle during the planting season the outlook for crop prices continues to fluctuate. Following the USDA’s release of the World Agriculture Supply and Demand Estimates corn and wheat prices fell significantly on the report of an ample global supply for both crops. Many analysts have suggested the decline in corn and wheat prices was a premature overreaction to the report, especially with a significant number of acres in northern corn growing states still unplanted due to cold and wet weather. Farm income is expected lower for crop operations in 2014 due to lower speculated grain prices. Bankers overwhelmingly felt confident that farmland values will remain stable or increase through the second quarter.

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

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

USDA Weekly Exports: Corn Sales Rebound Following Marketing Year Low

May 15, 2014

The World Agricultural Supply and Demand Estimates (WASDE) released by the USDA last week estimated an ample supply of corn, soybeans, and wheat for the 2013/14 and 2014/15 marketing years. Despite a horrible year for winter wheat due to extreme cold in the growing region that has effected yield estimates, the global wheat supply is expected to make up for the wheat lost in the U.S. Corn acres are lower than they have been in the past five years, but higher a yield estimate is expected to make up for the lost acres.

Corn sales rebounded heavily following a reported decrease last week. Soybean sales also increased for the second week in a row. Wheat sales continued to decline, they have only seen a week to week increase three times since the end of January. Soybean and wheat exports both increased from the prior week. The 2013/14 marketing year for wheat closes at the end May. Corn exports fell continuing their heavy week by week fluctuation.

Weekly U.S. net corn sales for the week ending April 10th in the 2013/2014 marketing year were 343,000 metrics tons (MT), a 113% increase from the previous week, but a 59% decrease from the prior 10-week average. Increases were reported from Egypt, Japan, Portugal, unknown destinations, Mexico, Costa Rica, and Colombia. Decreases were reported from Spain, Guatemala, and China. Exports were 1,023,300 MT, a 28% decrease from the prior week and a 16% decrease from the prior 10-week average. The primary destinations were Japan, Mexico, Egypt, Vietnam, Israel, Colombia, Portugal, and Indonesia.

Weekly net soybean sales were 73,600 MT, an 80% increase from the previous week, but a 43% decrease from the 10 week average. Increases were reported from Indonesia, Mexico, Japan, Vietnam, and Taiwan. Decreases were reported from unknown destinations and Malaysia. Exports were 269,700 MT, a 104% increase from the prior week, but a 56% decrease from the prior 10-week average. Primary destinations were Indonesia, Mexico, Japan, Taiwan, and the Philippines.

Weekly net wheat sales were 54,900 MT, an 83% increase from the previous week and an 84% decrease from the prior 10-week average. Increases were reported from Brazil, Iraq, the Philippines, Chile, Israel, and Honduras. Decreases were reported from unknown destinations, Italy, Nigeria, and Jamaica. Exports were 635,300 MT, a 21% increase from the prior week and a 17% increase from the prior 10-week average. Primary destinations were the Philippines, Brazil, Iraq, Taiwan, Japan, and Mexico.

5 15 14 Sales
Source: USDA Foreign Agricultural Service

5 15 14 exports
Source: USDA Foreign Agricultural Service

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

Crop Progress Report: Farmers Overcome Poor Conditions to Corn Planting Back on Track

May 12, 2014

Following weeks of poor weather, including rain and below average temperatures, farmers were finally able to get caught up on their planting, doubling the planted acres estimate in one week.

The USDA estimated 59% of corn acres were planted across the U.S. as of May 11th, a 30% increase from the prior week. After significant concern over the progress in planting, farmers worked around the clock last week and were able to surpass the five-year average of 58%. Despite the positive news, Minnesota, North Dakota, and Wisconsin are still way behind in their planting due to continued cold and wet weather that has lingered over the upper-Midwest.

Soybean planting is on schedule with 20% of the overall acres planted, just 1% behind the five-year average. Minnesota, North Dakota, and Wisconsin progress are lagging for soybeans as well, also due to the poor weather in the area.

