Depressed Prices Ups Farmers Hedging

What do farmers need to keep in mind about the futures market?  Let Dave Leheman, CME Group Managing Director of Research and Product Development, tell you.  Here's a short video from an interview by Agriculture.com.

Corn & Soybean Crops Continue Historic March

U.S. corn and soybean producers are again on pace to set a new high in yields according to USDA's Aug. 12th Crop Production report.  Last years corn crop was a new record, and soybeans were the third highest ever.

Corn

Corn production is projected at 14 billion bushels, based on conditions as of Aug. 1st.  Yields are expected to average 167.4 bushels per acre, up 8.6 bushels from 2013.  If this turns out to be correct it'll be the highest yield recorded in the United States.  

Market analyst Brain Basting, Advanced Trading, said in a recent interview with Delta Farm Press that the corn production numbers "were a little below the average trade guess of 14.25 billion bushels.  It's a start, a mark on the wall.  Historically, there have been significant changes over time relative to the August report."

USDA's estimated ending stocks for corn, at 1.8 billion bushels, was also well below the average trade guess of 2.03 billion bushels, according to Basting.  "The key thing now is to see if we have some more export demand surface at these lower prices."

Soybeans

Soybean production is forcasted at a record 3.82 billion bushels, up 16 percent from last year.  Based on Aug. 1st conditions, yields should average 45.4 bushels per acre, up 2.1 from last year.  Area for harvest in the United States is expected to be 84.1 million acres, up 11 percent from last year.

Soybean carryout is expected to be 430 million bushels "which is exactly triple the estimate for 2013-14, at 140 million bushels," Basting said.  "That is a burdensome carryout.  The trade is going to be watching the weather the last three weeks of August.  The southwestern Midwest did get some good rains recently which helped those double-cropped soybeans there.  The soybean market is looking at what could be the largest soybean crop ever."

Two New Varieties of Winter Wheat

Wheat growers in the Central US have learned about new Winter Wheat that will hit the market in 2015.

In a recent story by Agriculture.com, Syngenta announced the launch of SY Clearstone CL2 for Montana and Western North Dakota.  Also, Kansas State University's KanMark will be marketed to Kansas and the surrounding states.

"SY Clearstone CL2 is an ideal option for planting this fall because it excelled in a broad range of yield trials in this area and combines excellent yield potential with the agronomics growers have been looking for," said Corey Dathe, Northern Plains cereals key account lead, Syngenta.  "As certified seed, it provides growers with added assurance for consistent performance and high quality."

A hard red variety, it is a taller, semi dwarf variety with good test weight and can stand up to harsh winters.  It has high protein content with a two-gene herbicide tolerance.  It gives growers better weed management options while still offering a high yield.

KanMark is more suited for the central Plains.

It is from Kansas State's wheat breeding team.  It features reliable yield potential even under low precipitation ideal conditions, according to wheat breeder Allen Fitz.

It's targeted primarily for western Kansas but can also be used in central Kansas, Oklahoma, Nebraska, Texas, and eastern Colorado.

Fitz warns it is moderately susceptible to acidic soils and scab, so farmers would have to take necessary precautions.

KanMark boasts resistance to stripe rust, leaf rust, and soil-borne mosaic virus.  However, it is susceptible to Hessian fly and moderately susceptible to powdery mildew and tan spot.  It contains multi-gene resistance to leaf and stripe rust, and tends to yield towards the top of the yields chart.

KanMark is the product of a three way cross and was originally bred for resistance from leaf and stripe rust.  Its pedigree includes Parula, Pastor and Karl 92.  Fitz added that this is a very short-statured, upright variety and that producers may not see much of a canopy.  But he warns not to judge it until it comes across the scale.

"I always thought this was an ugly duckling wheat," said Fitz.  "But we're not here to release bouquet wheat, we're here to release varieties that will make money for producers, and I think it will do that."

