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."

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.

Farmland Values Cooling Off

It's upon us!  That long stretch of a dramatic rise in land values is finally slowing down.  According to the Federal Reserve Bank of Kansas City land in Nebraska, Kansas, Wyoming, Montana, Colorado, Oklahoma and Western Missouri have all cooled off.  This could trigger what I believe is a farmland gold rush for buyers. 

How's That? 

Many farmers have been holding on to their land in hopes to selling it at it's highest value well beyond the normal age a farmer does.  Well, those values have peaked, leveled out and are now starting to come back down a bit.  As of now, there are fewer farms for sale on the market.  I expect a dramatic increase here quickly with farms selling at a dramatic pace.  So if you're an investor looking to get in, now is an excellent time to be brushing up and learning about the cropland business.

Where Should I Go?

There are many websites you can go to to learn.  My favorite is Brownfield Ag News.  This is where you can keep up with all things agricultural.  I especially like it has a spot where the commodity prices are constantly up to date.  You can also download and app for your smart phone as well.

Another good place is Farmers National Company.  Here is a one stop shop for all things agricultural and they do an excellent job spelling things out in laymen's terms to better help you understand.  Also, they are the largest farm management company in the United States.  So, find a local manager in your area using there site and sit down and talk with him.  That the best way to learn.

And then finally, talk to a local real estate agent to help you look and make decisions.  Farmers National Company also does this.  Depending on where you're looking I highly suggest Farmers National Kansas City.  If anything, they can help point you in the right direction.

What About a Bubble?

This is a common fear people have.  While it is a possibility it's highly unlikely.  Most farms were bought by cash buyers.  It was rare someone bought a farm with loaned money.  The reason is farmland prices always go up and rarely fall back.  Now we are experiencing a slow down and may experience a lowering in price, but that won't be the trend for long.  As a matter of fact, what will most likely happen is instead of farm prices rising at a clip of 25% per year.  They are more likely to rise at 5% per year.  So there won't be any collapse like the housing market which was primarily driven by debt.

If you wish to read the complete survey by the Federal Reserve Bank of Kansas City just click on the link below.

Fed Reserve of KC Survey

Wheat Exports

Wheat needed a little help to meet what the USDA estimated it would make.  That help came from abroad.  According to Brownfield Ag News for America Egypt bought 60,000 tons of US soft red winter out of 300,000 tons.  Japan bought 29,000 tons of US dark northern spring and 20,800 tons of US hard red winter wheat.  South Korea's Nonghyup Feed Inc. bought 65,000 tons of optional origin feed wheat and Jordan purchased 50,000 tons of optional origin wheat.

Also, according to Reuters, Strategie Grains lowered its 2014 European Union soft wheat production estimate to 137.7 million tons.  Up 2% from 2013, but down from the 138 million tons estimated in December stemming from concerns about the crops in Great Britain and Bulgaria.

Fundamental Puzzle Pieces In The Market

What Are The Fundamental Players In The Commodity Market?

There are three things to think about when look at the commodity prices when it comes to farmland.  US supply, US demand and the US economy.

US Supply

This is production and potential production.  Both have an affect on the market.

US Demand

A good example of this is ethanol.  That has become a very popular source of fuel recently and has really driven then corn demand in this country.

US Economy

As long as the U.S. dollar is strong so will the marketplace for US crops abroad.

Corn is the Market Leader!

With the strong push for ethanol corn has exploded on the US market recently.  It should continue to do so for the foreseeable future.

Weather Will Always Trump!

With all these things that go into what affects commodities, nothing affects it more than the weather.  Keep an eye on the forecasts in the area of your farm.  If you truly want to know what the future of commodity prices are just look to the sky.

Piecing Together a Commodity Marketing Plan

What Affects The Market?

A handful of things really affect the commodity market.  

USDA Reports

USDA reports can really dictate what the next year or so could look like for the farming business.

Foreign Economies

For example, what happens in say Greece with all their economic woes can affect commodities we export out.  Also, China is a big exporter for us.  If that economy falls apart we would feel it as well.

Managed Commodity Funds

The market will react to these as well.  These are really where we see the numbers and how the prices in the market will be adjusted.