Winter wheat conditions were slightly changed from the past week. The USDA reported that 20% of the wheat was in very "poor" condition from 17% last week. There was no change in the wheat rated "excellent", but the wheat rated "good" was increased 1%.

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

Why Invest in Farmland? (2014 Edition)

May 12, 2014

Everyone has to eat in order to survive and the production of almost all food can be traced back to farmland around the world in some way. Demand is growing for farmland as the world's population and global needs for food increase. What many don't realize is that the supply of farmland is not changing, thus creating a severe imbalance in the supply and demand of farmland.

An investment in farmland over the long-term will provide a steady stream of income and capital gains due to the increasing global demand for agricultural commodities, driven by the rising world population, rapid growth in emerging markets, and continued demand for ethanol and biofuels. Demand for agricultural commodities is outpacing supply, positioning farmland for long-term appreciation.

In brief, the following factors are important in driving the fundamental investment rational for farmland investments:

Cash Returns – Farmland is a performing asset, generating modest cash returns of 4-6%, depending on location and crop.

Land Scarcity – There are approximately 3.5 billion acres of arable land in the world with the potential for adding a mere 20% over the next 20 years.

Food Demand – As incomes rise, demand for proteins will increase with corresponding increases in the need for feed grains. Demand is growing in developing countries: The USDA expected exports to rise up to as much as $167 billion in 2021 from $82 billion in 2007.

Bio-fuels – Agriculture and energy markets are now bound together by federal mandates for renewable fuels. The USDA estimates that 40.5% of the U.S. corn crop was used for ethanol in 2011 and 43.1% was used in 2013.

Declining Inventories Worldwide – Inventories of grains, as measured by "Stocks to Use" ratios have been trending down in many countries. In the U.S., there is a roughly 35-day supply of corn. In China, declining stocks has created the potential for increasing imports of corn.

Low Farm Sector Debt Levels – The U.S. farm sector has a healthy Balance Sheet. Current debt to assets ratios are at 40-year lows and 78% of Iowa farmland is free of debt.

U.S. Infrastructure – From transportation and storage networks to the stability of Government programs and the know-how at U.S. universities, the U.S. farm sector has the ability to grow and efficiently market large volumes of feed and foodstuffs.

Inflation Hedge – Many economists expect inflation in the longer term as large federal deficits and the Federal Reserves’ easy money policy will create conditions for high inflation. Farmland is highly correlated to inflation and negatively correlated to most other financial asset classes.

Resource Conservation – Agriculture production must be managed as a sustainable resource to feed the world’s growing population. Water is a vital resource and is a limiting factor for irrigated agriculture throughout the world.

Sustainable Asset – Farmland improves in productivity over time when well-managed.

World Population Growth:

Approximately 7.0 billion people inhabit the earth in 2012, according to the U.S. Census Bureau, compared to 1.7 billion in 1900 and 5.8 billion in 1985. The rate of population growth is not expected to temper as the United Nations (U.N.) estimates the world’s population will likely reach 9.2 billion in 2050. The majority of population growth is expected to originate in emerging economies with developed countries remaining stable.

Article 5 12 14

 

In order to feed the world’s growing and longer-living population, agricultural output will need to double by 2050 according to the U.N.’s Food and Agriculture Organization (FAO). This will be a daunting goal to accomplish as agricultural resources are already strained. In the last decade, agricultural output has grown by 2.4% annually. In order to double agricultural output by 2050, output must increase at 3.4% per year.

Historical grain production statistics suggest reaching this goal will be difficult. In 9 of the last 10 years, the global consumption of grain has outpaced production according to the USDA. To meet future demand, experts are predicting that global agriculture will need to produce more food in the next 50 years than what was produced during the previous 10,000 years, putting more and more pressure on future farmers and the land they use to produce our food.