KanMark is named to honor Mark Carleton, who was a wheat researcher at Kansas State.  He brought back varieties from Russia and used them to breed Kanred nearly a century ago.  Carleton was also the first president of American Society of Agronomy.  His contributions to the American wheat industry were substantial.

Corn Looking to Rebound

After having a rough May and June grain futures are trying to rebound on the heels of last Friday's modest gains.  Heavy rain in the Northwest of the Corn Belt could end up doing more harm than good.  However, Kansas City futures show strength that could trigger a short covering rally.  Otherwise, the saying of "rain makes grain" is being put to the test.

Farm Futures Senior Editor Bryce Knorr talks about the market with Robert Hahn, Valley News Live TV, Fargo.

To hear the interview click here and scroll down to the bottom of the article to find the audio link.

Closing Grain Futures

Just real quick I thought you would be interested in the closing grain futures from March 17th, 2014.

• May corn closed at $4.79, down 7 cents
• May soybeans closed at $13.91 and 3/4, up 3 and 1/4 cents.
• May soybean meal closed at $446.60, up $2.60.
• May soybean oil closed at $41.89, down 40 points.
• May wheat closed at $6.74 and 1/2, down 12 and 3/4 cents.
• April crude oil closed at $98.08, down 81 cents.
• May cotton closed at $92.03, down 16 points.
• April gold closed at $1,372.90, down $6.10.
• Dow Jones Industrial Average: 16,247.22, up 181.55 points.

Fitting The Pieces Together For Your Farm

Considerations

When looking for a farm to buy you need to consider a couple things.  First thing is to remember it's YOUR farm.  Not the farmer's or the farm manager's it's YOUR farm.  You'll want a farm that fits your personality.  And no I'm not talking about whether or not you have sense of humor.  I'm talking about it needs to match your current situation and your goals.  Other things to consider as follows.

Location

Do you want to be able to drive to your farm easily?  To some this may matter.  They may want to have the ability to keep their eye on what's going on with their investment.  Or you may want to be close to town with the idea of selling it for development ground.  Others may not care about the location at all.

Soils

This may be an obvious thing but I figured I would hit it anyways.  For a farm to be a good farm it needs to have good deep soils.  We at Rural KC will help you identify what's good soils and not.  We will look at the depth and soil type and that helps us define what is good and what isn't.  But most importantly, we lean on the opinion of a local farmer over this.  A local farmer knows which farms are good and which aren't.  While these soil maps are great.  Nothing beats local knowledge.

Farmability

This is something the local farmer should be the go to guy.  However, by looking at an aerial you usually can get a good idea if it's farmable or not.  First you would look at the soils and make sure they are deep.  Next you need to ask yourself a few questions.  Is it hilly?  Is it rocky?  Is there too much timber?  Is it in pasture or already broken up?  If it's in pasture is there farmland around it?  These are good starting points but once again, the local farmer would be the best one to answer this question.

The Steps to a Successful Cropland Purchase

Steps to Success

Now that I've shown you a little of what we do.  The next step is how do we go about implementing it.  Well, there are three steps to a successful cropland purchase.  Identifying good land, look into crop insurance and find comparables.

The first step is identifying good land.  The soil maps we talked about will do that for us.  The maps will tell us soil ratings, soil types, prime farmland ratings, flood zones and much more.

The second step is looking into crop insurance.

Crop insurance can be a life saver.  It can help you avoid major problems when the crop fails.  It has been especially important in the last couple of years due to the drought which appears to be ending.  What you will find getting crop insurance is that it records historical production trends for a series of years, it reports to the USDA and new buyers are eligible for crop protections.

The final step would be to find comparables to make sure you're getting a good deal.  You can also look into state reports on recent sales.  However, state reports and comparables suffer from not being timely.  

