Archive for May, 2010

New Farmland Report Out!

Wednesday, May 26th, 2010

The Federal Reserve Bank of Chicago just released the May issue of their Agricultural Letter.  This publication focuses on farmland values and agricultural credit conditions across the Midwest.  The Fed gathers their information by surveying 215 bankers across the region and while the letter does a great job of discussing general trends in the agricultural community, keep in mind that specific “micro” areas, e.g., counties, townships, etc. may differ from state averages.

So what did we learn in the May issue?  As expected, farmland values increased in the first quarter of 2010, with the “I” states (Indiana, Illinois, Iowa) leading the way.  In addition, values in these areas were up from 4 – 8% over the same period last year.  Interest rates for farm loans in the first quarter of this year were lower than anytime during the past 24 months.  And finally, the letter also had some interesting articles that discussed the Price-to-Earnings ratio for farmland, loan repayment rates, and the outlook for land prices for the second quarter (85% thought that they would remain unchanged).

 If you’re truly interested in following agricultural trends in the Corn Belt, I would suggest subscribing to this publication (or continue reading our blog in the future!).  It’s one government report that I find both interesting and informative.

Is ACRE worth the investment?

Thursday, May 20th, 2010

Operators, as well as landowners on a crop share lease, have had a new option to consider in recent years from their local Farm Service Agency office…ACRE, or Average Crop Revenue Election.  When ACRE was first introduced, many felt that it was unclear what exactly the program offered to those enrolled in it.  In a recent article by Marcia Zarley  Taylor in DTN/The Progressive Farmer (Think of ACRE as a Cheap Option), Marcia discusses the view on ACRE from the perspective of 2 Kansas State University economists.  Essentially, the economists suggest using ACRE as a a put option on expected revenues, but with the added benefit that the ACRE enrollment premiums do not fluctuate with risk.  One example cited deals with the wheat harvest in the Midwest.  Because of a built up supply from 2009, and yields on a normal pace in 2010, prices seem to be headed in the wrong direction.  Growers who enrolled early stand a good chance of weathering the storm.

To learn more about ACRE and to see if it would benefit your farm, I would encourage you to visit the USDA site – ACRE Background Information

Genetically Modified Crops & the European Union

Wednesday, May 12th, 2010

A lot of people in the U.S. have a pre-conceived notion that crops such as corn, soybeans, and wheat grown in our country must be reasonably similar to the same crop grown elsewhere.  After all, corn is corn – right?  In some cases, that is true.  However, other parts of the world see things much differently, especially when the crop has been developed via using biotechnology.  While Genetically Modified Organisms (G.M.O.’s) are a staple for farmers throughout this country, there are very few of these crops being grown in Europe.  In fact, only two biotech crops are allowed for cultivation there – a corn hybrid from Monsanto and a potato hybrid from BASF.

One of the challenges in the European Union is melding the interests, politics, and desires of all the different countries.  The biotech controversy recently surfaced in a tiny autonomous region of Portugal called Madeira.  This area became the first in the E.U. to gain approval for a complete ban on the growing of any genetically modified crop.  The story (E.U. Signals Big Shift on Genetically Modified Crops) and its potential impact was recently reported in The New York Times…  “In reality, the Madeira case marks the unofficial beginning of a new — and potentially highly contentious — policy that would give European nations and regions far greater freedom to decide when to ban such crops.”

If the trend toward banning the cultivation of biotech crops continues to grow, my concern is how far behind a total ban (cultivation and consumption) might be.  Yes, the Midwest farmer prospered before the first G.M.O. seed was ever planted.  But consider how much biotech has changed farming practices – from chemical use, to seed use, to methods of cultivation.  The modern farmer is much more efficient with his time and equipment and it can be argued that yields have improved, soil erosion has improved, and the amount of deadly pesticides being applied has been reduced. 

The argument against genetically modified crops, and the one that stirs the most emotions, is simple – there are no long-term studies that show that G.M.O.’s are safe.  Course, there is no evidence that show that they aren’t safe but to many it doesn’t matter.  If the vocal minority continues to gain ground and more bans are implemented, then the affect on the U.S. farmer and his methods of crop production is likely to be significant.

Potential Pitfalls For the Farmland Market

Wednesday, May 5th, 2010

Even when times are going well, it is always a good idea  to be aware of potential warning signs.  While current segments of the current farmland market are doing better (e.g. Class A Farmland) than others (e.g. Recreational Land), the market as a whole has fared better than other sectors of the real estate market.  A recent article in Corn & Soybean Digest attempts to look into the future at where some problems could arise for the farmland real estate market.  The article (The Three Bears of Land Values), identifies 3 potential weak spots that could negatively affect the market:  1) A multi-year decline in commodity prices that would leave farmers strapped for cash and unable to afford to add farmland to their current operation; 2) Should inflation increase, and the Fed increases the interest rates to combat this issue, the ability of the farmland buyer to borrow money would be greatly affected; 3) Potential changes to tax laws.

No one can accurately predict the exact future.  Some, all, or none of the above factors may happen…or there may be some unforeseen issues that arise to impact farmland values.  However, it is important to know what potential issues are out there that have the potential to devalue what is many investor’s largest asset.

What are your thoughts on the article?  What problems do you see on the farmland market horizon?  We want to hear from you!