Thurs 16th May 2013
Record US farmland growth continues
Farmland values in key central-US agricultural areas continue to appreciate at a record pace according to the latest central bank figures, with values recording their third consecutive double-digit year-on-year growth in the first quarter of 2013.
Values for non-irrigated cropping land across key central-US agricultural areas, including Kansas, the top wheat-growing state, increased by a strong 19.3% over the first quarter compared with the same three month period of 2012.
However with some states still struggle against drought conditions land blessed by ready rains, or possessing irrigation, recording stronger growth of 21.5%.
The largest growth gap was seen in Oklahoma where irrigated farmland prices increased 12.1% compared with 6.5% growth in non-irrigated lands. Similar disparity was witnessed in Nebraska as irrigated prices increased 22.6% compared with 17.3% growth for non-irrigated lands.
Dry vs wet
Ranchland prices also benefitted from double-digit year-on-year growth in the first quarter, albeit at a slower pace than irrigated farmland values.
Oklahoma enjoyed the strongest growth over the quarter at 18.2%. However prices in the state were playing catch-up to others after increasing 6.9% in 2012 compared with the very strong 21.2% price growth in Nebraska, which overtook Kansas to second place among US cattle states last year as animals were moved north from the drought affected southern Plains.
"Dry weather conditions are having a big impact on our cattle producers," reported bankers from Northeast New Mexico.
Lower debt ratios
The ongoing growth in farmland values again helped reduce debt-to-asset ratios, with many banks reporting farmers with ratios lower than 40%, according to the US Federal Reserve’s Kansas City bank.
However, bankers across the region projected lower farm incomes. In particular livestock farmer profits were "hurting" from the double effect of high feed and forage costs and shrinking cattle and hog prices.
The bank also reported a substantial share of banks farm customers across the region had debt-to-asset ratios greater than 40%, with young and start-up farmers typically the most leveraged.
"Those borrowers with a high concentration of farm debt are typically younger farmers who have started their enterprise with little help from established family members," reported bankers in Eastern Colorado.
Some bankers remained concerned about the ability of more leveraged operations to meet debt obligations, should farm income or land values trend lower.
"Banks may start requiring more collateral on farm real estate loans as a ‘hedge’ against a potential softening of the real estate market," suggested bankers in Eastern Kansas.
Statistics: Posted by yoda — Thu May 16, 2013 9:48 am
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Wisconsin farmland prices soar in 2012, continuing trend
Across a five-state region that includes Wisconsin, farmland prices were up 16% in 2012, according to a recent report from the Federal Reserve Bank of Chicago.
Interest rates are low, demand for corn high, but is it enough?
By Rick Barrett of the Journal Sentinel April 1, 2013
The value of prime Wisconsin farmland continues to climb as farmers count on high crop prices and low interest rates to cover their costs for corn and soybean acreage.
With spring planting only weeks away, farmers are facing some of the highest prices for land and land rental they have ever seen.
Across a five-state region that includes Wisconsin, farmland prices were up 16% in 2012, the third-largest increase since the late 1970s, according to a recent report from the Federal Reserve Bank of Chicago.
That’s on top of a 22% increase in 2011 – the biggest jump in farmland prices in 35 years.
Fueled by a profitable grain market that includes corn to produce the biofuel ethanol, the demand for farmland has resulted in bidding wars – with some property selling for more than $10,000 per acre in Wisconsin and $20,000 an acre in Iowa.
"Perhaps the most surprising aspect of 2012′s strong gain in farmland values was that it occurred in the midst of the worst drought in the Midwest since 1988. Moreover, 2012 marked the third consecutive year of significant jumps in agricultural land values," the Federal Reserve noted.
Wisconsin farmland values increased 11% in 2012, compared with 20% in Iowa and 18% in Illinois.
That’s largely because Wisconsin farmers grow more corn and soybeans for their own livestock feed, rather than selling the crops on the commodities markets.
Even with a recent drop in price, corn remains profitable because of the drought that left grain in short supplies.