One thing to keep in mind is land can vary greatly in the same area.  Some land slopes a lot requiring terracing.  Some land floods too frequently.  Some land just has poor soils.  Some land is just too remote.  And what I mean by too remote is it may be too far from any farmer to not make it worth farming.  You have to consider how much it money it takes for a farmer to move his or her equipment from property to property.  That is something to consider.

How to Feed the World in 2050

So now we've establish that cropland prices are rising and will continue to rise.  The question you should be asking is why.  Why does it always rise and why did it suddenly spike recently?  The main reason it will always rise is no matter what happens in the world we will always need to eat.  It's a simple supply and demand aspect.  As populations continue to grow the need for food will increase.  With the increase in need of food the price in land that produces food will rise with it.  

The next question was what caused the spike recently.  That is simple.  China and Indian have become very modernized.  The average Chinese and Indians life has improved recently.  What is the number one thing people change when their financial life improves?  Food.  For example, think back to your college days.  What did you eat?  Whatever's cheapest right.  Now look at what you eat today.  You generally eat what you like and what tastes good.  That exact same thing is happening in China and India today.  No longer are they just eating basic things like rice.  Now they are eating beef and pork.

Now let's go back to the growing population.  The amount of people in the world has grown and will continue to grow.  However, the amount of land that can produce food will not grow and will stay the same.  As a matter of fact, only 14% of the worlds land is arable.

So the amount of arable land per person has dropped dramatically.  That's a scary and sobering picture.  The following chart displays the amount of available land per person from 1750 to 2050.  How are we to fix this problem?

China, which is the world's second biggest corn consumer after the United States, will use 47 times more corn now than it did 10 years ago.  That's an increase exceeding the entire corn crop of Brazil which is the worlds third largest producer.  According to Time Magazine, the average American consumes about 250 pounds of meat a year.  Meanwhile, the Chinese average roughly 100 pounds per year, while Indians eat only 10 pounds per year.

So how are we going to meet this demand?  We need to produce more food in the next 50 years than we did in the last 10,000 years.  By 2050 the worlds population will reach 9.1 billion people, 34 percent higher than today.  Nearly all of the population increases will take place in developing countries.  Income levels will be many multiples of what they are today.  In order to feed this larger, more urban and richer population, food production must increase by 70%.  Annual meat production must rise by 200 million tons to reach 470 million tons.

I hate to paint a stark picture but it is the truth.  The world is growing and the rate at which it is growing will only increase.  To meet the demand farm production must increase.  This creates the increase in prices of land.  Can it be done?  I think so.

How I Learned To Stop Trading And Love The Farm

How I Learned To Stop Trading And Love The Farm

I was thinking about discussing this video in depth.  It is a discussion by Stephen Diggle, founder of Vulpes Investment Management to the Global Aginvesting Conference in Singapore, China back in October 2012.  Then it crossed my mind to just show you the video.  This man is far smarter than I am and it makes for an easy post.  So sit down, enjoy and prepare to have your mind blown.

Farmland Vs. Other Asset Classes

You must be thinking, "Brad, this is all fine and dandy.  But why should I invest in farmland and not put my money in the stock market or other traditional areas."  I would say, good question.  You could do that.  You could do what everyone else is doing in investing.  You could go to the stock market and take a risk that it'll work.  You could go a safer route like large cap stocks, commercial real estate or bonds.  You could do that.  You would make money.  But what if I told you, long term, you're much more likely to see a greater return on cropland than you would on just about any other investing avenue.

Now you may say, "Brad.  I've heard you say the farmland always goes up in price.  How do you know that?  Nothing always goes up in price."  And I would say you are correct.  Cropland has dipped in price once.  But you need a bunch of things to go wrong at once.  And one of them has to be a global issue.  The only time we saw a drop in cropland real estate values was during the 80's.  Two things happened at the same time.  We went into a recession and we put a trade embargo against the Russians.  Why would an embargo against Russia drop prices?  They were our biggest grain exporter.  Once you take your biggest international customer of grains out of the picture, things drop drastically.

