Bookmark this page, and visit often to stay up-to-date in the world of agricultural real estate.
Email us at loranda@loranda.com
THE INCREASING TREND OF ABSENTEE LANDLORDS
March 11, 2010 - Of those of you out there who cash rent land, do your landlords live in the area or do they live out of the county or even the state? A recent article in The Progress Report takes a look at studies done by Iowa State economists on cash rent payments in Iowa and where those payments are ending up. (Read the article, The Flow of Money From Rented Land in Iowa) Are the rent payments going to the landowner who lives across from the farm or to the one who lives halfway across the country?
What they found is that nearly a quarter of Iowa landowners who are receiving cash rent live outside the state of Iowa. In some of the more fertile counties, such as Kossuth Co., this meant that roughly $13 million dollars left the county last year in the form of cash rent payments. Is this a bad thing? Not necessarily. As society has trended towards more urban living over the last 50-60 years, it only makes sense that there are going to be less and less farmland owners that live in the area as farms are handed down through the generations.
What is important is that tenants and landlords stay in communication, whether they live 2 miles from each other or 2,000 miles. As with anything, an open channel of communication will make doing business much easier.
I will go back to the question I initially asked. How many of you farmers have landlords that live in another state? What is your relationship like with them? How about landowners that are reading this. Do you own ground in a state other than which you live in? Are you happy with the level of communication that you have with your tenant? Let us know at eric@loranda.com.
AN UPDATE ON THE FUTURE OF CRP
March 2, 2010 – Back in December (12/23/09) we posted a blog entry on the history of the Conservation Reserve Program (CRP), along with a link to a Farm Journal article that discussed some potential changes to the popular 25 year-old program. At that time, there was debate as to the future of the CRP program.
Well, the future of CRP appears to be taking shape. Specifically, U.S. Ag Secretary Tom Vilsack recently announced an expansion of the program designed to attract protection for, and expansion of, acreage suitable for ducks, quail, and pheasants – among other initiatives. To read more about the announcement, check out the February 28, 2010 article published by the Des Moines Register (click here to read the article).
What do you think – is CRP a good place for the Federal government to continue allocating funds? Send me an e-mail at doug@loranda.com to let me know your thoughts.
THE EVOLUTION OF THE FARM LEASE
February 23, 2010 - One of the most interesting changes I’ve seen since I’ve been involved with Illinois and Indiana farmland involves the farm lease. Thirty years ago, the vast majority of the farm rental arrangements were based upon a sharing of the crop and the crop expenses. Fifteen years ago, the cash rent lease became more prevalent, as farmers were willing to assume more risk in their operations. This type of agreement appealed to many absentee investors as they no longer had to write checks for crop expenses or worry about marketing their grain, plus they knew exactly how much they were to receive each year.
The volatility we’ve seen in the grain markets the past 3 years is creating the need for another type of lease – the flex lease. This lease type is not new – there have been variations of it around for several years. Essentially the flex lease tries to incorporate the aspect of the cash lease that landlords found appealing (no expense checks to write and a guaranteed payment amount) with the revenue sharing aspect of the crop share lease (when grain prices go up or when yields are exceptional, the rent can go up). All this is accomplished by setting a floor rent that the farmer is willing to pay for the land, and then incorporating a formula that calculates a bonus based upon crop prices, actual yields, or both. Sometimes the formula is simple, and sometimes it’s quite complex. A recent article (Creating A Flexible Farm Cash Rent Lease) written by two Kansas State University Agricultural professors details the process that many farmers and investors are going through to try and establish an agreement that is fair, given the changing conditions in farming.
I’m confident that in the not too distant future we will see leases for farmland properties evolving again. If you have any thoughts regarding this issue, please email them to loranda@loranda.com
THE DEMAND FOR FARMLAND
February 17, 2010 - As we have discussed here in previous entries, farm values van vary widely across the Midwest, across states & counties, and even across townships. 160 tillable acres in east-central Illinois is typically worth more per acre than 160 tillable acres in southern Illinois. Obviously, the biggest difference between these 2 regions is soil types, which determines how productive the farm will be and how many dollars can be pulled from it. However, other factors such as weather patterns, local buyer strength, etc. also play roles in determining the value of a property.
While farmland buyers have always placed a premium on Class A farms, the past few years we have seen this premium become even greater. When looking at farmland value trends across a region, it is important to remember that there are many micro-markets inside these regions. While the land prices in a region may appear to be holding steady, a closer look may reveal that the poorer farms have decreased in value while the larger, more productive farms have increased in value.
A recent article in the Sioux City Journal describes just this scenario, except in Iowa instead of Illinois. The article (here) discusses some recent land sales in Iowa as well as trends in various counties. According to the author, some counties in Iowa experienced gains in values as high as 4+% in the last year, while other counties saw declines in value of more than 6%.
So when you are trying to get a handle on what this market is doing, and what your farm may be worth, it is important to look at the sales in your immediate area. That will give you a reasonably good idea of what to expect out of your property.
Do you have any thoughts on the premiums being placed on the top farms? Curious as to what farmland values are doing in your specific area? Feel free to email me at eric@loranda.com.
Source: Sioux City Journal
NO 2010 ESTATE TAX - HEARTBURN OR PARTY TIME?