Nationwide, farmers intend to plant 97.3 million acres of corn this year, the most since 1936, according to the U.S. Department of Agriculture’s spring planting survey. Wisconsin farmers are expected to plant 4.4 million acres of corn, about the same as last year.
Rising land values have caused some worries about a potential farmland price bubble like the one seen in the 1980s, when farmers lost their land from the lethal combination of falling commodity prices, too much debt, and rising interest rates.
Today, there’s concern that the federal government could back away from raising the amount of ethanol required in gasoline and send corn prices into a downward spiral.
"There’s a lot of uncertainty on the horizon. If we move away from corn-based ethanol, that certainly would take the legs out from under the corn market. Farmland values would drop, that’s for sure," said Alex Breitinger, a commodities futures trader in Valparaiso, Ind.
But farmers are carrying much less debt now, thanks to record income from high commodity prices. The current land rush would be more worrisome if it were fueled by credit rather than cash, Breitinger said.
Overall, the farm economy is in very good shape, said Sam Miller, managing director/agriculture for BMO Harris Bank.
"There’s a lot of talk about a farmland price bubble. But the last time we experienced a big correction in land values, we had very high interest rates, and we also had loan-to-value levels that were very high. Land isn’t highly leveraged now like it was 25 years ago," Miller said.
Higher farm expenses, including land rent, could put a damper on profits this year.
Some farmers are paying several hundred dollars an acre to lease cropland this year, and there’s not as much available land as there’s been in past years.
"I have gotten a lot of calls concerning rents. It’s hard to find much for less than $100 an acre," said Kevin Jarek, a University of Wisconsin-Extension agent in Outagamie County.
With bigger farms and bigger machinery, more farmers are willing to travel farther to grow their crops – increasing the competition for buying and renting cropland.
Last year, rents jumped to $300 an acre for the most fertile ground in south-central Wisconsin.
Farmers can reduce some of their costs by doing things such as buying cheaper seed, although that could mean lower crop yields. But it’s tough for someone to get a break on land costs unless the person is buying or renting from a family member.
The cost of land, Jarek said, can determine whether a farmer makes a profit or loses money on a crop.
Statistics: Posted by yoda — Tue Apr 02, 2013 11:06 pm
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Brazil – Brazil farmland prices quadrupled in 10 years 24 Dec 2012
Brazil farmland prices quadrupled over the past decade outpacing inflation.
Prices for farmland in Brazil surged by an average 14% a year to nearly quadruple over the past decade, well outpacing inflation and nearly matching gains made by São Paulo’s blue-chip Ibovespa stock index, a new study shows.
Improving diets in economies such as China have driven up prices of commodities like soybeans, corn and animal proteins, which in turn have led investment and pension funds to buy Brazilian farmland.
This has steadily pushed up the prices of and investment returns from Brazil’s increasingly productive tropical farmland, according to research from São Paulo-based consultancy Informa Economics FNP.
Between January 2002 and December 2011, farmland appreciated 278% on average in Brazil, while cumulative inflation in that period came to around 88%.
During those 10 years, Ibovespa – the main blue-chip index on the São Paulo exchange – gained 294% but took investors on a rollercoaster ride after the financial crisis in late 2008.
High sustained prices of grains such as soy and corn over the past year have induced both farmers and investors to expand into frontier areas where land is cheaper due to the lack of transport infrastructure.
Investors’ following farmers’ lead into these areas is heating up land prices all the more quickly.
“Until 10 years ago, the land market was made up of mostly those who get their boots dirty … today no,” FNP Director José Vicente Ferraz said. ”But for sure, (interest from investment funds) has made a big difference.“
Ferraz considers investments in land to be safe even though they lack the liquidity that investors can get from a bond or stock. And the financial crisis has fed into interest from investors seeking better returns.
”Interest rates are very low around the world, and funds, especially pension funds, need safe investments,“ Ferraz said. ”Land is not like paper (shares). It can’t vanish suddenly.“
Buyers have flocked increasingly to more remote areas in the northeast tropical savannah known as the Cerrado. States such as Maranhão, Piauí, Tocantins and Bahia have become known as ”Mapitoba,” the fast-growing farming frontier.