Agriculture Exports:

The reason food demand is growing faster than population growth is the development of middle classes in emerging markets, due to above average GDP growth. The Brookings Institution estimates that by 2021, China’s middle class could grow to over 670 million, compared to only 150 million in 2010. Economists have long shown that as GDP rises, so does the consumption of animal protein as a percentage of diet. As emerging economies continue to develop, there will be a transfer from a grain-based diet to a protein-based diet.

Roughly half the increase in global calorie consumption in the past decade has been a result of higher meat consumption according to the FAO. On average, it takes two pounds of grain to produce one pound of chicken, five pounds of grain to produce one pound of pork, and seven pounds of grain to produce one pound of beef.

The rapid industrialization of developing markets will have serious repercussions on the demand for grain. In China alone, we may have roughly 500 million more people demanding a protein-based diet. As the world’s middle class continues to develop over the next decade, the demand for grains will grow exponentially.

Article 5 12 14 1

Increasing Use of Biofuels:

Concerns regarding climate change and fossil-fuel dependency have led to a significant focus on renewable fuels, such as ethanol, as a replacement for high polluting carbon-based fuel sources. Ethanol is primarily manufactured from crops such as corn, wheat, and sugar cane. According to the USDA, ethanol production in the U.S. has increased from less than 3 billion gallons in 2003 to over 13 billion gallons in 2013. The Renewable Fuel Standard from the 2007 Energy Act calls for total renewable fuel to reach 36 billion gallons by 2022.

The USDA estimates that more than 40% of the U.S. corn production was used to produce ethanol in 2012. Ethanol demand is expected to stabilize and continue to consume roughly 40% of the total U.S. corn crop per year for the next decade according to the USDA. In January of 2011, the EPA approved the use of E15 gasoline for vehicles manufactured 2001 or newer. Currently, almost all gasoline in the U.S. is E10, or 10% ethanol. The increase to E15 will help the U.S. in its goal of using 36 billion gallons of renewable fuel by 2022. Ethanol exports are also steadily increasing due to growing biofuel demand from the EU and Brazil.

 

Agricultural Fundamentals:

Grain supplies, in the U.S. and globally, are at decade lows, driven by emerging-market demand, disappointing U.S. yields in the last three years, and demand for biofuels. Ending corn stocks to usage ratio (current inventories as a percentage of annual consumption) has declined over the last eight years from roughly 20% in 2004 to 9.9% in 2013. U.S. corn stocks declined to a roughly 35 day supply, meaning that if corn production was halted, the U.S. would run out of corn in a little over a month.

Article 5 12 14 2

 

The global demand for food and rising commodities prices have driven agriculture fundamentals to the best in decades. The USDA estimates that farm income rose 29% in 2010, 51%, in 2011, and will rise by 15% in 2013, allowing farmers to reinvest their cash flows back into farmland to expand their operations.

Despite the rapid growth in agriculture over the last few years, farmers’ balance sheets remain very conservative. Strong farm income and minimal use of debt have allowed the U.S. farm sector to maintain conservative balance sheets as current debt to assets ratios are at 40 year lows. According to Iowa State University, 78% of the land in Iowa has no money borrowed against it.

Article 5 12 14 3

 

Historical Returns:

Farmland, through current income and capital appreciation, has been one of the top performing investments over the last century. Over the past 100 years, farmland has only decreased in value three times: during the Great Depression, the inflation crisis of the early 1980s, and most recently during the housing crisis of 2008 and 2009.

Despite three bumps in the road over the last 100 years, historical U.S. farmland returns are one of the most attractive asset classes that compares favorably with more traditional assets such as stocks and bonds. Over the last 20 years, American farmland has provided a total return to investors of 12.4% that is a combination of appreciation and current income from cash rental contracts. Similar long-term appreciation in farmland has been experienced in Europe, South America, and Australia.

Article 5 12 14 4
One of the most attractive attributes of farmland is the cash rental income. Since 1967, cash rents have yielded roughly 5.7%, although the yield has declined from 6.7% in 1967 to 4.1% in 2008, primarily due to the rise in farmland values. Cash rent yields have increased from the nadir in 2007 and we expect the yield to continue to approach the historical 40-year average of 5.9% as farmland incomes rise.