February 9, 2010 – You’ve no doubt seen that a lot of attention has been paid to the recent Congressional discussions focused on health care, unemployment, and job creation. However, a topic you may not have seen much about is the fact there is no estate tax on death during 2010! No doubt, the “management” of death for individuals and families of wealth has been an important one for a great many years. In 2009, for example, individual estates had an exemption of $3.5 million in value from estate taxes. And for those who inherited property in 2009, the assets that they received were given preferential tax basis treatment with the automatic “step-up” in tax basis – essentially a forgiving of the capital gain that had occurred during the life of the party who passed the asset to their beneficiary. So with no limit on the size of estates in 2010, and no tax, this must be a great deal, right?
Not so fast. As Marcia Zarley Taylor, DTN Executive Editor, recently wrote, the expiration of the previous tax law is causing some unintended consequences – and major heartburn for tax and estate planning specialists. To read the article, click here. If nothing is done about this issue by Congress in 2010, the estate tax exemption in 2011 will revert back to $1 million in value – from an unlimited dollar value in 2010. And as Ms. Taylor implies, it doesn’t take too many assets in today’s world to race through the $1 million in value exemption. That said, many who thought they were insulated/safe from estate taxes could be caught in the crosshairs in 2011. In addition, while the size of estates is unlimited from estate taxes in 2010, the preferential “step-up” in basis tax treatment is no longer in play – so beneficiaries have a lot more to think about, and do, if they plan to sell capital assets that they inherit in 2010, as capital gains could be significant. And you thought the grain markets were suspect to volatile swings! It seems that tax and estate planning circles always assumed that Congress would act to ensure some consistency at the expiration of this part of tax law – but so far it appears little has been done.
So what do you think – should Congress do anything moving forward concerning the tax treatment for estates? What do you think their inaction could do to the land market? E-mail me at doug@loranda.com with your thoughts.
Source: www.dtnprogressivefarmer.com
THE 2011 FEDERAL BUDGET AND ITS IMPACT ON AGRICULTURE
February 3, 2010 - The Obama Administration just released its proposed federal budget for the 2011 fiscal year starting October 1. While the details are still being analyzed, the most staggering figure is the $3.8 trillion in total spending. This includes an increase for programs that will help stimulate job growth; a freeze on discretionary spending for the next 3 years (which includes many USDA programs); an elimination of many tax preferences for industry; and a myriad of new taxes on wealthy individuals and corporations.
In the past, farm programs were often considered untouchable. With government deficits now running rampant, this may be the year when certain USDA programs are scaled back or eliminated altogether. A quick summary of what may lay ahead for agricultural can be found on the University of Illinois' “The Farm Gate” website here: (USDA's New Budget Proposal) .
I think the average American is beginning to realize that unbridled government spending has severe long-term implications. Hopefully, the federal government will heed the call to quit spending money they don’t have.
Please share your thoughts by emailing us at: loranda@loranda.com
2010 OUTLOOK FOR ETHANOL
January 26, 2010 - The last 18 or so months have been a bumpy ride for most ethanol companies and their investors. Many of the ethanol plants that were scheduled to begin construction were put on indefinite hold and some of the larger ethanol production companies have been staring down bankruptcy. That being said, the fuel remains a viable alternative to gasoline and many are predicting 2010 to be better year for the industry. A recent article in The Des Moines Register offers speculation on where ethanol demand may be headed this year.
The U.S. Energy Information Administration recently speculated that as the economy continues to recover in 2010 the demand for all fuel, including ethanol, will climb. Also, new state and federal regulations are taking place this year which will require more biofuel production...and even more strict guidelines could be on the horizon.
Being involved in the ethanol industry the last few years has not always been a smooth ride...for everyone from the farmer to the production companies. Let's hope that the analysts are correct and that 2010 will show a correction in direction for this industry.
Read the entire Des Moines Register article here.
What are your thoughts on the state of ethanol? Are you optimistic for a turn around for 2010? Let us know at eric@loranda.com.
DEBT AND OUR ECONOMY
January 18, 2010 – I hate debt. But I’m not naïve. I know and recognize that in some very capital intensive businesses (like production agriculture), properly managed debt can be a part of the equation that makes a successful enterprise. However, I think a great many people see debt as a means to get what they want sooner than they should be afforded. From my view, folks in this category often get themselves into trouble in the longer-term because of poor decisions and planning. In my opinion, such is the case at the present time with our state and federal governments. I’m not writing to make any judgment as to the quality/usefulness of the programs that have recently been funded, or those currently being funded with our tax dollars. However, I do see a train-wreck coming in future years, and to future generations, because of our current state of debt-financed spending and a lack of making difficult choices in what will be funded by our tax dollars.
Every household in America (and the world) knows it cannot indefinitely spend more than it makes. And those who argue that the government is the only entity that can “afford” to over-spend simply don’t seem to understand where tax revenues come from – that is, the collective group of households and businesses. When households and businesses are required to pay more tax to cover excessive spending, the tax-paying base will tighten its belt and budget to spend less in order to afford the extra tax they are expected to pay. Over-spending by a household, business, or government is simply an unsustainable long term trend.
What does all of this have to do with agriculture, and more specifically, the land market? Macro-economic forces. Put simply, the overall health of our economy dictates the ability of consumers to pay for the goods produced by agriculture and other productive industries. In eras of heavy debt financing, inflation of currency has often followed, which then spurs an increase in interest rates to hold inflation in check. Ask anyone who survived the 1980’s in agriculture what the key to their survival was, and you’ll often get an answer like “I wasn’t too heavily leveraged with debt when the good times broke.” And remember, it was a short 10 years between the “good times” of the mid-1970’s and the pain of the mid-1980’s.
DTN Editor-in-Chief, Urban Lehner, recently wrote an editorial that discusses “What the Government’s Debt Means for Agriculture.” To read the article, click here. While I recognize that agriculture has been on a remarkable roll in recent years, I think it is prudent to absorb what’s going on in our greater economy when making decisions in both our households and businesses.
