Posts Tagged ‘USDA’

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Returns To Illinois Farmland Still Shine

Friday, September 16th, 2011

For years, I’ve been extolling the virtues of owning farmland to my clients and others in the investment community.  In many cases, the response has been that of skepticism… “of course you’re promoting farmland, that’s what you sell for a living”.  Recently, though, University of Illinois professor Bruce Sherrick published an article on www.farmdocdaily (Illinois Farmland Investment Performance Revisited) that strengthens my case.  Utilizing information from the USDA Farmland Survey published last month, Dr. Sherrick compared the long-term risks and returns of owning farmland with various other assets. His analysis showed that farmland, relative to other investment alternatives, has A. low systematic risk; B. high relative returns for the risk; and C. provided a good insulation against inflation. These factors would be considered an almost unbeatable trifecta in the world of high finance and investments.

I think it is important to point out that the analysis covered a 40-year time period (1970 – 2010).  This horizon is much longer than what many investors might prefer. But most of us in the industry typically emphasize the fact that land is a long-term investment, not something that you can just jump in and out of with the hopes of making a quick profit.  Realistically, every investment will standout if the right time period is used in the analysis.  But that’s what I like about this study – the data and returns from the worst time period ever for the land market (the 1980s) is included… and farmland still shines.

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Determining Historic Land Valuations

Sunday, July 10th, 2011

I recently had a client ask me what his farm might have been worth… in July, 1990.  In Illinois, and many other states, getting current land sales data is not that difficult – simply check the courthouse.  However, trying to find comparable sales from 21 years ago can be a challenge.  Few lenders or courthouses retain this old of information, or if you can find it, it might be cost prohibitive. 

Fortunately, the University of Illinois has developed a system (Index Numbers of Illinois Farmland Values) that landowners can use as a guide.  Using USDA information, the formula utilizes a base index number from 1979 (100) and then adds or subtracts from the base each year to reflect whether land prices have gone up or down.  Is this system 100% accurate?  Probably not… the index is an average for the entire state and not for a specific county or township, and it doesn’t factor in what improvements may have been, or are currently, on the parcel. But many attorneys and other professionals find this methodology unbiased and in the absence of any other hard data, they can utilize the system to help determine the value of a property from years ago.

I would suggest using this index cautiously, especially if comparable sale information is available to use.  But if lacking good comps, this formula may be quite helpful in determining historic land valuations.

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Recent USDA Crop Report

Friday, July 1st, 2011

On Thursday morning, the USDA released their summer crop report, including the number everyone was waiting to see – planted corn acres.  The USDA’s estimate of 92.3 million acres of corn is up 5% from 2010.  On this news of higher corn acres, the corn market lost a lot of the momentum that it had built up earlier this week.  How will this affect the farmland market, which has benefiting from higher grain prices in 2011?  For right now, probably not a whole lot.  While it is true that corn and bean prices have both taken us on a roller coaster ride the last 6-8 months, and it wasn’t more than a month ago we were looking at close to $8 corn, there is still good (to really good) money to be made in farming at $6+ corn.  Also, farmers, lenders, and investors across the Midwest have told us a similar story – There are a lot of buyers with buckets of cash on hand ready to jump on a farm sale when one becomes available in their particular area.  It will also be important to keep an eye on how harvest shapes up.  While there may be a lot of corn planted, that doesn’t always translate into a successful harvest.  Many areas across the Midwest have seen as much or more replanting this summer because of water issues than they have seen in a long time.  Read more about the crop report on the Des Moines Register site  (Corn Plunges on “Shocking” USDA Report)

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The 2012 Farm Bill

Monday, December 13th, 2010

Though it still seems a long way off, discussions on the new farm bill are already under way.  Jennifer Stewart and Roman Keeney at Purdue University recently wrote an interesting article that highlights what the major issues/discussions/arguments might be: (Watch Three B’s in the 2012 Farm Bill).  

The first “B” is Brazil.  In 2009, the World Trade Organization (W.T.O.) allowed Brazil to impose sanctions against the U.S. arguing that American cotton subsidies were illegal under W.T.O. rules.  Changes must be made in the 2012 farm bill so that the U.S. is in compliance with global trade rules.  While the total dollars involved may not be significant, the principle issue will be as changes may have to be made to other program crops in order to avoid possible sanctions later.

The second “B” is the federal Budget.  As the elections in November reflected, people in this country are tired of government overspending.  The campaign theme of many of the newly elected senators and representatives was reducing the federal deficit and all programs are potentially on the chopping block. And since the farm part of the U.S. economy has been one of the few profitable sectors the past several months, many politicians will be taking a hard look at the programs closely related to agriculture.

The final “B” is baseline spending. Though a part of the overall budget process, this concept would hopefully allow the farm bill to move quickly through the house without being subjected to larger reform budget procedures.  The goal is to hold spending in the new bill close to previous levels, thus avoiding an extended discussion on the costs and benefits of each the programs.  Unfortunately, this may be much more difficult to achieve than is hoped.

Yes, it does seem like only yesterday when Midwestern farmers were trying to understand the nuances of the ACRE program passed in the last farm bill.  One can only imagine what surprises Congress may have in store for the next go-around as the give-and-take world of politics will likely determine the final outcome.

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Is Current Agricultural Output Lagging?

Saturday, October 16th, 2010

For those involved in agriculture, it’s easy to be proud of the gains that have been made in productivity over the past several years – higher yields with fewer inputs, more efficient use of our natural resources, etc.  And in truth, total ag output has been increasing steadily.  However, the bigger longer-term question now is – will this increased productivity still be enough to feed the rapidly growing world population?

A report released this week by the Farm Foundation and the U.S.D.A.’s Economic Research Service (The Global Harvest Initiative 2010 GAP Report) addresses this very issue.  And based upon their analysis, the food chain is going to have to increase their productivity even more if there is even a hope of filling the global needs in 2050.  Sara Wyant of AgriPulse summarizes many of the report findings in this article (GAP Report Shows Ag Output Lagging Demand Growth).  The challenge in the next 40 years is likely to be quite similar to the challenge that the late Norm Borlaug faced in the 50’s & 60’s in India and Mexico with the Green Revolution.  At the time, most thought that there was no way that production could be increased enough to keep large populations from starving.  Fortunately, they were wrong.

I firmly believe that this food challenge can be met, but only with the foresight and support of all the stakeholders – farmers, consumers, land owners, governments, scientists, environmentalists, and others.   It won’t be easy but the consequences are too great if the parties don’t work together.  Perhaps the quote from retired NASA Flight Director Gene Kranz sums it up best… “Failure is not an option.”

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