The price of marginal farmland in Balsas, Maranhão, has risen 24% annually, quintupling to 5,000 Reais (2.500 dollars) a hectare from 1.000 Reais 10 years ago, Ferraz said.
“Mapitoba is the region with the greatest appreciation,” he said. “It may not continue as strong in the next 10 years as it did in the last, but we still think the prices will rise.”
Brazil is expected this year to surpass the United States in soy production for the first time ever, with an 8% increase in planted area due in part to the opening of new farmland.
Still, not all land in Brazil is appreciating as it is in Balsas. Prices of some semi-arid lands are only rising 1 percent a year due to their lack of productive potential, Ferraz said.
He said there are three basic ways to profit from land investments: selling land as prices appreciate; selling agricultural commodities produced on the land; and turning raw, cheap, unproductive land into a property ready to plant and produce. Sometimes investors can profit from all three activities.
“When you sum up those three gains, you can reach returns of 15 to 18% on capital,” Ferraz said.
In 2010, Brazil’s attorney general imposed severe limits on how much land foreigners can control in the country.
Although this may have made investors more cautious, it has not stopped foreigners from buying.
Instead, they have been teaming up with Brazilian nationals to get around the law, Ferraz said.
Statistics: Posted by yoda — Sun Dec 23, 2012 10:47 pm
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US farmland market closes 2012 on a high note
US farm prices are ending the year on a high note despite fears that many land owners, fearful of raised capital gains levies in 2013, would sell out and dent the rally.
Farmland prices in major agricultural states including Illinois, Iowa and Nebraska rose for a 35th successive month this month.
An index compiled by Creighton University, in which any reading above 50.0 indicates expansion, came in 82.5, indicating "very brisk growth".
Readings were particularly high in Illinois and Iowa, top two US producing states for corn and soybeans, of which prices remain at historically high levels, and Kansas, the major wheat-growing state.
The increases defied fears among some commentators that the rally, which in October saw Iowa land set a state record of $21,900 per acre, would falter as landowner rushed to sell ahead of tax rises expected in 2013.
If US politicians fail to agree a budget package before the end of the year – an outcome which looked increasingly likely on Friday, given disagreement within the Republican party, besides with Democrats – the so-called "fiscal cliff" will trigger automatic measures to balance the books.
These include an increase to 23.8%, from 15%, in capital gains taxes, and a drop to $1m, from $5m, in the allowable deduction on estate taxes.
‘Cheap money policy’
However, values were being supported by the US central bank’s continued easy monetary policy, which in lowering borrowing costs were underpinning the appetite for farmland, Creighton University economics professor Ernie Goss said.
"The Federal Reserve’s cheap money policy is pushing agriculture land prices higher," he said.
Prices were even rising in more livestock-oriented states, where the rise in grain prices has squeezed margins, and is expected to show up in official data later on Friday on November cattle placements on feedlots, expected to come in 9% below those a year before.
"In order to reduce costs, the 2012 drought and higher corn prices have forced ranchers to cut the size of their animal stocks," Professor Goss said, pegging at 14.8% the average reduction in livestock herds.
Yet Creighton’s study showed prices of land in Wyoming, a ranch-oriented state, showed an index of 80.6, up 1.4 points from the year before.
‘Farmers remain optimistic’
The study also showed the rise in land prices feeding through into rents, which bankers questioned for the survey said on average had increased by about 15% over the last year, with some reporting gains of more than 25%.
And spending on agricultural equipment also increased this month, with an index rating rising to 67.0 from 60.4 in November.
"With solid financial footing, farmers remain optimistic about future agriculture economic conditions and are expanding their purchases of farm equipment," Professor Goss said.
Statistics: Posted by yoda — Fri Dec 21, 2012 9:58 pm
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Which is a better investment: The stock market or farmland?