"Ok.  So land value almost rises.  But how do I achieve a good return on investment?  Isn't that the whole point of this blog?"  Yes it is.  And here's your answer.  Farmers are often romanticized in the media.  They are often portrayed as simple folk who work 24/7 and only worry about rain fall.  While some of that is true the simple folk thing is dead wrong.  Good farmers are some of the best business men out there.  They understand in today's world they can no longer go out and buy land to farm it on a daily basis.  They instead need to rely on investors renting the land to them.  So to make themselves appealing to investors they have to think like one.  They must make sure the rent on the land not only makes the farmer money but also gives the investor a reasonable return on their investment.  This is why cropland continues to be such a good investment option.  The next two charts will show you how investments in Illinois cropland stack up and the second one will show you how cash rent has risen over the years to make sure investors achieve that return.

Now to tie it all together nice and neat for you.  With the combination of the land value, investors need and cash rent availability, we come up with how you can achieve a return that makes you happy.  When these three things meld together we have a deal.  The final chart brings it all together for you and shows the average net returns in the Midwest over the past 60 years.

Wait! Just one more chart!  ...  Just kidding.

Mail Time!

From time to time I will answer some of the questions that you the readers will send my way.  I received a large inquiry recently and decided now is a good time to do it.

Carl in Omaha, Neb., asks: What type of opportunities exists when it comes to investing in cropland?

Brad: Many. There are different ways to improve return on investment (ROI). If it's just pure cropland you can share crop, cash rent or custom farm.  Different investors are comfortable with different options based on their knowledge of farming.  For example, a novice investor would probably start out with cash rent.  It's simple, the tenant farmer pays on lump sum and the investor knows what they're getting.  After awhile they may change it to share cropping which the investor would then be more involved in day to day operations.  They share the risk and income of the land.  Custom farming can be a varied option that I would only suggest to someone who knows exactly what they're doing and may even want to use a farm management company.  Other options could be to buy land with some timber and water on it to add hunting income off of it.  Or find land that has some conservation reserve program (CRP) as well.

Steve in Leawood, KS., asks: What's the process of identifying good investments?

Brad: I'll try answering that question without giving away all our secrets.  First we would identify what it is you're looking to do with the land.  Then we would scour our database and various websites to see what best fits.  The next step would be to have a local farmer that we trust give it his blessing and say he would like to farm.  The final step would be to match the price of the land with the estimated rental to achieve the highest ROI we can for you.  Now there's much more to it than that but that's the basic laymen terms to it.

Angela in Overland Park, KS., asks: How do you manage our risks?

Brad: This is simple.  We have many farmers that we work with in various areas of Kansas and Missouri that we trust.  They will tell us right off the bat whether the land we are thinking about is worth it or not.  Local farmers are the best way to find this out.  I can run my numbers and soil maps on land all day long and it my look great.  But a farmer is the most trusted way to finding good land.

Jenny in Des Moines, IA., asks: Isn't farmland heading for a bubble much like the housing market did?

Brad: No.  The reason I feel so comfortable about that is most cropland buyers aren't borrowing money to purchase the land.  They are cash buyers.  Often they are people who are fed up with the stock market and are looking to put their money into something that's more trust worthy.  Yes farmland has skyrocketed recently.  And eventually it will correct itself.  And what I mean by that is, instead of jumping up 20% in value it will drop back to increasing 3% to 5%.  Remember, land will almost always be worth more tomorrow than today.  It takes a global event to cause land values to drop.

Derek in Liberty, MO., asks: Are there any unique opportunities around the Kansas City area?

Brad: Yes.  I believe the sweet spot of cropland investing runs right along the Kansas Missouri border.  Is it the best pure cropland you can get?  No.  That's Iowa, Illinois and Indiana (the three I's).  However, if you are an investor, the best bang for your buck is the Kansas Missouri border.  Why?  The price isn't anywhere near the prices you'll see in the three I's.  So you can get more land for less and get a much higher ROI.

