Market Outlook

October 26, 2016 02:55 AM

By Nate Birt


Income Slump Enters Third Year

Same song, different verse. That’s the theme of the latest farm financial data published earlier this month by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. Net farm income will continue to tumble in 2016 for a third straight year and is expected remain “well below” the 2003–12 average for at least another three years. From 2017 through 2019, rental rates and land values also are set to fall, reversing a plateau for values in many locations. 

Farmland Update with Mike Walsten

Midwest Land Values Head Farther South In States Such as Iowa, Illinois

Farmland values in the Corn Belt continue to weaken, according to professional farm managers and farm real estate experts. Iowa land slipped 4% during the six-month period ending Sept. 1, according to the Iowa Chapter of the Realtors Land Institute (RLI). That decline, coupled with a decrease in the previous six months, results in a 9% annual decline. It’s the third consecutive annual decline in tillable cropland values. 

The value of high-quality Iowa cropland is $8,811 per acre, according to the RLI survey. Medium-quality cropland averages $6,433 an acre, while low-quality cropland averages $4,214 an acre. 

Meanwhile, Illinois farmland values decreased between 3% and 7% depending on land quality during the first half of 2016, according to the Illinois Society of Professional Farm Managers and Rural Appraisers. Excellent-quality farmland eased 3.3% in its survey, while good-quality ground declined 4.5%. Average-quality land decreased 5.6%, and fair-quality ground fell 7%. As of July 1, respondents pegged average farmland prices at $11,100 an acre for excellent land, $9,400 for good land, $7,600 an acre for average ground and $5,800 an acre for fair land. 

Although farmland values have weakened, farmers remain the dominant buyers, both surveys say.  In Illinois, 65% of all buyers identify themselves as operating farmers compared to 63% a year earlier. 

Still, investor interest is growing. In Illinois, institutional and government purchases fell in early 2016, yet investors rose to 27% of buyers.

To read Mike Walsten’s “Your Precious Land” blog, visit

By Nate Birt

Ask an Analyst: Doug Werling | Bower Trading


What is your commodity marketing philosophy?
We use sell-and-defend strategies. I might have a producer market the cash, move the product or both, then do a defensive replacement position off the board, whether with forward pricing or upside protection. If a client doesn’t have storage, we can replace it on paper with various strategies.

What distinguishes your consulting firm from others?
Two things are key. We’re global in nature and not just domestic or U.S.-oriented. We also customize our marketing plans. Everyone’s operation is different.  

What should every producer do to manage marketing risk?
We’re an advocate right now of storage if it’s available, because on-farm storage doesn’t cost you like it does at the elevator. But we’re an advocate of carrying it because the markets are going to improve. If that’s not the case, we would have them move their crops and replace them with a paper strategy.

What percentage sold should farmers be on their crops?
We don’t make recommendations from a percentage standpoint. They do that on individual cash-flow needs. Some farmers don’t have any land costs, so they don’t worry about forward pricing. Some younger farmers will be 50% sold at this time. 

Which marketing tool is most underappreciated? 
We like to use spreads when they get to full carry. Also, we like to underwrite options, whether it be calls or puts, to add value to sales when the market warrants it. 

Who is one expert in our industry you respect greatly?
Jim Bower, our company’s owner, and Rich Feltes, head of research for R.J. O’Brien & Associates. 

What activities do you enjoy? 
My kids are active in sports, water skiing and baseball. My side hobby in the winter is woodworking. It teaches me patience. 

By Nate Birt

Analyst Thinks Grain Stocks Report Might Establish A Price Floor

The latest USDA report on grain stocks, issued Sept. 30, suggests a price floor might be forming. That’s because it didn’t produce a “big bearish shock” some analysts might have feared, particularly for corn, says Chip Nellinger, Blue Reef Agri-Marketing. 

“Historically, over a long-term horizon [of] five, 10, 30 years, you get to the first week in October and you’re about to the harvest low in corn,” says Nellinger in an interview with “AgDay” host Clinton Griffiths. “I don’t know why that would be any different this year. I think we have a little bit of a floor underneath of us now. It doesn’t mean we’re going to turn around and go immediately higher, but it means that maybe the downside’s getting limited from this point.”

The report found corn stocks of 1.74 billion bushels up a bit from year-ago levels, soybean stocks of 197 million bushels up 3% from year-ago levels, and all wheat stocks up a whopping 21% to 2.53 billion bushels. 

In his view, Nellinger says, the USDA data suggest farmers moved a lot of old-crop grain in anticipation of the 2016 harvest. Yet hefty stocks are still a reality producers will wrestle with for the foreseeable future.

“We’re still going to kind of struggle to get that cycle back to normal because there’s so much old crop carried over. I think that’s a slow process,” Nellinger says. “We’ve built more on-farm storage in the last few years, so farmers are better able to do that. No big shocks there to me. … The normal pattern, and it kind of shows in the stocks number on-farm, is farmers storing corn and selling their soybeans out of the field. I think that will continue through this harvest, as well.”

One lingering question from the report is whether feedlot operators will begin moving toward wheat and away from corn because of massive wheat volumes in the bin.

“That debate’s going to continue for a couple more quarters until we know more about that,” he says. “Logically, you could expect that there would be some switching. It’s not always easy to do in real time out in the feedlot, but that would be something to watch going forward for the ’17 feed usage number.”



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