Category Archives: farmland values and rents

Why Missouri? Its Farmland Appreciated Most in Latest Tenth District Report.

The third quarter agricultural credit conditions report has been released from the Kansas City Federal Reserve Bank, which covers the region that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mexico. Of interest from the quartly report always, is the report on farmland prices from the district.

As you can see from this current report chart (above) showing farmland price gains in percent change from the previous year, the three highest blocks are 1) nonirrigated (western) Missouri (up 27.2%), 2) irrigated Oklahoma (up 23.6%), and 3) nonirrigated Kansas (up 22.5%).

Much of recent-year farmland price appreciation has come from the lands that are best suited for growing cash crops of corn or soybeans, ever since the RFS ethanol mandate quickly drove up new demand for corn.

Could it be that we are now seeing a shift in demand for other types of farmland?

I don’t have the answer, as I’d need to see which lands have sold in those three states, but it would seem a logical and possible trend to watch going forward.

Source: http://www.kc.frb.org/publicat/research/indicatorsdata/agcredit/AGCR3Q13.pdf

3rd Quarter 2013: Federal Reserve Bank of Chicago Farmland Price Report

Note that the Seventh District is made up of the northern portions of Illinois and Indiana, southern Wisconsin, the Lower Peninsula of Michigan, and the state of Iowa.

● On a year-over-year basis, farmland values in the Seventh Federal Reserve District gained 14 percent in the third quarter of 2013.

● On a quarterly basis, the District’s agricultural land values saw a gain of 1 percent in the third quarter of 2013 after recording no increase in the previous quarter.

● The USDA predicted that the five District states’ harvest of corn for grain would be 38 percent greater than the drought-reduced harvest of 2012.

● For the five District states, soybean production was projected by the USDA to rise 8.5 percent in 2013 from its 2012 level.

● Even with the reoccurrence of drought in parts of the District, the third-largest corn harvest and soybean harvest just outside the top ten filled storage bins across the Midwest.

Exports of Corn, Soybeans and Wheat from the District

I excerpted the export portion of this chart (above) to show the dramatic change in numbers for corn, soybeans and wheat from this district over one and two years ago. Though the dollar amount values for the combined three commodities haven’t changed dramatically, the bushel amounts sure have – with corn and soybeans falling and wheat rising. (The USDA and BLS like to report dollar amounts, and the bushel amounts are less frequently seen.)

Source: http://www.chicagofed.org/digital_assets/publications/agletter/2010_2014/november_2013.pdf

Remarkable Graphs of Corn & Soybean Profitability

CORN

Blue blocks: Profitable time periods. Note that I’ve altered the graph by adding red and blue blocks to show profitable years vs. profit-loss years. Source: Ag Cycles: A Crop Marketing Perspective By Chad Hart/Iowa State.

The remarkable graph above, showing corn profitability since 1972, says it all.

The article in which the graph is embedded, by Iowa Ag economist Chad Hart, begins like this… “Over the past seven years, corn and soybean producers in the United States have enjoyed their best run of returns in history.”

Hmmmm. Let me think. What happened about seven years ago?

After that he explains that profitability is cyclical in a competitive industry such as commodity farming, and that “economic theory indicates the long-run profitability of a competitive industry is zero.”

Hart says, “When we examine the average return to a bushel of Iowa corn over the entire time period from 1972 to 2012, it is a positive 5 cents per bushel. However, if you looked at 1972 to 2011, the average return was negative.” !!!

He then warns of a near-term downward cycle of lower commodity and farmland prices.

It’s already happened. Corn prices have fallen. This year’s producers who are renting land that is priced according to yesterday’s profits, may see a tough bottom line.

Unfortunately, from there on out in this paper, Hart goes off on economist tangents about interest rates and input costs during recessions that aren’t as relevant as what I see as the biggest story when one talks about an over-produced commodity crop, which is policy. Furthermore, policy is what has driven down exports and feed demand for corn in recent years.