We're always interested in your comments - e-mail me at doug@loranda.com to let me know your thoughts.
BIG MONEY MOVING INTO FARMLAND
January 13, 2010 - In the past few months, there have been several stories written about the influx of institutional funds into the farmland market. While the motivation of the investors may vary - from the desire to profit on the rise in commodity prices; to capitalizing on the increasing food demand from India and China; to the need for a hedge against future inflationary pressures … the common thread in all these funds is the optimistic belief that land values will continue rising in the future. This phenomenon isn’t just limited to the U.S….funds are forming and actively seeking land in South America, Australia, and Europe as well.
The 12/29/09 article in Crain’s New York Business (New York Investment Firm Gaga for Green Acres) reflects the thoughts and attitudes of many of these major players. Whether their gamble will pay off is yet to be determined. Regardless - the new money flowing into this sector will likely help support land prices for the next few years.
We’d like to hear your thoughts. Contact us at loranda@loranda.com
SORTING OUT FARM LOANS
January 5, 2010 - In our post on December 29th, we discussed ag loan rates. Keeping with the ag loan theme, let's discuss a recent article posted by DTN/Progressive farmer that deals with the troubles that some operators are having with existing loans. The article, click here to read, explains that loans that are going into mediation have increased greatly from 2008 to 2009 and look to be increasing again as we head into the new year. The livestock sector has been hit the hardest, as their overhead and operation costs are higher than a row-crop producer.
Where does this leave borrowers for 2010 and beyond? The author speculates that many older producers will get out of farming all together, rather than dip into savings and retirement plans to keep their operations going. While some livestock operators saw their losses partially balanced out by a productive crop year, in many cases they are still came up short.
What are your thoughts on ag loans and where they may be headed? Share your thoughts with us at eric@loranda.com.
Source: DTN/The Progressive Farmer
A COMMENT ON AGRICULTURAL INTEREST RATES
December 29, 2009 – If you’ve recently borrowed money to buy a home, you know that interest rates remain near all-time historic lows (e.g., 5% for a 30-year mortgage!). Some people not involved in the agricultural sector may also assume that ag lending rates are at or near those same remarkably cheap levels. However, the facts show that this is not the case at the current time.
DTN Progressive Farmer recently published a snapshot of agricultural lending rates, provided to them by Farm Credit Services of Mid-America. To see the report of recent interest rates charged for both real estate and operating capital, click here.
As you will see, long-term (e.g., 10+ years) money borrowed for an agricultural real estate mortgage has recently been more than 30% more expensive than that for a conventional home mortgage. Why? The answer stems from our government’s support for and purchase of more than a trillion dollars in housing-related mortgage backed securities during 2009 and into 2010 (to read more about the Fed’s actions, click here). The financial support given to support the troubled housing market does not appear to be prevalent in the ag sector.
That said, ag sector lending rates – just like those for home mortgages – do remain near historic lows. However, that may change. In summation of a conversation I recently had with an ag lender, “rates only have one way to go, and that is up.” And as the Federal Reserve attempts to feather its way out of providing tremendous support for the U.S. housing market in the next year and beyond, it will be interesting to watch the spread differences between home rates and those for ag loans.
What’s your opinion – should the government continue to support the U.S. housing market? If so, is the ag sector being short-changed? Send me an e-mail at doug@loranda.com to let me know your thoughts.
THE FUTURE OF THE CONSERVATION RESERVE PROGRAM
December 23, 2009 - This past fall, the USDA sought public comment on the future of the Conservation Reserve Program (CRP) – what changes should be made in terms of eligibility, payment rates, etc. That got me wondering about the history of the program (it seems like it’s been around for a long time), so I checked Wikipedia and came up with the following…
The program originally began in the 1950’s as the conservation branch of the Soil Bank Program which was enacted by the Agriculture Act of 1954. The theory behind the branch of the Soil Bank Program was to focus on lands that were at high risk of erosion, remove them from agricultural production, and establish native or alternative vegetative cover in an effort to counteract actual or potential erosion. This was considered by proponents to be beneficial to agriculture generally, by lessening the effects of erosion. Originally the program called for three-year contracts in which the government would pay for land improvements that increased soil, water, forestry, or wildlife quality if the farmer would agree not to harvest or graze contracted land.
Although the roots of the program were established in the 1950’s, advocates did not start pushing the program heavily until the 1980’s, in response to more prevalent practices in the 1970’s whereby farmers increasingly began to cultivate “fence row to fence row”, and remove native habitat and vegetative stands from the fields, which was perceived as having detrimental effects on soil, water, and habitat quality. Many programs would be established in the 1980’s to address these issues.
With most government programs, the costs begin to escalate over the years and it evolves into something that it was never intended for. Yet personally, I feel that CRP has accomplished many of its original goals – it’s taken fragile land out of production that probably never should have been tilled in the first place, and it’s improved wildlife habitat. In addition, having acres out of production mean fewer bushels to sell and higher crop prices (good for the grain farmer, not so much for livestock producers). Farm Journal has a nice article this month that frames the debate (Changes Loom for CRP).
Have your own thoughts regarding the Conservation Reserve Program? Send them to loranda@loranda.com.
DECEMBER NEWSLETTER
December 16, 2009 - This week we will be sending out the December edition of our newsletter, Land Facts. We cover many different topics in this year-end edition including:
- The state of the farmland market over the course of this past year and where we may be headed in the future
- A quick look at the recreational land market and its status
- The historical performance of the Illinois farmland market
- A look at the decrease in the number of recent farm sales and what may be causing this decrease.