Conclusion:

An investment in farmland provides investors an opportunity to diversity from traditional asset classes as farmland returns have been negatively correlated with equities and bonds, and with only a modest positive correlation with commercial real estate. These characteristics make it an excellent diversification tool that can balance a portfolio and offset financial and commercial real estate market volatility.

Farmland is frequently compared to investments in gold because of its characteristic as an inflation hedge. However, unlike gold, farmland also produces stable income streams and as a consequence it has been described as "gold with yield."

Farmland is a long-term investment that will be the key to feeding the world’s growing population. Farmland is the one ingredient in food production that cannot be replaced and is a sustainable asset that will last many generations.
 

WASDE: Corn Demand Weighs on Stocks

May 09, 2014

U.S. corn demand continues to rise as export estimates in May have increased 150 million bushels following a 125 million bushel increase in the April WASDE. The corn stocks-to-use ratio has dropped from 9.9% in April to 8.4% in May. Soybean and wheat estimates were mostly unchanged for the 2013/14 marketing year.

May's report took a first look at the 2014/15 supply and demand estimates; these estimates should not be taken heavily into consideration due to an abundance of production risks. The USDA's estimate for corn yield was 165.3 bushels per acre, assuming optimal growing conditions. With an already slow start to the U.S. growing season, this yield number could change on a daily basis for better or worse. The most intriguing estimate to take away would be the expected soybean planted acres versus the expected corn planted acres. Soybean planted acres were estimated at a record 81.5 million acres and if moisture continues to delay planting, more acres could be allocated towards soybeans.

Corn

U.S. corn ending stocks for the 2013/14 marketing year were projected 185 million bushels lower to 1.146 billion bushels, due primarily to increased export and ethanol demand. Exports for U.S. corn in the 2013/14 marketing year were increased by 150 million bushels to 1.900 billion bushels.

For the 2014/15 marketing year, U.S. corn ending stocks were projected to be 1.726 billion bushels due to another record crop. U.S. exports were estimated at 1.700 billion bushels with total usage of 13.385 billion bushels. Projected total production was 13.935 billion bushels. U.S. corn use for ethanol in 2014/15 was unchanged as gasoline consumption is expected to remain flat in 2015. The 2014/15 season-average farm price for corn was estimated at $3.85 to $4.55 per bushel, compared to $4.50 to $4.80 per bushel for 2013/14.

5 9 14 Wasde Photo 1

5 9 14 Wasde Photo 2
Soybeans

U.S. Soybean exports for 2013/14 were raised 20 million bushels to 1.600 billion bushels. Ending stocks were slightly revised down to 130 million bushels from 135 million bushels in April. The stocks-to-use ration remains at a record low of 3.8%.

For the 2014/15 marketing year, U.S. soybean ending stocks were projected to be 330 million bushels. Exports were estimated at 1.625 billion bushels with total usage of 3.450 billion bushels. Projected soybean yield was 45.2 bushels per acre with total production a record 3.635 billion bushels due to increased yields and harvested area. The 2014/15 season-average farm price for soybeans was estimated at $9.75 to $11.75 per bushel, compared to $13.10 per bushel for 2013/14.

Wheat

U.S. wheat ending stocks for 2013/14 were unchanged at 583 million bushels. Exports were increased 10 million bushels to 1.185 billion bushels.

For the 2014/15 marketing year, U.S. wheat supplies were projected at 540 million bushels, a 43 million bushel decrease from 2013/14 due to lower stocks, imports, and production. This is the lowest ending stocks prediction since the 2007/08 marketing year. The 2014/15 all wheat average price was estimated at $6.65 to $7.95 per bushel.

Outlook

The 2014/15 projections need to be taken with a grain of salt as risks to planting, growing, and harvesting are plentiful. The Corn Belt has already seen a delay in corn and soybean planting due to increased moisture. The Wheat Belt has seen dry and drought like weather since the beginning of May that farmers believe could be disastrous to the winter wheat that will be harvested in late spring. With so many questions to be answered, we look forward to the middle of planting season and what Mother Nature has to offer.
 