Danielle in Leeds, UK., asks: What's the best way to get started?

Brad: I had to answer an international question.  But it's a good one none the less Danielle.  The best way to get started is to contact us and set up an appointment.  Now with you we'll probably have to Skype or conference call but we will make it work.  This way we can find out what it is you're looking to achieve and try to find a deal that best suits your needs.  You can do that by calling us a 913-837-4665 or emailing us at info@ruralkc.com.

"Buy Land They Quit Making It!" ~ Mark Twain

A simple quote from one of my favorite authors.  A simple quote, yet one that speaks volumes.  On the surface it sounds funny and makes you laugh like many of his quotes and sayings.  However, once one thinks about it, it makes perfect sense.  

The question is, what makes something valuable?  Money is valuable.  But too much of it makes it worthless.  Gold is valuable.  But if things really go south it just becomes a paper weight.  Homes are valuable.  But eventually they suffer depreciation.  

Think about it like this.  As a young boy growing up just outside Detroit, MI, I love collecting baseball cards.  I even had a book that would tell me how much each card was worth.  I had varying degrees of cards worth varying degrees of money but never amounting to much.  One thing I did know, and anyone who collected baseball cards knows, the most valuable card was a Honus Wagner card.  

Why is his card so valuable?  After all, he was a good play but not great.  He was no Babe Ruth, Ty Cobb or Mickey Mantle.  What was it that made Honus Wagner's baseball card so valuable?  The scarcity of it. 

Which brings me back to Mark Twain's quote.  There is no new land being created.  Unless you're counting the south east coast of the Big Island of Hawaii.  But that land won't be useful in our life time and for many generations to come.  The fact that the land we have is the land we get is why prices for land will always go up.  Yes from time to time land will take a dip.  But it takes a major international event to make that happen.  I will go into more detail on that in a post later.  But to give you an idea of what I mean, land prices didn't go down during the Great Depression.  That's right.  It stayed the same but never dropped.

So when I hear someone say, "Land is going for more now than it ever did before!"  I'll say, yeah that's true.  And that saying will be true tomorrow because land will be going for more tomorrow than it did today.

To give you a good and final idea of what I'm getting at I'll leave you with a quote from Cropland Investment LLC.  "Like buying gold if it paid a dividend."

Who is This Guy?

Who should I use to help me find the perfect farm for me?  What return on investment can I expect?  Where are the best deals to find?  When is a good time to buy farm land?  Why should I buy farm land and not invest in the stock market?  How can I find a trust worthy farmer?

These are common questions we at Rural Kansas City get from new investors.  With this blog I hope to answer these questions and answer much more.  My name is Brad Gaughan senior partner of Rural Kansas City.  First off I know the most important question going on in your mind is, How the heck do you pronounce that boys last name?  Just to avoid future confusion my last name is pronounced like gone.  Think of it like the more common last name Vaughan.  Just substitute the G for the V and away you go.

 

Now that we have that out of the way, the next question would be, why should I listen to this guy.  For one I have lived all over the Midwest.  From Iowa, Nebraska, Michigan, Kansas to Missouri.  I have worked in the agriculture business for the last five years helping investors find farm land that will make a good return.  And, I’m just one heck of a guy.

The gist of this blog is to inform you of what’s going in today’s farming industry and investing.  I will cover what I think is important and you need to know.  I will do my best to explain things in the farming industry in laymen’s term.  Because, believe it or not, farming information and factors can sometimes sound like a different language.  And I invite you to email me any questions you might have.  And don’t be afraid to ask a silly question.  Odds are someone else sitting in same boat as you has the same questions.  My job here is to inform the uniformed and I truly believe there is no substitute for information.

 

So fire away with any questions and comments and lets have fun exploring different aspects of the farming industry.  And hopefully you come away with a better understanding and become a more informed investor of farming.