If you are not already on our mail list to receive a hard copy directly to your mailbox, and would like to be added, please email us at eric@loranda.com.
Do you have any thoughts on any of the articles contained in the newsletter? We would love to hear them. Send us an email at eric@loranda.com.
FARM AUCTION RESULTS
December 11, 2009 - On Thursday, December 10th, we conducted an auction of 83 +/- acres in southwestern McDonough County, IL. The property was offered in 2 tracts and presented bidders with both tillable farmland and woodlands. Tract 1 featured approximately 30.9 tillable acres of Class B/C soils; Tract 2 featured approximately 38 tillable acres situated in 3 tillable fields. Active bidding was present on both individual tracts, and the whole farm. Ultimately, the whole farm bidder prevailed. The final sale results were:
Tract 1 + 2 (83.55 Acres) - $265,000 or $3,171.75 per acre.
To download more details from the auction, click here.
FARM AUCTION RESULTS
December 7, 2009 - This previous Friday, December 4th, we conducted an auction of 217 +/- acres in southern LaSalle County, IL. The property was offered in 2 tracts and presented bidders with tillable farmland, pasture/woodlands, and a creek. The final sale results were:
Tract 1 (93.08 Acres) - $390,000 or $4,189.94 per acre; B/C Soils; FSA considered this tract to be mostly tillable land, although 22 acres had been enrolled in CRP previously and were not in production at the present time;
Tract 2 (124.69 Acres) - $590,000 or $4,731.73 per acre; A/B/C Soils; 69% Tillable, with the balance in pasture/woodlands, and divided by a creek.
The overall price for the entire 217.77 acres was $980,000, or $4,500.16 per acre.
Click here to download more details from the auction.
LAND PRICES STABILIZING?
December 2, 2009 - The Federal Reserve Bank of Chicago just released the November issue of their Agricultural Newsletter (Fed Ag Newsletter). This quarterly publication summarizes survey responses from agricultural bankers in the region. A few notable highlights include:
1. Land values in the third quarter increased 2% across the Seventh District (IL, IN, IA, MI, WI). The biggest increase was in IA (+4%), while a drop of 1% was seen in WI & IN.
2. On average, land prices are still 4% below the levels of a year ago.
3. Agricultural credit conditions are weaker than a year ago, especially in the livestock areas. An increase in the number of forced liquidations in the livestock industry is expected in 2010.
4. 69% of those surveyed expect land values to remain stable for the near future, with 27% expecting continued weakness.
Much of the Fed’s information correlates what we’ve been seeing in our business, though I think land values may be stronger than what some of the bankers are forecasting. Personally, I think there is still a lot of “hold over” profits from 2006 – 2008 and farmers won’t pass up the opportunity to aggressively bid on a tract of land that is close to them.
We would like to know your thoughts. Feel free to send them to: loranda@loranda.com
FARM AUCTION RESULTS
November 24, 2009 - This previous Friday, November 20, we conducted an auction of 120 acres in northern Christian County, IL. The property was offered in 4 tracts and presented bidders with many different features from quality tillable farmland to a small wooded home site. The final sale results were:
Tract 1 (75.7 Acres) - $470,000 or $6,208.72 per acre; This tract consisted of nearly all-tillable land
Tract 2 (4.3 Acres) - $25,000 or $5,813.95 per acre; This tract featured a small, wooded tract ideal for a home site
Tract 3 (17 Acres) - $72,000 or $4,235.29 per acre; A nearly all-tillable tract
Tract 4 (23 Acres) - $72,000 or $3,130.43 per acre; A combination of woods, a creek, and timber that would be great for recreational activities.
The overall price for the entire 120 acres was $639,000, or $5,325 per acre.
Click Here to download more details from the auction.
TROUBLE ON THE HORIZON?
November 17, 2009 – It’s been quite a while since widespread “financial blood” has flowed in the streets of agriculture. Very high (and well publicized) profit levels – brought on by strong corn, soybean, and wheat prices in recent years – have most grain farms in a relatively healthy condition financially. However, the same cannot be said in the livestock business. Livestock operators – and especially pork and dairy producers – have been suffering significantly in recent months and years because of poor profitability brought on by a myriad of factors including higher grain prices, which translate into higher feed costs. As a recent article by DTN points out, even “efficient, well-established operations” are being brought down by financial distress. To read the article, click here. How this might impact the agricultural industry in general remains to be seen. However, livestock producers are still one of the largest demand sources for grain – and if that demand source stumbles, it brings into question the trickle-down effects for grain prices, and grain farm profitability.
Are the financial struggles in the livestock sector a sign of things to come for cash grains? I’d like to hear your opinion – e-mail me at doug@loranda.com with your thoughts.
Source: DTN
OUTLOOK FOR 2010 CASH RENTS STILL UNCERTAIN
November 10, 2009 - With harvest dragging into November and with the Midwest still getting soaked with rain showers, 2010 cash rents are probably not the first priority for a lot of farmers right now. However with Thanksgiving only 2 weeks away, the 2010 planting season is going to roll around before we know it. Throughout the fall, we have posted several discussions about where experts think the 2010 cash rent market may end up at. In a recent article on FarmWeekNow.com, University of Illinois Extension farm management specialist, Gary Schnitkey, weighs in with his opinion.
