LO 1-3.indd - Land Owner

February 11, 2014
USDA boosts its price
projections for major
crops in its latest update
of supply and demand
projections.
USDA lifted its projected season-average onfarm corn price range by
10¢ to $4.20 to $4.80 per
bushel. The agency made
the increase as it
decreased
projected
2013-14 carryover supplies by 150 million bu. to
1.481 billion bushels.
That compares to a carryover of 821 million bu.
for the 2012-13 crop year.
The cut was due to a
boost in projected
exports.
USDA increased its
season-average on-farm
soybean price range by
20¢ to $11.95 to $13.45
per bushel. The rise came
despite keeping its 201314 carryover unchanged
at 150 million bu., up
slightly from 141 million
bu. the prior year.
The agency tightened
its season-average onfarm wheat price range by
10¢ a bushel to $6.65 to
$6.95. The increase came
as USDA lowered its 201314 carryover estimate by
50 million bushels.
USDA increased its projected season-average onfarm cotton price range
by 1¢ to 2¢ to 74¢ to 78¢.
The boost came even as it
left its 2013-14 carryover
projection unchanged at 3
million bales.
Your last chance to
attend a winter Pro
Farmer Profit Briefing
Seminar is Feb. 17-18 in
Peoria, Illinois. Call 800772-0023 for information.
Powerful Insight for LandOwners
Vol. 35 • Iss. 3
Is There a Change Ahead for Commodity Prices?
The upswing in commodity prices in the early
2000s due to the downgrade of the U.S. dollar
launched the upturn in farmland prices during
that decade. Prices crashed in late 2008 on the
credit freeze, but quickly rebounded as the federal government flooded the financial system
with cash. Farmland values surged as well.
The flood of cash eventually moved away from
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commodities to equities as commodity inflation
waned. The Goldman Sachs Commodity Index
shows the downtrend in commodity prices that
has resulted. Farmland values have stabilized,
even moving lower in some areas, as well.
The index is now at a critical point. It has found
important support at the 600 area since breaking
the 2009-12 uptrend line in the spring of 2012.
But the index continues to run into selling
pressure on each test of the downtrend
line that has pressed the index lower since
the 2008 peak. Simply trending sideways
above the 600 support area would break
that downtrend. Upon doing so, trends
would favor rallies rather than selloffs.
That would tend to support farmland values, as well, along with the long-term
uptrend line providing support for farmland values over the broad long term.
Is There a Stock Market Bubble?
Whether the stock market is merely undergoing
a much-needed correction in a longer-term bull
run or the recent setback is the start of a much
deeper setback is the subject of intense discussions in the financial media.
We freely admit that we don’t know and prefer
owning farmland for its income-producing properties, its long-term capital appreciation potential
and preservation of wealth in either inflationary
or deflationary times.
But the chart below certainly gave us pause as
we look at the recent sell-off in the stock market.
The chart is compiled by Dr. Mark Dotzour, chief
economist with the Real Estate Center at Texas
A&M University. Speaking at the recent Land
Investment Expo in Des Moines, Dotzour pointed out the amount of stocks bought on margin
had reached a historic high. Twice previously
when the margin debt soared and peaked at
record highs, the stock market plunged dramatically over the following two years.
The first spike in margin debt occurred in
March of 2000. “The Dow was at 11,234 at that
peak,” says Dotzour. “It dropped to 9,106 a year
later and 7,415 by March 2002. The next peak
came in July 2007. The Dow was at 14,021 then.
A year later it was at 10,827 and by July 2009 it
was at 8,087.”
The latest data available is through
December, and it shows margin debt
at new highs. “There is just too much
money chasing things, giving us
asset inflation rather than price inflation,” says Dotzour. The risk is in
those asset classes carrying high
leverage. It appears the stock market
qualifies. Does farmland? As a whole,
agriculture does not carry a heavy
debt load. This suggests farmland
values can correct without triggering
Dr. Mark Dotzour, Real Estate Center, Texas A&M University heavy forced selling, which would
accelerate a downturn in land values.
North Dakota Land Pros Find 17% Rise in Cropland Values
The value of North Dakota cropland rose 17% in 2013,
according to a survey of farm managers, real estate professionals and rural appraisers.
The survey, the 17th annual review conducted by the
North Dakota Chapter of the American Society of Farm
Managers and Rural Appraisers (ASFMRA), finds the
chapter’s state index of cropland values reached $2,947 an
acre. The index gives equal weight to all 56 reporting
counties and/or market areas. The 17% annual increase
reported at the end of 2013 is down from the 39% surge
found a year earlier.
On a regional basis (see Outlook Page 2), the Red River
Valley had the lowest change at +11%, while the northeastern counties had the largest change at +24%. These two
regions posted gains of 32% and 45%, respectively, in 2012.
North Dakota Cropland Trend
State Price Index per Acre
Index = $2,947 +17%
North Dakota Chapter, ASFMRA
Investment Fund Index Sees Strong Returns from Cropland
Fund managers increasingly talk about diversifying into
farmland ownership. Recent data from an organization
that monitors farmland returns for its institutional investment community will no doubt pique their interest.
The National Council of Real Estate Investment
Fiduciaries’ (NCREIF) Farmland Index showed the total
return on the group’s 546 investment-grade properties
was 9.26% during the fourth quarter of 2013. That gain
was comprised of 5.02% appreciation and 4.24% income.