Oklahoma State University Extension | Updated: December 19, 2012
In July 2012, Mike Duffy at Iowa State University posted an article “Comparing the stock market and Iowa land values: A question of timing” on their Ag Decision Maker website. We’ve repeated what he did, using Oklahoma data for pastureland and non-irrigated cropland. The U.S. Department of Agriculture regularly reports agricultural land values and associated cash rents for Oklahoma. Oklahoma farmland values have shown annual increases every year since 1997 for both cropland and pastureland. Non-irrigated cropland values have shown gains for 33 of the past 43 years. In similar fashion, pastureland values have increased every year but 9 times during the same period since 1970. Values in 2012 for both categories reached record territory in nominal terms and have more than doubled since 2000. However, in inflation-adjusted terms, the 2012 cropland value is not a record and is still 30% below the peak set back in 1980. In contrast, pasture prices have kept pace with the rate of inflation and are roughly equal to 1980 values.
The composite value of the stock market, as measured by the Standard & Poor’s 500 Index (S&P) average, has recovered from the disastrous 2008 year. Even though the S&P lost 34 percent of its value between 2000 and 2008, its overall record has been impressive since 1970. Stock values rose from 90.05 in 1970 to a June 2012 close of 1,323.48, a 13-fold increase despite the late-2000s recession.
The returns to land or stock shares are composed of two parts. First is a capital gain or increase in value. (In some years, a capital loss occurs if values decrease.) The second component is yearly returns. Yearly returns are affected by both revenue and costs associated with the property.
Land ownership has annual costs not associated with stocks. For example, property taxes must be paid and should be included in a comparison of owning stocks or farmland. In addition, if farmland is held as an investment and not by an owner-operator, a professional farm manager may be involved and the fee for this service should be considered. Some maintenance and insurance with farmland not associated with owning stocks is also necessary.
The data used for this analysis comes from various sources. The Oklahoma non-irrigated cropland and pastureland values come from the USDA/National Agricultural Statistics Service (NASS). Land tax estimates per acre were calculated using data from the Farm Credit Associations of Oklahoma.
The S&P averages and yearly dividends from 1970 to 2012 were obtained from the website of Robert J. Shiller at Yale University. The value used is the December close of each year with the exception for 2012 being the month of June.
A few assumptions are necessary in the study. For the first analysis summarized in Figure 1, it is assumed $1,000 is invested in each alternative at the end of the first year (1970). The initial amount of land or stock purchased was based on the 1970 value. For example, the average dryland cropland value in Oklahoma was $257 per acre in 1970. Thus, 3.89 acres could have been purchased for $1000.
A second assumption is that all net land rent or dividend earnings in any year will be reinvested in the land or the stock market. This will increase the number of units held. To continue the example above, average cropland rent in 1971 was $9.50 per acre. Average taxes in 1971 were $0.58 per acre. Using a management fee equal to 7 percent of gross rent and a 6 percent of gross rent charge for insurance and maintenance, the net return per acre in 1971 was $7.68.
The net rent in 1971 represents a 2.91 percent return since the average cropland value had increased to $264 per acre. For the $1,000 investment, this would be a return of $29.10. If the entire return were invested to purchase additional land, .11 acres could have been added to the portfolio. Thus, at the end of 1971, the investor would have 4 acres worth $1,055. The process is repeated each year.
Considerable annual variation was noted in the investments examined. Non-irrigated cropland values increased an average of 4.5 percent with a standard deviation of 9.8 percent. The annual percentage change ranged from a negative 16.9 percent to a positive 27.8 percent. Pastureland values grew an average of 5.8 percent annually with a standard deviation of 12.7 percent. The annual percentage change ranged from a negative 18.3 percent to a positive 48.9 percent. The Standard & Poor’s 500 Index yearly closing value showed an average percentage change of 8.1 percent with a standard deviation of 16.9 percent. The yearly percentage change in the S&P ranged from a negative 40.7 percent to a positive 35.0 percent. In summary, the stock market as reflected in the S&P offered a higher overall percentage gain than agricultural land, but also demonstrated more volatility as shown by its standard deviation.
