Posts Tagged ‘projection’

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Projected 2012 Farm Returns Adjusted Down

Friday, December 2nd, 2011

In September, The University of Illinois released their annual estimates for crop expenses and returns for the following crop year.  Since that time, we have seen the corn and bean markets pump the brakes and slow down.  So, in response to the ever-changing commodities markets, the U of I has recently readjusted their projections (Reductions in Projected 2012 Crop Returns…) to account for less potential revenue in 2012.  In September, the U of I based their 2012 farm income projections off of selling corn at $6/bushel and soybeans at $13/bushel.  The updated numbers have decreased the projected corn and bean prices to $5/bu. and $11/bu., respectively.  The result is an approximately ~29% decrease in potential income per acre Central IL.

It will be important to keep a watchful eye on how this affects the 2012 farmland market.  With less profit, farmers will have less money to invest into farmland.  However, this does not necessarily correlate to a decrease in the demand in the farmland market, at least in the short-term (9 – 12 months).  Farmers on average will still have a profitable 2012.  Also, many farmers experienced a very profitable 2011 and are sitting on cash to invest into farmland.  From what we have seen recently (both at our own auctions and observing others), farmer-buyers are not bowing out of the farmland market anytime soon.  $10,000/A  is still the new threshold for Class A Central IL farmland, with some sales pushing north of $11,000/A.  As long as corn and beans remain at level to keep farmers profitable, interest rates stay low, and the availability of farmland remains relatively tight, the aggressiveness of buyers should remain.

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Increase in Farms for Sale

Friday, November 4th, 2011

If you look in your local classifieds section, or better yet, the Auction Section for an Ag publication like Illinois AgriNews, you will notice more farms for sale this fall than we have seen the last few years.  In 2007/2008, the farmland market saw glut of properties come on the market as landowners looked to cash in on then-record high prices.  When the economic problems hit in the summer of 2008, the activity in the farmland market screeched to a halt like every other market in the world.  While the residential real estate market’s problems were caused by bad loans being given out, lax lending practices, and overbuilding, the slow down in the farm real estate sector was primarily driven by a sharp drop in the corn and bean markets.

In 2009 and 2010, the supply of available farms was extremely thin, which actually helped keep the market strong.  However, in the last 12 months, there has been a noticeable increase in the number of farms on the market.  The main reason?  It again comes back to corn and soybean prices.  We saw the markets start to nudge up in late 2010 and then explode in early 2011, allowing more income to flow towards farmers.  We’ve seen farmers reinvest these higher profits back into their operations by buying land.  Farmers are not the only buying group, however.  Investors banking on a continued worldwide population growth (we’ve just passed 7 billion and are projected to pass 9 billion by 2050), are viewing farmland as strong long-term investment.  As population increases, food is going to be more in demand, which means the ground that the food is produced on is going to be more in demand.

All of these factors have caused farm prices to jump considerably the last 12 months.  Sellers who may have felt like they may have missed their chance to sell before prices dropped in 2008 may look to cash out now that their land value has come back (and surpassed the high prices we saw in 2007).  Unlike in some years, where some owners were looking to sell by the end of the year for tax purposes, sellers are not showing that urgency this year.  I think there is a good chance we will see a continued strong supply of farms on the market into 2012.  From that point, it will depend on how the commodities markets perform.

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Pension Funds Still Heavily Invested in Farmland

Friday, October 21st, 2011

Pension funds investing in farmland is not a new trend.  They have long valued the steady income and long-term appreciation of the asset.  However, with farmland’s recent explosion into the mainstream as a “hot” investment, people have taken notice how heavily invested into agriculture pension and hedge funds really are.  A recent article posted on Financial Times (The Real Bull Market) takes a closer look at what is fueling the interest of these investors.  The main point that the article makes is that as world population grows, someone is going to have to grow the crops to feed the world.  Considering that US contains some of the productive and fertile land in the world, it stands to reason that investors would take long-term positions in US farmland.

This is not a new opinion.  We’ve seen numerous forecasters predicting that over the next 50 +/- years farmland would continue to be viewed a a desirable asset as the demand for food increases.  If it’s one thing that history has taught us, though, it is that nothing is a given.  For the short-term, meaning the next 12-18 months, farmland continues to appear to be a strong market.  However, the variables that help play into farm prices (commodities prices, interest rates, weather patterns, etc.) can change at any time and slow this market down considerably.  The buyers that are taking long positions, such as pension funds, have less risk than the buyers who are looking to buy a farm and flip it for a quick profit.  There are owners of vacant condos in Miami and Las Vegas than can tell you that the quick buck in real estate is sometimes easier said than done.

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Mid-Year Farmland Report

Thursday, September 8th, 2011

The IL Society of Professional Farm Managers and Rural Appraisers recently released their Mid-Year Survey regarding farmland values and rent prices. Some of the key points for farmland values from the results include:

-Land values have increased 14% over the first half of 2011

-Excellent farm prices now are averaging $10,000/A

-Most of those surveyed expect values to continue to increase over the next 12 months

-Most expect corn prices to remain north of $6/bushel for the 2011 crop

Some key points for rents:

-Most expect cash rent on excellent farmland to be above $365 dollars per acre, which is an increase of nearly $40/A over 2011 rents

-Good farmland is expected to increase by around $36 per acre and average farmland by $28 per acre

-While fixed cash rent and share leases still make up the bulk of lease arrangements, most expect variable cash rents to gain popularity in 2012 as landowners look to reap more benefits from higher grain prices.

To read the full report, follow the link.

Overall, the survey confirms what many of us in the farmland real estate industry have been hearing out in the field for awhile now- as long as grain prices stay high and interest rates stay low, we are going to continue to see tremendous strength in the industry, whether it is in the form of a record land sale or an updated rent agreement.

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Farmland Attracting Attention

Thursday, June 16th, 2011

Summer is typically a slow time for land sales, with the bulk of auctions and brokered sales occurring in the post-harvest and pre-planting timeframe.  However, as the temperature has risen this summer, so have the number of sales.  Not only are the frequency of sales higher this summer, the prices are hot as well.  There have been reports of multiple sales of over $10,000 per acre, with a recent sale in Champaign Co. bringing $13,500 per acre.

As we have discussed here before, it is a combination of factors currently driving the market.  Corn and bean prices, while having cooled off in the last week or so, are still hovering around historically high levels.  For the farmers that have dodged the severe weather so far this year, they are shaping up to have a very profitable 2011 crop year – meaning they will have money to reinvest in their operation.  Investors, whether it be a hedge fund, a pension, or in individual, are looking to farmland as a safe, reliable place to park money and still get a respectable return.  Even with the number of sales picking up, there remains a lack of overall supply of available farms.  Low supply, combined with the high demand from the previously mentioned buyer groups, is  advancing the farmland market at a rapid pace.

One can only speculate how long this bull market will last.  It seems that with the ever-increasing worldwide demand for food (and U.S. crops) the underlying fundamentals appear strong to keep corn and bean prices around their current levels for the foreseeable future.  As long as this is the case, there is going to be opportunities to make money in agriculture, which will continue to fuel the farmland market.

Want to read more on this topic?  Take a moment to read a recent article in Time –  America’s Hottest New Investment: Farmland

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