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