World Events

To really truly hurt the farming market a global event has to take place.  Such as an embargo or a third world war.  But little ones like economic woes of Europe can be felt here.

Weather

A few years ago we went through a pretty long drought.  It was actually getting scary.  But like most things the weather came back to the median.  However, that drought really affected prices.  Drove them through the roof.  So weather is something to keep an eye on when thinking about the market.

A Farm Gold Rush Is Coming!

Farmers Are Getting Older

Are farmers getting older?  Yes they are.  Why is that?  It's not what you think.  Farmers are getting older but it's not because they have to keep working.  They are sitting on a gold mine and they know it.  Farmers are getting older because they see the prices skyrocketing.  Analysis predict at some point prices will drop back to normal rates.  Instead of raising 20% each year, in the next couple of years we should see prices raise around 5% each year.

So, what does this have to do with farmers getting older?  They see the same thing we do.  Many farmers are waiting to see where this ends.  They want to cash out at the highest possible rate they can get.  And that is coming soon.  A farm gold rush may be upon us in the next few years.  

What will that do to the market?  It should become highly competitive.  Which could spell good news for buyers.  When there is a lot of inventory in the market, sellers will compete for buyers.  That day may be coming soon.

Sounds Like a Bubble

Now I understand that this sounds familiar to some of you.  The idea of more inventory than buyers sounds a lot like the housing market bubble burst.  However, remember most farmland is being bought cash.  For a bubble like the housing market to exist you need it to be driven by debt.  And for the farmland market to crash we would have to have a global event take place like the embargo against Russia in the early 80's.

So a farmland gold rush is coming!  This I have no doubt.  Be prepared.  Be informed.  We can help you with that.  Call us at 913-837-4665 or email us at info@ruralkc.com.  Talk with one of us and get on our email alerts to stay up to date.  Don't be left behind.  Because the farmland gold rush is coming.

Should We Be Concerned About A Bubble?

What Causes Farmland To Drop In Value?

Farmland rarely drops in value.  It has, on average, gone up in value by 3% to 5% each year.  Recently it has jumped as high as 25% per year.  This has raised a fear of a bubble much like what happened to the housing market.  Will farmland continue to rise 25% per year in value?  No.  Odds are it will go back to normal rates and raise in value of 3% to 5%.  In the past 100 years farmland has dropped in value only three times.

First time was the great depression.  Everything fell then.  Nothing in this country was safe.

The second time was 1980.  It dropped five years straight.  The reason was farmland was driven mostly by debt.  Much like the recent housing market collapse was driven by debt.  Also. during that time we put a trade embargo on Russia.  Commodity prices dropped due to this.  So the combination of debt driven land and the Russian trade embargo led to this drop in value.

The third time was 2008.  That due to fear from what happened at the beginning of the recession.  That only lasted one year.  Since then value has skyrocketed because many investors looked to safer investments to the stock market.  So land was being bought cash and rarely bought with credit.  The charts below explains this well.

Let's compare farmland to another popular asset.  Let's take gold for example.  You hear about how gold is the way to invest.  One issue is, what is gold if everything does collapse?  Pretty much a paper weight.  Farmland is something useful.  Because, no matter what, we are always going to have to eat.  Since 1919, farmland has cost approximately 2.4 ounces of gold per acre.  This year, the ratio nationwide is 1.6 ounces per acre.  I'll leave you with a couple quotes that back up this claim.

"The time to worry is when debt financing on farming is growing more rapidly than prices, and we aren't there yet."  David Merkel.  The Economist.  April 10, 2011.

"Land Bubble?:  There is data circulating that "78% of Iowa farmland is now owned debt free."  The data is from "2012 Iowa Farmland Ownership Survey."  From my perspective this decreases the amount of land that will be sold in panic if crop prices drop or profitability tightens.  Further backing up my belief that we are not on the cusp of bursting the so called "Land Bubble."  Van Trump Report June 11, 2013.

"Unlike the last bust of the 1980's, farmers' debts are also low relative to their assets.  Fertile land is not a crowded trade.  Managers say they believe that less than 1% is held by institutional investors, with cash rich farmers bidding for the rest.  In some states such as Iowa, institutional ownership is banned."  The Financial Times May 2013.