July 28th, 2010
A few years ago it seemed as if mammoth wind turbines were growing more rapidly across the Midwest than corn and soybeans. It was hard to drive any distance without seeing a new “wind-farm” springing up, or at the very least see a semi on the interstate hauling one of the massive blades to its new destination. However, a recent article in the Des Moines Register (Wind Industry Slumps Nationally) discusses the slowdown that the wind energy industry is currently experiencing. According to the article, the amount of megawatts added decreased 71% form this time last year.
How does this affect farmland owners? Well, for every one of those turbines that rises up out of the cornfield, the landowner receives an annual payment from the energy company for the leasing of his/her property where the turbine sits. Leases vary from company to company (and site to site), but the landowner will normally make much more off leasing a few acres to the energy company than he/she would for the crop the turbine is replacing. So a decline in activity out of the wind companies trickles down in less production and fewer leases available to landowners.
As our nation, and the world, continues to seek out alternative energy sources it will be interesting to see what role wind energy plays. Will the industry pick up steam again, or is the lull that they are experiencing going to set in for the foreseeable future? Definitely something to watch.
Tags: agriculture, landowners, lease, wind farm
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July 23rd, 2010
Another week has gone by and another 2,300 page government reform bill (sidebar – that no one really understands) has passed. While most of the press has focused on changes to the banking industry and Wall Street, there are some provisions that will affect agriculture. The Des Moines Register recently discussed one change (Financial Bill Could Ease Commodities’ Volatility) that many farmers and end users of commodities may appreciate. It’s designed to reduce and discourage much of the speculative trading that is thought to create violent swings in prices. This was especially apparent in 2008 when corn prices rose to as high as $8.00 per bushel. It should be duly noted that most farmers did profit from the speculator’s actions. But some argue that the price swings were too extreme to be justified from what was truly happening in the marketplace.
I do believe that when a market or industry is inherently broken and can’t fix itself, then the government should step in. However, as we’ve seen the past few months, Washington is bypassing what may be simple solutions with major, new, untested regulations. And to be honest, I find this trend to be frightening. Overhauling large parts of the U.S. economy, often considered the most stable and efficient in the world, will create many unforeseen problems, many of them unintended. Yet the public is told by our politicians to “trust us, we know what’s best for you.” Isn’t that a scary thought.
Tags: agriculture, farmers, government
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July 14th, 2010
A recent Q&A discussion on DTN looks at some possible changes to tax laws in the near future (Ask The Taxman). The author, Andy Biebl, is a CPA and tax columnist for DTN. Mr. Biebl addresses a few concerns from readers on where estate taxes and capital gains taxes may be headed in the not so distant future. Essentially, Mr. Biebl feels that there is a very good chance that we will see a jump in capital gains from the current 15% to a new rate of 20%. He also predicts that corporations will get hit with a 5% higher rate on dividend taxes.
With estate taxes, Mr. Biebl states that if Congress were to increase the special use valuation for farmland, most family farms would be able to fall safely under this threshold and avoid paying the higher estate tax rate.
The question, which pertains more to capital gains taxes than estate taxes, is how will this affect the farmland market? Will an increased capital gains rate cause would-be sellers to reconsider selling? Or will it drive more people towards a renewed interest in 1031 tax-deferred exchanges? It sounds like it is not if an increase in capital gains tax rates is coming, but when it is coming. Let us know your thoughts on how possible tax changes would affect you and your business.
Tags: capital gains tax, farmland, investors, tax
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July 9th, 2010
The USDA recently released a commodity report detailing the current inventory of grains along with their plantings estimate for 2010. To say it was a shock, especially for corn, would be an understatement. Many traders and nearly all farmers were pleasantly surprised when the government cut their estimate of corn stocks on hand and the number of acres that actually got planted this year. In fact, Rabobank believes the cut in current inventory will leave the U.S. at 9.1 % of consumption, or the lowest ratio in 15 years. Yes, even lower than when the corn market began its rally in 2006. As this article in Agrimoney points out (US corn supplies ‘to prove tightest for 15 years’), many now believe that the summer lows for corn have already been established and that price volatility will be more extreme until this year’s crop is better known.
As we saw beginning in 2006, higher grain prices typically transcend into higher land prices. Not that I’m ready to predict another big jump in land values, but if farmers are making money they typically take their extra earnings and invest in farmland. This potential rally may actually help support prices for “B” and “C” quality tracts which have languished the past year while “A” tracts have sold well.
As an aside, I’ve always been skeptical and somewhat cynical regarding government reports. Most farmers I talked with last fall across the Midwest had worse yields in 2009 than they did in 2008, yet the government reported larger stocks (even taking into account the acreage differences). And now, they seem surprised that the bushels aren’t there. Some might call it a conspiracy to keep grain prices low. I tend to think that the blame may be a result of faulty reporting or incompetence. Regardless, since so many people depend on the accuracy of these reports for their livelihood, you would hope that the bureaucrats would find a way to make their information a little more accurate.
Tags: agriculture, farmers, farmland, government, land market, land value, midwest
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June 30th, 2010
A recent Reuters article posted on forexpros.com backs up a growing trend that we have been seeing the last few years here in the Midwest. That is, pension funds becoming more active in purchasing farmland. The article (Pension Funds To Bulk Up Farmland Investments) takes a closer look at why pension funds are taking a harder look at farmland as an alternative to their traditional holdings. With the volatility that the stock market has seen in the last few years, investors are viewing farmland as a sound investment to diversify their portfolio with steady long-term growth and a hedge against future inflation. The author also mentions that, unlike in the past, many pension funds are purchasing farmland parcels on their own and not part of groups and that the fund managers are staying much more active in the management of the farmland.
One of the biggest challenges for these types of buyers is satisfying all of their requirements. It is rare to find large amounts of available contiguous farmland, or even available farmland in the same local region. Even if a property is identified that would work from a dollars/acreage standpoint, it still must fit the fund’s return requirements.
What have you seen in your area with large institutional land buyers? Have they made any purchases in the last few years? Is this a trend that you see continuing into the future as companies continue to look for ways to diversify their holdings?
Tags: agriculture, farmland, investors, pension funds
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