In the article, Schnitkey admits that setting 2010 cash rent levels is going to be tricky. Schnitkey suggests that even if commodity prices are higher in 2010 than they were in 2009, they will still be below 2007/2008 prices - which was when many of the multi-year current cash rent contracts were locked in. Schnitkey goes on to say that when taking estimated commodity prices into effect, one would assume that cash rents would decrease, however Schnitkey thinks we will more than likely see rents remain stable in 2010.
To read the entire article, click here.
Farmers and landlords - have you locked in your cash rents for 2010? In what direction are you seeing rents move? Let us know at eric@loranda.com
Source: www.farmweeknow.com
HARVEST PROGRESS SLOWEST IN YEARS
November 3, 2009 - As if the wet spring weather wasn’t frustrating enough for many Midwestern farmers, now we’re having one of the wettest falls on record. Unfortunately, wet harvest conditions create more than just ruts in the fields. It also creates mold, fungus and other diseases that can impact the quality of the crops. And don’t forget an increase in field loss (good for wildlife, not so good for the bottom line), a substantial increase in drying costs, and finally - an increase in blood pressure. All in all... not the most ideal scenario.
If there is a positive in all of this, grain prices have recovered lately: Commodity Prices Moving Up. This should provide farmers and landowners an opportunity to catch up on some sales that they may have missed out on earlier in the year. It may be a slow and tension filled harvest, but it will get done eventually and farmers may end up with more dollars than they had expected.
How will this impact land prices? I think it will support prices in most areas, once the bins are nearly full. I think we will continue to see a real divergent marketplace – large tracts that are well drained and easy to farm will command a premium. And farms that are traditionally wet and difficult to operate will be discounted. It’s really not that much different as in the past - it’s just the price spread between the “A” quality and the “C” quality will be exacerbated. 2009 is the year when you can really see the impact of timeliness and farming efficiency on the bottom line.
Feel free to send your thoughts to loranda@loranda.com.
CAN FEDERAL STIMULUS DOLLARS MAKE THE WIND BLOW?
October 27, 2009 – The quick answer to that question is obviously “no”. But the government can create incentives for new "wind farms" to be built. Case in point - the federal government is attempting to renew investment interest in certain areas of our economy, including wind energy, by giving new, "stimulus" bill funded, cash rebates and tax incentives to those who are involved in project development. And based on a recent report from www.agweb.com, the big boys of Wall Street finance are starting to play again. To read the full article, click here. The only question I have is this – are their new wind energy investments are being made with money they were given from the TARP program?
Do you have experience with, or an opinion about, wind energy projects? If so, send me an e-mail to doug@loranda.com to let me know your thoughts.
POSITIVE OUTLOOK FOR CROP PRICES IN 2010?
October 20, 2009 - The last 12-15 months have probably seemed like a rollercoaster to those who follow the grain markets. In the fall of 2008 we saw a dramatic decrease in commodities prices from the spring and summer of 2008. Since early January of this year, prices have continued to fluctuate with a wet plating season and now a wet fall. Despite the weather, experts are still projecting close to a record-breaking crop year for corn and soybeans.
With the 2009 crop year starting to wrap up, many are starting to turn an eye towards 2010. In an recent Bloomberg article, chief economist for Deere & Co., J.B. Penn, stated that he believes that farmers could see an uptick in commodities prices in 2010. The main reason for his optimism is the growing demand in Asia, Africa, and the rest of the world for crops to manufacture fuel and feed livestock. According to the author, the United Nations expects worldwide food demand to increase by 70% in the next 40 years.
Read the entire Bloomberg article here
What are your thoughts on the growing worldwide demand for food? How do you think it will affect the commodity prices here in the U.S.? Send us your thoughts at eric@loranda.com.
Source: Bloomberg.com
NUMBERS DON'T LIE...
October 6, 2009 – I’ve always been a fan of statistics. They can tell us a lot about the strength or weakness of markets, both in the short run and over the long term. Some might argue that farmland market statistics aren’t the most exciting topic in the world – however, by studying these numbers we can speculate about where we might be on the “curve of the market”. Average Illinois farmland values, for example, have gone up 61 years and have gone down 7 years since the year 1940 – that’s according to the USDA/NASS annual study. That’s a pretty good record! And by looking at the details of the statistics, we can also see that the past 4 years (2005-2008) have been one of the best runs in land value appreciation we’ve ever experienced – second only to a 6-year run of double digit appreciation in the mid-late 1970’s. I think we all remember what happened soon after the run-up of the 1970's! So... are we now at the beginning of another correction? Take a look at the numbers for yourself by clicking here. And e-mail me at doug@loranda.com to let me know where you think land values are headed.
Source: University of Missouri Extension
GLOBAL OUTLOOK ON FARMLAND AS AN INVESTMENT
September 29, 2009 - Many of the articles we post deal with the farmland market in the cornbelt states. However, it is also important to get the views from outside of the Midwest and even outside of the U.S. A recent Reuters article take a look at the investment of farmland and where it may be headed in the future. The author, who spoke with various investors and farm operators throughout Canada, speculates that as the demand for high-protein diets increases world-wide, that the demand for farmland will continue to grow.
This is not the first time we have read this speculation on farmland being a good long-term investment. What is your opinion? Will worldwide demand for corn, soybeans, etc. continue to grow, bringing the demand for farmland (and farmland prices) along for the ride? Let us know at eric@loranda.com.
Read the full article, here
A PIONEER IN AGRICULTURE HAS PASSED AWAY…
September 22, 2009 - I would be remiss if I did not mention the passing of Norman Borlaug last week. In case the name is not familiar, Borlaug was dedicated to using science to combat world hunger. It’s been estimated that the techniques he implemented to improve wheat yields have saved over 1 billion people from starving in Asia, Africa, and South America.