USDA Weekly Exports: Domestic and Global Pressures Cause Major Grain Market Fluctuation

May 08, 2014

Planting delays and poor winter wheat condition reports have caused both corn and wheat prices to rise. Continued delay in planting may cause more farmers to abandon corn for soybeans. Reports are suggesting that the soybean harvest may bring in a record crop this year resulting from a greater than average number of acres being shifted to soybeans. Fighting in Eastern Europe intensified with casualties across southeastern Ukraine. The USDA released a statement expressing concern over Ukraine’s ability to plant this year’s crop and export it in the wake of continued violence.

Corn sales decreased this past week to the lowest levels seen in 2014. Corn exports increased, while both soybean and wheat exports fell. Soybean sales increased following the reduction reported last week. Wheat sales increased for only the second time in two months.

Weekly U.S. net corn sales for the week ending April 10th in the 2013/2014 marketing year were 161,300 metrics tons (MT), a 83% decrease from the previous week and a 82% decrease from the prior 10-week average. Increases were reported from Japan, Colombia, Taiwan, Spain, Mexico, and the Dominican Republic. Decreases were reported from China, unknown destinations, Costa Rica, and Egypt. Exports were 1,415,100 MT, a 16% increase from the prior week and a 22% increase from the prior 10-week average. The primary destinations were Japan, Mexico, South Korea, Taiwan, Egypt, Vietnam, and Spain.

Weekly net soybean sales were 40,800 MT; after reporting a reduction last week soybean sales increased for the first time in a month. Increases were reported from Japan, Mexico, Vietnam, Barbados, and Taiwan. Decreases were reported from Israel, Cuba, and China. Exports were 132,400 MT, a 51% decrease from the prior week and an 83% decrease from the prior 10-week average. Primary destinations were Indonesia, Mexico, Indonesia, Egypt, Vietnam, Cuba, Taiwan, and Japan.

Weekly net wheat sales were 320,500 MT, a 49% increase from the previous week, but a 10% decrease from the prior 10-week average. Increases were reported from Brazil, Indonesia, Thailand, Mexico, Nigeria, and Italy. Decreases were reported from unknown destinations and the United Kingdom. Exports were 526,600 MT, a 22% decrease from the prior week and a 3% increase from the prior 10-week average. Primary destinations were Nigeria, Mexico, Japan, Guatemala, Indonesia, and Israel.

5 8 14 Sales
Source: USDA Foreign Agricultural Service

5 8 14 Exports
Source: USDA Foreign Agricultural Service

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Crop Progress: Favorable Weather for Planting Season

May 05, 2014

Warm and dry weather allowed farmers to enter their fields to plant the 2014 corn crop over the past weekend.

The USDA estimated 29% of corn acres were planted across the U.S. as of May 4th, a 10% increase from the prior week. The progress is still behind the five-year average of 42%. Of the corn planted, 7% has emerged, 4% above reported levels last year, but 6% below the five-year average.

Soybean acres planted were 5%, behind the five-year average of 11%. The top soybean planted states were Louisiana with 69% and Mississippi with 36%.

Winter wheat conditions were 38% of the crop in poor or very poor condition, compared to 34% last week. Winter Wheat in good or excellent condition was 31%, a 2% decrease from last week. Drought stricken fields have been seen throughout the Wheat Belt ahead of the harvest in late spring and early summer.

The May corn contract decreased by 0.7% over the past week ending at $5.03 per bushel, soybean prices decreased by 2.4% over the past week ending at $14.72 per bushel, and wheat prices ended the week at $7.21 per bushel, a 3.0% increase from last week. Year-over-year corn prices are down 20.9%, soybeans are up 7.5%, and wheat is up 2.7%.