The annual rate of return for non-irrigated cropland using cash rental rates as a proxy for income and subtracting taxes, management fees, insurance and maintenance has averaged 3.5 percent since 1970. The standard deviation of the yearly return to land has been 0.8 percent. The maximum yearly return was 4.7 percent while the low was 1.7 percent. For pastureland, the annual return averaged 2.0 percent with a standard deviation of 0.7 percent. The maximum annual return was 2.8 percent while the low was 0.7 percent. The S&P yearly dividend averaged 3.0 percent of the S&P closing level. The standard deviation was 1.3 percent, the maximum yearly return was 5.4 percent, and the lowest yearly return was 1.2 percent.
Figure 1 shows the return to $1,000 invested in 1970 for all three investments. At that time, $1,000 would have purchased 3.89 acres of cropland, 7.08 acres of pastureland or 11.1 shares of the S&P. Using the assumptions above, an investor at mid-year 2012 would have 15.31 cropland acres worth $21,285, 15.62 pasture acres worth $18,078 or 36.49 shares of the Standard & Poor’s worth approximately $49,270. In other words, the value in either farmland category would be less than half the value of the S&P investment. Note the dramatic swings in the S&P since 1999 in contrast to the steady climb in farmland values.
However, timing is everything. A starting point other than 1970 would lead to different results. The initial purchase date and subsequent purchases based on reinvestment of returns are important and realistically, farmland does not lend itself readily to reinvestments similar to stocks.
Figure 2 shows a comparison of the returns through June 2012 based on alternative years for the initial investment using the same methodology shown in Figure 1 (buy, hold or reinvest as income allows). It represents returns to Oklahoma farmland as a percent of the returns to the S&P. Values in excess of 100 percent correspond to farmland with a higher value and conversely, if the value is below 100 percent, then the S&P would have a higher value for the initial $1000 investment made in that year. For example, an initial investment in farmland beginning in 1970 as shown in Figure 1 would have returned less than half of the stock market.
Figure 2 demonstrates that the timing of the investment makes all the difference in which appears to be a better investment. A decision to invest in agricultural real estate would have yielded a higher value in just about every year from 1991 through 2011 (the late-2000s recession being an exception). Looking back, agricultural land values in Oklahoma began their rapid rise in mid-1970s and peaked in 1981. After years of devaluation during the 1980s, land values began a slow but steady rise in the 1990s. Oklahoma farmland and the S&P have offered roughly equal returns on their investment since 2009. Given the recent rapid increase in farmland values, this result may not be intuitive. But remember that despite healthy farmland value increases, farmland rents in Oklahoma have not kept pace resulting in declining rates of return. At the same time, investors buying into the stock market have seen substantial appreciation since the late 2000’s recession with very competitive returns. It will be interesting to see what this chart will look like in 20 years relative to recent economic conditions.
So the question remains. Is Oklahoma farmland or the stock market a better investment? It is a complicated question and one for which there is no one right answer. As mentioned previously, the timing of the initial purchase, subsequent purchases, and reinvestments of returns influence the returns to either stock or farmland investments. Several assumptions were made in this study. Real estate taxes, a management fee, insurance and maintenance were subtracted from the return to land (represented by cash rent) and were the only ownership costs assumed for land. Other costs vary with individual circumstances. This study also assumed no transaction costs associated with either the purchase of land or the purchase of stocks. Finally, this study assumed average performance for land values, rents and the stock market. Deviations from average performance would produce different results.
The majority of land is purchased by existing farmers. They purchase the land for a variety of reasons including factors beyond traditional investment theory. Farmland has been a competitive investment compared to the stock market over the past 20 years (Figure 2).
What will happen to the value of farmland over the next several years is difficult to predict. Agricultural land represents an income-producing asset and its value is essentially driven by current and expected earnings. Agricultural land values have risen more quickly than rents in recent years. In the short term, an increase in both are likely to continue given a strong cattle economy, high grain prices, low interest rates, and continued nonfarm investor interest. In the longer term however, changing market conditions, government policies and/or interest rate increases could adversely impact values and earnings.