Borlaug, a Midwesterner, won the Nobel Peace Prize in 1970 and created the World Food Prize. He’s been widely credited as the father of the original “Green Revolution”. Though controversial in some circles - he advocated biotechnology and the crucial role he saw for it in feeding and enhancing the nutrition of those still in tenuous food security situations - everyone involved in agricultural production and consumption owes a debt of gratitude to this man.
To learn more about his accomplishments, visit this web site: Norman Borlaug, or simply Google his name. Feel free to share your thoughts by emailing us - loranda@loranda.com
THE EASY (BORROWED) MONEY IN AG IN GONE
September 15, 2009 – It is always interesting to watch the expansion and contraction of a marketplace. For example, when corn prices are high, producers are incented to produce more corn because of the higher prices, which in turn leads to lower corn prices as more supply becomes available. Sure, there is always a lag time between expansion and contraction, but a true market will generally work in this manner every time.
The same can be said in the agricultural lending market. And in 2008, many ag lenders (and farm producers) got their full dose of "butterflies" from the roller-coaster ride of the credit markets - and the fact is that a good deal of money was at more risk had been than previously envisioned. That memorable ride has translated into a tougher lending environment in 2009, and as we move into 2010. DTN Editor, Macia Zarley Taylor, recently wrote a column describing the state of affairs in ag lending. Given the strong overall health of the ag sector, the report may surprise you. However, the signs are clear that if you intend to borrow money, now is the time to get your financial house in order. To read the article, click here.
What’s your take – are people paying attention to these types of reports/warnings? Is your lender preparing for a period of economic stress by tightening loan standards, and more specifically pricing risk? Let me know by writing me at doug@loranda.com.
A LOOK AT LAND PRICES & CREDIT AS WE HEAD INTO FALL
September 8, 2009 - In its recently released Ag Letter, the Federal Reserve Bank of Chicago took a look back at farmland prices from the second quarter and where they may be headed as we progress towards harvest time. While values as a whole declined across the 7th District (3% decline form the second quarter 2008), the value of good farmland remained stable. Looking forward, the majority of the lenders that the author spoke with predicted that farmland values would remain stable in the third quarter as farmers gear up for what should be a bountiful harvest in most areas. The USDA is predicting the second largest corn crop and the largest bean crop in history...that is if we can avoid an early frost.
The author describes that many Ag lenders are experiencing some of the same problems that other sectors of the economy are going through. According to the lenders that were polled, loan repayment rates were down and renewals and extensions rose from the same time period in 2008.
To read the entire Ag Letter article, click here.
Does the decrease in land values correspond with what you have seen at recent sales? What are crop yields expected to be in your area? Let us know at eric@loranda.com
Source: Federal Reserve Bank of Chicago
TOUGH ECONOMIC CONDITIONS EXTENDING TO THE FARM?
SEPTEMBER 1, 2009 – The economic recession that has gripped this country, and the world, has been well publicized in the media. Daily (if not hourly) updates on unemployment numbers, home sales, and bank failures can be seen everywhere. In addition, we are inundated with press reports and news briefings on what the government has been doing to help “solve” the problems of the financial, insurance, and automotive industries.
One industry that had been notably absent from the gloom and doom discussions is agriculture. Until now… On August 28th, the Wall Street Journal wrote an article that described some of the deteriorating conditions in the countryside (Financial Troubles on the Farm). Not all commodities have been affected the same. Dairy and hog producers are having some of the worst problems at the present, while sugar producers expect a record year. Grain farmers will soon realize how much lower grain prices have impacted their bottom lines, and in some cases it may not be pretty.
The experts in Washington say that the recession will soon be over. Let’s hope that the agricultural sector is included in this recovery. Stable input costs, stable commodity prices, and stable land values will be the most notable signs that the countryside is back on its feet.
Send your thoughts to loranda@loranda.com
ANOTHER BIG CROP IN 2009?
August 25, 2009 – If you are like me, every year when you are out-and-about you pay attention to how the crops look. These types of “windshield tours” can never tell you everything about how crops are going to turn out, but they can give you a bit of an indication of likely success for a crop year from one area to the next.
Fortunately, there are also some relatively scientific crop tours that occur every summer – one of which is the Pro Farmer Midwest Crop Tour. This year’s Pro Farmer tour just concluded late last week, and the findings were clear – Iowa and Nebraska have the potential to harvest huge corn crops, and areas east of the Mississippi River are likely to be steady to slightly lower than the 2008 crop. The still-present danger for the entire Midwest is an early frost or freeze, which would be devastating to yields in many crop producing areas because of the late planting dates and slow development all summer long as a result of cooler than normal conditions. To hear a report of the crop tour for yourself, click here.
What do you think – did Pro Farmer get it right in reporting their findings for crop potential? Send me an e-mail at doug@loranda.com to let me know how crops in your area will fare.
Source: www.agweb.com
2010 CASH RENT OUTLOOK
August 19, 2009 - In our post on August 11, we examined the USDA's 2009 summary of cash rents. As we discussed, the corn belt states saw increases in cash rent rates from 4.4% to 5.9% from January 1, 2008 to January 1, 2009. These numbers were not too surprising when taking into account where the grain markets were at last summer. However, with the current volatility in commodities markets, the outlook for 2010 is less clear.
A recent article by DTN/The Progressive Farmer examines the uncertainty in the market right now. Many of the operators and landlords interviewed in the article foresee rent levels either holding steady or slightly decreasing. At this point, there are a lot of yet-to-be-determined variables that will determine cash rent levels for 2010. Yields from the 2009 harvest, grain prices, 2010 input prices & the level of competition from other local operators will all contribute to what prices landlords and tenants agree to for 2010.