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

April Planting Delayed as Farmers Wait for Spring

May 01, 2014

Planting has been severely delayed this year due to the cold wet weather that has persisted throughout much of the central and eastern U.S. The delay has caused grain prices to rise with many fearing a similar disaster of planting in 2013.

Harsh winter temperatures and the booming oil industry in the western Dakotas has led to a logistical nightmare on the railways. Ethanol plants, mainly located in the Midwest have not been able to ship their product to refineries on the east coast for blending. This back up has caused ethanol prices to skyrocket reaching an eight year high in mid-April, which has led to higher prices at the pump.

Planting Progress

Corn planting across the US has lagged considerably behind the national average. As of April 27th 19% of the corn acres were reported planted by the USDA, below the five-year average of 28%. Planted acres are well above reported numbers seen this time last year when only 5% of corn had been planted.

April Update graph

 

The weather outlook for the next few weeks is not encouraging. USDA meteorologist Brad Ripley commented, "Unfortunately, looking ahead to next week, it will stay cool in the wake this week’s storm, and just when things might be looking up, another storm develops across the Plains states around May 7th or 8th." The window on corn planting is closing and if the bad weather continues farmers will reach a critical point when delays will result in crop shortfalls in 2014.

Havoc on the Railways

Bob Dinneen, the president of the Renewable Fuels Association, described the state of the railroad system as "sheer chaos" in a letter to the Association of American Railroads. He also argued that the high price of ethanol caused by the railway backup has tarnished the image of ethanol in the U.S.

In response Edward Hamberger, chief executive of the railroad association, said, "There have been recent rail-service challenges in certain parts of the country, and railroads are working around the clock to mitigate them. Those challenges result from a confluence of events that were concentrated in particular regions," and include a winter that "was far worse than usual and forced railroads to dramatically shorten train lengths."

As the weather has warmed slightly, pressure on the rail system has been relieved allowing more ethanol shipments to reach their destination.

Grain Prices

Corn prices were strong in the month of April gaining almost 3.5%, prices closed at $5.19 per bushel on the front month contract. Poor weather conditions, strong export numbers, and concerns over tensions in Eastern Europe were the main contributing factors to the rise. U.S. corn ending stocks for the 2013/14 marketing year were projected 125 million bushels lower to 1.331 billion bushels, due primarily to increased export demand. Exports for U.S. corn in the 2013/14 marketing year were increased by 125 million bushels to 1.750 billion bushels.

Soybean prices increased 3.35% this month to close at $15.11 per bushel. Heavy soybean exports through the 2013/14 marketing year has been the driving factor behind the increase in soybean prices. The WASDE report projected ending stocks of 135 million bushels down 10 million bushels from March and a stocks-to-use ration of 4.0% compared to 4.5% last month. Export estimates are 1.580 billion bushels reflecting the record pace of shipments and sales since the beginning of the year.

Wheat prices increased 3.5% this month to close at $7.21 per bushel. The harsh winter caused significant damage to the winter crop. The USDA wheat tour began at the end of April, reports are consistent with concerns that the Hard Red Winter wheat is behind average expectations due to the late thaw and harsh winter.

Farmland Values

The University of Creighton farmland price index increased in April for the first time since November 2013. Economist Ernie Goss said, "Recent boosts to agriculture commodity prices should boost the economy in the months ahead."

Bankers were asked this month what the expected breakeven price for farmers planting corn this year. The average break-even price given by rural bank CEO’s was $4.30 down $0.54 from the 2013 estimate. Over 65% of bankers are confident the break-even price will be below $4.50.

Outlook

Despite the late start to planting, many farmers are still confident that there is enough time to complete corn planting, barring continued wet and cold weather into mid-May. We estimate farmers have three weeks to plant corn, before considering the switch to soybeans.

Forecasted warmer temperatures, wind, and sunshine will dry fields out quickly allowing farmers to get their crop in the ground. We will be closely monitoring planting progress in May, along with any and all implications derived from river closings due to flood conditions in the Corn Belt.
 

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