The performance of the stock market over the next several years is also not clear. The S&P 500 used as a benchmark includes companies with significant global investments and earnings. Thus, economic conditions throughout the world matter.
Farmland and the stock market are different types of investments and assets. This simple comparison was based strictly on averages. Oklahoma farmland has outperformed the S&P in some periods since 1970, but not all years. Yes, timing is everything.
Statistics: Posted by yoda — Wed Dec 19, 2012 11:18 am
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US farmland prices soar, despite drought
US farmland prices showed heady growth despite the worst drought since 1956, recording year-on-year gains of up to 30%, although some lenders hold doubts about values maintaining a strong pace of appreciation.
Farmland prices in core Midwest areas such as Iowa and Illinois, the top two corn and soybean growing states, rose 5% in the July-to-September period, from the previous quarter, when values rose by just 1%, according to central bank data.
"The impetus for higher farmland values actually strengthened during the third quarter," the US Federal Reserve’s Chicago bank said, quoting findings from a survey of lenders.
The gains, which reflected growing demand among investors besides farmers, fed through into year-on-year price growth of 13%, and defied dryness which brought the US its worst drought since 1956, and devastated yields in much of the area.
‘No significant impact’
Land price appreciation was even stronger in Plains states such as Kansas and Oklahoma, where values soared 24.4% year on year, led by a 30.2% rise in Nebraska, data from the Kansas City Fed showed.
"The drought did not appear to have significant impact on farmland markets in the third quarter," the bank said.
Separately, a report from Creighton University showed values across major agricultural states rebounding this month, recording their biggest month-on-month gain in at least seven years, and recording a 34th successive month of headway.
The data follow the sale two weeks ago of an 80-acre parcel in Iowa for a state record of $21,900 an acre, while in the rental market, Creighton flagged an auction for non-irrigated land in Nebraska that saw contracts achieve a record $550 per acre per year.
However, Creighton economics professor Jack Goss was downbeat over the price rally continuing, saying that farmland market values were now "priced for perfection", and vulnerable to setbacks from drought or crop prices, or from a rise in interest rates from record lows.
"Farmland prices and cash rents are soaring at what I believe are unsustainable paces," Mr Goss said.
Lenders surveyed by the Kansas City Fed expected some moderation in the market, flagging "some concerns about the effects of drought extending in 2013", especially on the welfare of livestock operations facing higher crop prices, and without the cushion of insurance afforded arable farmers.
"About three-quarters of survey respondents felt that farmland values would stabilise at high levels heading into 2012," the bank said.
‘Further upward movement’
However, bankers in the Midwest were at least upbeat over values for the current quarter, with 36% expecting prices rises, compared with 1% forecasting a drop in values.
"The drought does not seem to have derailed bankers’ anticipation of further upward movement in farmland values," the Chicago Fed said.
"The demand to acquire farmland this fall and winter was not anticipated to ebb, particularly among farmers."
Statistics: Posted by yoda — Fri Nov 16, 2012 9:55 am
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US farmland hits $20,000 an acre as market revives
The US farm economy is showing signs of reviving from a drought-induced decline, with farmland prices hitting $20,000 an acre in some areas, and a recovery in the agricultural equipment market too.
A farmland price index compiled by Creighton University rebounded to a four-month high of 61.6, from 52.8 in August, indicating price growth recovering in a rally that has now lasted for nearly three years.
Any figure above 50.0 indicates rising values.
Recovery was notably strong in Minnesota, where the price index rebounded to 71.1, and where a 27-acre parcel of land sold on Wednesday for $14,000 an acre, a record for its county, and only $1,000 an acre short of the state high reached in 2003, on University of Minnesota figures.
‘More air into the price bubble’
However, some bankers questioned for the survey, covering US agricultural states from North Dakota to Kansas, "are reporting farmland prices as high as $20,000 per acre", said Creighton University economist Ernie Goss, who has voiced concerns over the extent of the rally.
"Despite the drought, farmers continue to put more air into the farmland price bubble."
And lenders overall forecast further price growth over the next year, although at a rate of 3%, below those recorded in in the past 12 months, and with 13% of bankers predicting a drop in values.