Read the entire article, here.
What price level will cash rents be in your area in 2010? Let us know at eric@loranda.com!
Source: DTN/The Progressive Farmer
USDA 2009 SUMMARY OF LAND VALUES AND CASH RENTS
August 11, 2009 - The U.S. Department of Agriculture recently released its 2009 summary of land values and cash rents. According to the report, U.S. cropland values decreased 3.9%, or $110 per acre, from the 2008 report. Some state-specific statistics:
- Illinois - 3.7 % decrease to an average value of $4,670/A
- Iowa - 4.9% decrease to an average value of $4,050/A
- Indiana - 4.6% decrease to an average value of $3,950/A
- Illinois - 4.3% increase to $170/A
- Iowa - 5.9% increase to $180/A
- Indiana - 4.4% increase to $141/A
Source: USDA
When evaluating your property, it is important to keep in mind that both farmland values and cash rent values can be very area-specific. Both will vary from county to county and even from township to township. What are land values and cash rent values doing in your area? Have you seen the type of numbers referred to in the USDA summary? Contact us at eric@loranda.com to let us know.
CASH FOR CLUNKERS VS. ETHANOL
August 4, 2009 – You’ve likely heard a lot in the news in recent days about the “Cash for Clunkers” auto sales program, sponsored by our Federal Treasury. The program has been so “successful” in giving away money to support the auto industry that it’s already spent its $1 billion budget in a matter of just over a week. As a result, members of Congress are now clamoring for more money to keep the program alive. Where’s the new money going to come from, you ask? From stimulus dollars, initially targeted to support the ethanol industry. With this possible action, our members of Congress are proving to the public that what can be given with the stroke of a pen, can also be pulled with a new stroke of the same pen. See the article here.
Source: DTN
What do you think – is spending more of your tax dollars in additional support of the auto industry a better use of funds than ethanol? Should money be spent on either sector? Let me know by e-mailing me at doug@loranda.com.
THE APRIL 1986 LAND MARKET
August 3, 2009 – I read a lot. Books, magazines, newspapers, and online news. And every once in a while, I come across a piece that makes me stop and really think. Recently, I came across one such news article from an April 1986 Fortune Magazine that concerned the farmland market. Heavy debt loads, high interest rates, and too much speculation created a toxic environment for farmland during that era. And based on the general health of the agricultural sector in today’s world, we seemed to have learned our lesson. However, I thought you might be interested in reading a piece of history. To read the article, click here.
Source: CNNMoney
If you have a thought about how agriculture, and the land market in particular, has changed in the past 23 years, I’d love to hear about it. E-mail me at doug@loranda.com.
UPDATING FARM LEASES IN ILLINOIS
July 31, 2009 - Recently, we have had a few clients contact us who are reviewing their lease situations. These clients have cash rent leases expiring in 2009 and are looking towards 2010 and beyond. One helpful resource for landowners that are in this position of needing to renew leases for next year is Farmdoc. Farmdoc was created by the University of Illinois to give farm landowners and operators the tools and resources needed to succeed. Under the Farmdoc Management section, users will find resources such as historical cash rent breakdowns for the state of Illinois as well as PDF and Word versions of crop share and cash rent forms. If you will need to be updating your lease for 2010 I would recommend taking a look at the Farmdoc website.
Has anyone ever used Farmdoc, for leases or any other of the tools that they offer? Let me know your thoughts at eric@loranda.com.
THE POLITICS AND ECONOMICS OF FARMLAND
July 20, 2009 - It’s not often that we get heated phone calls regarding the content of our company newsletter. That said, apparently the lead article in our July 2009 LandFacts, where I discussed the effects of government policy on farmland values, got a few people riled up. One caller to our office stated… “Kudos to Mr. Moss for an article magnificently written and well done. He spoke to a minority of us - he has our support.” A second caller saw things differently “Mr. Moss is obviously some right-winger intent on undermining our government.” Wow - I didn’t know that the farmland topic could be so controversial!
For those who took the time to carefully read the whole article, you will note that I never singled out any individual or political party. In fact, I think the blame for our current economic mess should be spread on both sides of the political aisle. In addition, the thrust of the article was about economic issues and not political ones (it never ceases to amaze me how people can read into something whatever they want). The bottom line and my point - government action can alter the landscape of an entire industry and the farmland asset is not immune to these forces.
Now I know what Grandma meant when she said… “unless you want to get a fight started, never talk about religion and politics”… Agree? Disagree? Send your thoughts to loranda@loranda.com
THE NEW PICKENS PLAN
July 14, 2009 - Do you remember during the summer of 2008, and last year's presidential campaign, when Texas businessman, T. Boone Pickens, was promoting his plan of energy independence by utilizing wind energy and natural gas as a way to wean America off of expensive foreign oil? Well, according to a recent report by Dallas Morning News reporter, Elizabeth Souder, the plan has changed because of both financing and electric transmission difficulties. It now appears that instead of building one large wind farm in a remote Texas panhandle area, that Mr. Pickens will attempt to help build several smaller wind farms that are more closely situated to population centers, and where electric transmission lines are already in place. To read the full article, click here.
Is Mr. Pickens wasting his time and money, or are wind farms the way of the future? Let me know what you think by e-mailing me at doug@loranda.com.