If we were dealing with a commodity that feeds the world’s growing populations, like Jim Rogers always tells investors, the price of corn would go up because of natural, growing demand. Instead, we’ve had overproduction of corn for decades on end, and it feeds agribusiness, not the world’s growing populations. The Energy Independence and Security Act of 2007 created a new and rapid demand for this input-heavy crop, rewarding the producer, the machinery maker, the fertilizer, seed, and chemical companies. Policies have supported corn growing both on the demand side, and through direct payment programs and crop insurance.

If we really wanted food and energy security, we’d promote fuel efficient vehicles instead of Chevy Tahoes and F350s that burn E85, and we’d preserve our soil, waterways, biodiversity, and aquifers so that future generations have healthy land on which to grow food.

Corn and soybean production in America today is mostly all about policy.

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SOYBEANS
Also interesting is the same information on soybean profitability as viewed on the following graph:

Source: Ag Cycles: A Crop Marketing Perspective By Chad Hart/Iowa State.

We can generalize that soybeans have, on average, had more profitable years than corn. They have enjoyed a boost in price, too, as a consequence of ethanol’s recent, large demand for corn. Plus, around 15 percent of our nation’s soybean crop is going to produce biodiesel these days.

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SOURCE: Ag Cycles: A Crop Marketing Perspective

Look at the Appreciation of Irrigated Farmland Last Year

In the second quarter, the value of irrigated cropland jumped 25 percent from a year ago. This jump marks the ninth consecutive quarter in which irrigated cropland values have risen more than 20 percent year-over-year. —- FRB KC

The latest Federal Reserve bank farmland price reports have been released for the second quarter of 2013.

The most notable trend that I saw when I reviewed the reports from Chicago and Kansas City, was the dramatic difference in the appreciation of irrigated farmland over that of nonirrigated land, shown in the chart above. There’s nothing like a regional drought to make producers value their water. With it you make money, without it you lose the inputs you invested for the year.

The ranchland appreciation, especially in Nebraska, was also impressive at 18.4%. Perhaps irrigation potential was a factor in that category, too.

From the report:

Irrigated cropland values increased more than 30 percent in the dry Mountain States of Colorado, New Mexico and Wyoming during the last year, far outpacing the gains in nonirrigated farmland values. In contrast, easing drought conditions in Missouri helped push nonirrigated cropland values up more than 25 percent year-over-year.

From the FRB of Chicago report, the highest appreciation in that district was seen in the state of Indiana, up 21% from July 2012 through July 2013.

Everyone is expecting farmland prices to ease in the coming year (and longer) as commodity prices weaken and ethanol, farm policies, and Bernanke-speak are in question. We saw in a recent Iowa report that 56 percent of the farmland in Iowa is owned by someone over the age of 65, and 33 percent over 75, so we might expect more land to come available in the future, too, which might help with the supply side of the equation. Hopefully it will be a gradual price correction, if there is one, although it would be desirable to have land more affordable for beginning farmers.

Notes from the Kansas City Fed Agricultural Symposium July 2013


This is one of the slides that Mike Boehlje of Purdue showed during the July KCFRB agricultural symposium. There was a global cropland expansion of 147 million acres in the past eight years. Most of these acres came from South America, the FSU, and East Asia, and most of those acres went into growing corn, followed by soybeans. Note that some of the added acres are from double cropping.

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In mid-July, the Federal Reserve Bank of Kansas City hosted its annual agricultural symposium titled, “The Shifting Nexus of Global Agriculture.” I considered attending but did not, so instead I read the twitter feeds of those who tweeted the event and there are some good nuggets in the (modified) tweets which follow.

1) From speaker Mike Boehlje, Professor at the Dept. of Agricultural Economics, Purdue:

• Citing a new report he had just seen in the WSJ, Boehlje said that the IMF had decreased projections for world economic growth for the 4th quarter in a row. He said that this article has huge implications for agriculture including in China, India, and Brazil, too.

• Don’t drink the Kool-aid that the agribusiness sector is feeding. Growth in INCOME counts, not population growth. (K.M. Note: This was my favorite quote from this whole post, as I about go ballistic every time I see that “How are we going to feed… ” headline, which is far too often and gets the question wrong! …there are many other things that count besides growth in income, too, but it most certainly isn’t just about production.)