Farmland prices in areas that suffered the most from this year’s drought "were expected to grow the least", the survey said.
‘Dampen economic activity’
Professor Goss added that the drought "continues to dampen economic activity for agriculture equipment sellers", for which a sales index came in at 50.0, indicating sector stagnation.
Nonetheless, this was an improvement on the "very weak" 38.3 figure in August, when crop fears peaked.
Latest harvest reports have shown a slight improvement in corn yields, and better-than-expected soybean results which have prompted talk of the national yield topping 37 bushels per acre..
The US Department of Agriculture has pegged the crop at 35.3 bushels per acre.
Statistics: Posted by yoda — Fri Sep 21, 2012 9:59 am
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Drought crimps rise in U.S. Midwest farmland values
Reuters | Updated: August 16, 2012
The price of prime farmland in the drought-hit U.S. Midwest grain belt rose 1 percent in the second quarter, the smallest quarterly increase in two years, the Federal Reserve Bank of Chicago said on Thursday.
But while the district’s worst drought in nearly a quarter century will dramatically shrink soybean and corn output, land values this quarter were not expected to fall, the Fed said in its quarterly survey of 205 bankers in the district.
The Chicago Fed district includes the heart of the U.S. Corn Belt states of Iowa, Illinois and Indiana, and parts of Wisconsin and Michigan.
"The drought did not seem to have stifled all the momentum of rising agricultural land values," the Chicago Fed said in its August Ag Letter.
Just 4 percent of those surveyed expected farmland values to drop this quarter; more than 70 percent see farmland markets leveling off.
"Coming after several years of farm income that were better than average, the drought should not reverse the gains in farmland values, but there could be a pause while expectations about future earnings from crop production adjust to the short-term effects of this summer’s drought," the Fed said.
The value of district farmland rose 15 percent from a year earlier, the report said, a rise that "seems modest only in the context of exploding farmland values over the past few years."
In the Chicago Fed district, Iowa and Illinois combined produce about a third of the domestic corn and soybean crops. The United States is the world’s leading exporter of those food and industrial crops.
Farmland values are closely watched by Federal Reserve economists and by commercial bankers as a barometer of U.S. banking assets and as a benchmark for agricultural balance sheets. Farmland is a basic collateral for farm loans.
The Kansas City Federal Reserve’s quarterly farmland survey on Wednesday showed values across Kansas, Oklahoma, Nebraska and parts of Missouri rose 3 percent from the prior quarter.
While the drought in the Chicago Fed district is considered the harshest since 1988, the wider drought affecting the rest of the Midwest and the Plains states has been called the worst one in 56 years.
CREDIT CONDITIONS LEVEL
Higher crop prices and crop insurance payments will partially offset the drought’s impact, but the drought — the worst in the district since 1988 — has hit livestock operations particularly hard, the Fed report said.
Higher feed costs and the lack of extensive insurance coverage for corn and soybean prices have cut dairy, hog, poultry and cattle enterprises.
The district has already incurred "severe losses" in farm income in 2012, the Chicago Fed report said.
Still, agricultural credit conditions in the Corn Belt were resilient, with funds availability at a record high, and repayment rates for non-real-estate farm loans improving.
While interest rates on agricultural operating loans and mortgages set new lows, demand for non-real-estate loans was "feeble" compared to a year ago, it said. The average loan-to-deposit ratio, at 68.1 percent, was 10 percentage points below the average level that respondents said was optimal.
A few bankers thought repayment problems would increase because of the drought, the survey said. Respondents expected overall non-real-estate agricultural loan volumes to fall this quarter compared with a year ago, while farm mortgage volumes were forecast to rise slightly.
The Fed said that Iowa farmland values remained the strongest in the district with a year-over-year increase of 24 percent.
Land values in Illinois, Indiana and Wisconsin were up 15 percent, 12 percent, and 13 percent, respectively. (There were too few responses in Michigan to generate data this quarter, it said). Non-real-estate farm loan volumes were expected to rise in Indiana and Wisconsin, the report said.