Source: Dallas Morning News
THE EVOLVING CREDIT SITUATION FOR RURAL BUSINESSES
July 10, 2009 - In the latest edition of Main Street Economist, the author, Brian Briggeman, examines the credit outlook for rural business owners and farmers since the downturn in the economy in 2008. Briggeman explains that all borrowers, even high net worth farmers, have experienced more difficulty in obtaining loans. Furthermore, even when those loans are secured, more collateral is being required the lending institutions.
The article speculates that the flow of money from the recently implemented American Recovery and Reinvestment Act, along with loan guarantee programs being offered by the Farm Service Agency and the Small Business Administration, may relieve some of the pressure we have seen in rural business lending.
The availability of credit for farmers and farmland investors will be an important factor to keep an eye on as we progress towards the end of the 2009 crop year. If potential buyers in the farmland market struggle to obtain financing it could have a very real impact on farmland prices this fall.
To read the entire article, continue here
Where do you see the credit market in rural America headed? How do you think the farmland market will be affected? E-mail me your thoughts at eric@loranda.com
Source: Federal Reserve Bank of Kansas City
THE OUTLOOK FOR A REBOUND IN AGRICULTURE
July 3, 2009 - An article in a recent edition of The Main Street Economist, the newsletter for the Federal Reserve Bank of Kansas City, discusses the current state of the farmland market and how we got to where we are.
The author, Jason Henderson, takes a look back to identify what factors were at play in the slowdown of the entire agricultural industry, as well as farmland prices. He also speculates on when we may see a turn around for the overall economy and how that will benefit the farm economy.
To read the article, click here.
Have any thoughts on the article? If so, I would love to hear them. E-mail me at eric@loranda.com
Finally, I hope everyone has a safe and enjoyable Fourth of July weekend.
Source: Federal Reserve Bank of Kansas City
CELLULOSIC ETHANOL GAINING TRACTION (AND FUNDING)
June 25, 2009 - If you assumed the financial and political pressures on corn-based ethanol had tabled efforts to commercialize cellulosic ethanol, think again. In a recent article, Dan Looker, Business Editor for Successful Farming magazine, discussed current cellulosic ethanol development and production efforts. South Dakota based ethanol producer POET is currently working on a 25 million gallon cellulosic ethanol plant in Iowa, and a joint venture plant between DuPont & Danisco is slated to open later this year in Tennessee. Given that the current estimate for cellulosic ethanol production is $1 per gallon more expensive than corn-based ethanol, it will be interesting to watch their progress in the coming months.
To read the entire article, continue here.
Is the use of former waste products like corn cobs and wood chips where the ethanol industry should be heading? If so, how will that impact the grain markets? Tell me what you think by e-mailing me at doug@loranda.com.
Source - www.agriculture.com
FACTORS IN PLACE FOR INCREASING FARMLAND VALUES?
June 17, 2009 - According to a recent Fortune article, many experts feel that over the course of the next few decades we could see a long-term boom to arable farmland values. Fortune senior editor, Brian O'Keefe, spoke with many investors about where they see the market headed and why.
A few of the common reasons for this shared optimism boils down to Economics 101...supply & demand. According to the article, since 1960 we have seen the worldwide arable farmland acres per capita drop from 1.1 to 0.6, nearly a 50% reduction. Also, the article speculates that the world population will grow from 6 million to 9 million over the next 40 years. If these 2 trends, decreasing acreage per capita and increasing population, hold true it could very well translate into higher demand for farmland, which will lead to higher prices.
The article also discusses the increasing trend of non-traditional farmland investors looking more towards agriculture as a viable investment. The author mentions 3 groups, a hedge fund manager, an investment company, and a retrement fund company all starting to focus more on farmland.
Another long-term farmland investor that Fortune spoke with, Lord Jacob Rothschild, had another take on what he agees is an upcomong boom for farmland. He believes that we are headed for an inflationary period and that owning a hard assest, such as farmland, will be a valuable commodity in such a situation. In fact, he is quoted in the article as saying, "We think right now is an excellent point of entry for taking a long-term position in agriculture".
To read through the entire article, continue here
What are your thoughts on where farmland values are headed in the future? We would love to hear your opinions. E-mail us at eric@loranda.com.
Source: Fortune Magazine, CNNMoney.com
"GOOD" AGRICULTURAL LAND IN THE MIDWEST SEES A 6% DIP IN THE FIRST QUARTER OF 2009
June 6, 2009 - According to the May 2009 newsletter released by the Federal Reserve Bank of Chicago, there was a 6% decrease in dollar value of "good" farmland across the Seventh District, which is comprised of Illinois, Indiana, Iowa, Michigan & Wisconsin. Also, the rate of increase has slowed to 2 % growth for the same region from April 1, 2008 to April 1, 2009. These numbers were derived from a survey of 227 bankers in the Seventh District.
Cash rent rates have slowed down as well into 2009, but overall they are still 7% higher than 2008 rates in the region. The article speculates that part of the slower adjustment of cash rent rates relative to land prices is due to 2009 leases being locked in before the decrease in commodities prices that we saw last fall.
With an eye towards the future, nearly two-thirds of the surveyed bankers believe that we will see farmland values hold steady in the second quarter of 2009.
To download an Adobe pdf file of the entire AgLetter, follow this link: The Agricultural Newsletter from the Federal Reserve Bank of Chicago, May 2009
Do you have any thoughts on the information presented in this post? We would love to hear your comments. E-mail us at eric@loranda.com and let us know what you think!
Source: Federal Reserve Bank of Chicago, www.chicagofed.org
- THE LORANDA GROUP
- 211 S. Prospect Road, Suite 2
- Bloomington, IL 61704
- Phone 800.716.8189
- Email loranda@loranda.com