• Boehlje said he’s a pessimist on long-term U.S. livestock industry competitiveness, which was based on cheap feed. The U.S. demand for animal protein is “mature at best and probably declining.” Larger multinationals may well off-shore production.

He named 12 things to watch:
• EU debt crisis
• U.S. economic recovery
• changing value of the USD
• unpredictable Asian growth
• current short crop supplies – weather supply shocks
• livestock regulations
• increased global acreage for crops
• farm policy uncertainty
• interest rates
• fertilizer, seed, chemical, energy prices (input costs)
• farm income and land values
• counterparty risk

2) Univ. of Missouri’s Pat Westhoff:

• Don’t count on $7 corn “unless the world changes in very fundamental ways.” He sees sub-$5 corn the next 10 years.

3) Gavilon’s Ray Wyse:

• The FAO food index has tripled since the RFS was implemented, and land prices have increased five fold.

• There are still more acres to be had in the FSU region, and double cropping is growing steadily around the world.

• Some people are now looking at the People’s Republic of Congo as “the next Brazil.”

• Is it possible to double-crop corn in certain regions of the U.S. as Monsanto develops shorter season varieties?

• We will miss our corn export market when its gone.

4) Texas A&M economist Joe Outlaw:

• You don’t write a farmbill for the good years, you write it for the bad years. Policy makers have to focus on that reality.

5) Next, are a few tweets about farmland. Sorry, I don’t have all of the sources of the quotes.

• In fiscal 2012, Farmers National Company has sold more than 600 farms, for over $450 million. Active farmers continue to dominate the buy-side of the market.

• Investors purchased between 25-30% of FNC’s 2012 sales. Traditional investors about half, non-traditional investors growing.

• Jim Farrell: A new phenomenon we’re seeing is the 80+ year old cash buyer. He’s doing this since there’s no return on investment in CD’s or other “safe” investments. (K.M. Note: I’ve also seen this going on with home purchases where I live here in Boulder, Colorado. You’d think 75 year olds would downsize, but instead they upsize – presumably for a place to safely invest with a better chance of return on their investment.)

• Joseph Bond: Ag expansion in the Black Sea region will require billions of dollars of investment in modern agriculture techniques.

• William Mott: More concerned about infrastructure and logistics costs with international farming operations than cost of production.

6) Informa’s Kenneth Eriksen:

• There are “center pivots going up all over the map” in central and southern Illinois.

END WHAT I GLEANED FROM TWITTER.

(Thanks to @Feedstuffs @ianberry and @HoardsDairyman for tweeting the event.)

The KCFRB’s links to talks and slides from the event may be found here: http://kansascityfed.org/publications/research/rscp/rscp-2013.cfm?ag=02-071713

USDA’s Farmland Price Update Report (August 2013)

The USDA comes out with an annual farmland price report every August. The newly issued report summarizes farmland price changes since a year ago.

Here are this year’s report highlights:

● The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $2,900 per acre for 2013, up 9.4 percent from revised 2012 values.

● Regional changes in the average value of farm real estate ranged from a 23.1 percent increase in the Northern Plains region to no change in the Southeast region.

● The highest farm real estate values were in the Cornbelt region at $6,400 per acre.

● The Mountain region had the lowest farm real estate value at $1,020 per acre.

● The United States cropland value increased by $460 per acre (13.0 percent) to $4,000 per acre.

● In the Northern Plains and Corn Belt regions, the average cropland value increased 25.0 and 16.1 percent, respectively, from the previous year.

● In the Southeast region, cropland values decreased by 2.8 percent.

● The United States pasture value increased to $1,200 per acre, or 4.3 percent above 2012.

● The Southeast region had the largest percentage decrease in pasture value, 1.5 percent below 2012.

● The Northern Plains had the highest increase in pasture value, at 18.4 percent.


(Click to enlarge)

Note that separate maps like the above are included in the report for cropland and pastureland values.

SOURCE: Land Values 2013 Summary (PDF)