Statistics: Posted by yoda — Thu Aug 16, 2012 2:55 pm
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WEST LAFAYETTE, Ind. – Low crop yields from this year’s drought could mean an inability of some farmers to meet farmland rental agreements if they suffer major losses of income.
The possibility means tenants and landlords need to communicate with one another, and both parties need to review the terms of lease agreements.
"The ability to meet rent payments will vary widely among tenants due to the differing financial impacts of the 2012 drought," said Chris Hurt, Purdue Extension agricultural economist.
Contributing factors include final crop yields, final grain prices, the amount of production that is forward-contracted, level of crop insurance coverage, if any, whether there is livestock involved, and a producer’s financial strength heading into the 2012 drought.
But regardless of financial circumstances, Purdue Extension agricultural economist Gerry Harrison said tenants and landlords are legally locked into lease agreements.
"The law is clear on the duty to perform under a contract," he said. "A cropland lease, oral or written, is a contract."
A tenant’s overall financial position will couple with the type of lease agreement to determine whether rent can be paid and what options tenants and landlords have. Common lease agreements include crop sharing, straight cash rent or a variation of the two.
"If it is a crop share lease, the landowner is in a similar position to the tenant," Harrison said. "If the lease is a ‘flex’ lease, what is the flex provision? If the flex is based on crop yield, the lack of yield may remove any liability the tenant has, based on the flex provision.
"If the flex lease is based on price for the crop, the tenant with a short crop may have a serious problem."
Under Indiana law, a landlord can terminate a lease with 10 days’ notice if a tenant doesn’t pay rent when due, unless both parties agree otherwise or if the tenant pays the rent in full within the notice period.
"At the very least, some flexibility in non-payment of rent by the due date might be needed this year until a crop insurance payment or a loan becomes available to the tenant," he said.
Statistics: Posted by yoda — Sat Aug 04, 2012 12:02 am
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7 Reasons Farmland Values Are High
JUNE 4, 2012
By: Sara Schafer, AgWeb.com Business and Crops Online Editor
Land values are up and don’t seem to be coming down any time soon.
Values of Midwestern farmland make a pretty consistent upswing, when depicted on a graph. From 1950 to last year, values for U.S. farm real estate (which includes all land, buildings and dwellings on farms), is almost a perfect arc up, with only a few small declines.
Looking ahead, the upswing continues. According to the Federal Reserve Bank of Kansas City’s most-recent quarterly Survey of Agricultural Credit Conditions, strong farm incomes continued to fuel demand for Tenth District farmland.
The value of nonirrigated cropland in the seven-state District rose more than 25% above year-ago levels in the first quarter of 2012, while the value of irrigated acreage vaulted more than 30% higher than a year ago.
These large increases come on top of the more than 20% gain posted in 2011. This is the first time in the history of the survey that the annual value of District cropland rose more than 20% for two consecutive years.
Ron Plain, agricultural economics professor at the University of Missouri, and William Edwards, Iowa State University professor, recently spoke at a farmland conference held at the University of Missouri – Columbia.
They credit the following reasons for increases in farmland values.
Inflation: Plain says, like prices for other commodities, farmland values typically increase over time.
Lack of alternative investments: Edwards says, in Iowa, agriculture is king and land is a sought-after commodity. What else would farmers with large incomes invest in?
Limited supply: Only so much land in the U.S. is suitable for agriculture. "There just not making any more of it," Plain says.
High corn and soybean prices: Edwards says demand for biofuels, livestock feed and exports have all help push prices up, which has increased the overall income of farmers.
Low Interest rates: During the last few years, farmers have been able to easily obtain low-interest loans to purchase farmland.
Favorable crop yields: Average corn yields, for example, have showed a strong increase over the last 100 years, Plain says, which has simultaneously increased average corn profit per acre.
High degree of liquidity, equity capital: Edwards says because of high farm incomes, farmers have been able to purchase land without borrowing as much.
Statistics: Posted by yoda — Tue Jun 19, 2012 10:28 pm
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