This was above the third quarter’s 2.94% total return, but
below the fourth quarter 2012’s 9.56% total return.
The trailing four-quarter (annual) total return dropped
slightly from 21.25% to 20.91% in the fourth quarter. That
is the second highest total return over a four-quarter
period since fourth quarter of 2006.
Christopher Jay, chairman of the NCREIF Farmland
Committee and director of financial analysis with
Prudential Agricultural Investments, noted: “The year
had strong performance in all regions of the country and
in many commodity sectors, but this was especially true
for permanent crops in the Pacific West, which were led
by almond and pistachio properties. The 2013 total return
marks the third consecutive year with returns over 15%.
Eight of the past ten years have also seen returns of more
than 15% on a total farmland basis.”
Permanent cropland outperformed annual cropland with
a 16.85% total return versus annual cropland’s 5.63%.
Permanent cropland’s 16.85% return consisted of 6.19%
appreciation and 10.66% income. This was permanent cropland’s best performance since the fourth quarter of 2005.
The index consists of 400 annual cropland properties
and 146 permanent farmland properties. It includes 175
properties in the Corn Belt, 124 in the Pacific West, 66 in
the Delta States, 54 in the Pacific Northwest, 45 in the
Mountain States, 33 in the Lake States, 25 in the Southern
Plains and 23 in the Southeast.
Regional Returns on Investment Fund Properties
National Council of Real Estate Investment Fiduciaries
LandOwner is published twice a month. Copyright 2014 by Professional Farmers of America, Inc., 6612 Chancellor Drive, Cedar Falls, Iowa 50613-9985
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LANDOWNER 2 /February 11, 2014
Lender Data Reflects Low Leverage on Land Buys
New data from Farm Credit Services of America
(FCSAmerica) indicates land buyers are better prepared
for a setback in land values than they were in the late
1970s, just prior to the agriculture recession of the 1980s.
Speaking at the recent Land Investment Expo in Des
Moines, Jim Knuth, senior vice president for the large
Omaha-based ag lender, said the average loan-to-collateral value on its farmland loans made in 2013 is 43%. That is
down from 46% on its 2012 loans and down from 54% on
its 2009 loans.
“This data is from $10.5 billion in real estate transactions that we have handled over our four-state service
area,” he notes. (FCSAmerica covers Iowa, Nebraska,
South Dakota and Wyoming.) “In addition to the relatively low loan-to-value ratio, 75% of the debt is locked in —
interest rates are fixed,” he adds.
“In answer to the question: ‘Can $4.50 corn service the
debt on this high-priced ground?’ the answer is ‘Yes’
because the debt load is low,” he observes. “Agricultural
borrowers have been very disciplined. The low debt load
will help support loans and cash flows even in the event of
a declining farm ground value scenario. Additionally,
many borrowers could re-amortize their existing real
estate debt to lower their payments.”
Just as important as the low loan-to-value ratio is the
fact interest rates are fixed on 75% of the mortgage. Why?
Much of the financing on land purchases in the 1970s
was done with adjustable-rate mortgages. When interest
rates spiked in the early 1980s, those adjustable-rate
mortgages re-set at much higher levels — sometimes
doubling into the upper-teens and lower-twenties.
That alone made debt service extremely difficult.
Meanwhile commodity prices plunged, dropping farm
incomes by 40% and more. The combination of the two
made debt service nearly impossible and the selloff in
land values was on.
Other key data: FCSAmerica monitors the average dollars-per-CSR (Corn Suitability Rating) ratio across the
state. (See Jan. 23, 2014 LandOwner for further discus-
Average
$/CSR
Point by
Region
2013
Key FCSAmerica Average Real Estate Data
Farm Credit Services of America
sion of the CSR.) The sales used in this measure are unimproved farms that are at least 85% tillable and at least 40
acres in size. The measure equaled $89.50 at the end of
2010, $121.86 in 2011, and $145.70 in 2012 — up 63% in
three years. The ratio peaked in the second quarter of
2013 at $150.23 and finished 2013 at $143.10. That is a
decline of 5% from the high posted in the second quarter
and a dip of 2% from the end of 2012.
The map at lower left shows the dollars-per-CSR point
ratio for each of the state’s nine crop districts at the end of
2013. The northwest district lists the highest ratio at
$162.71. That district tends to carry a lower CSR due to
the nature of the area’s soils. But yields can be just as
strong as in higher CSR areas found in central Iowa.
That district has seen exceptionally strong demand for
farmland the past few years with some of the highest
prices paid in the state. Farmland is extremely tightly held
in that area. The presence of numerous large livestock
enterprises adds to demand as producers seek control of
feed supplies and land for manure disposal.
According to FCSAmerica data, farmers accounted for
81% of all farmland buyers in 2013. This is up from 79% in
2012 and 73% in both 2010 and 2011. Local investors were
10% of the market in 2013 — down from 11% in 2012 and
13% in 2011. Out-of-area investors were 7% of the market
in 2013, down from 11% in 2011 and 13% in 2010. Other
buyers and 1031 buyers comprised 1% each of the market.
“Local capital and local competition has been driving the
market,” observes Knuth.
Fifty-four percent of farm sales were conducted by auction in 2013, says Knuth. That’s up from 50% in 2012 and
29% in 2009. The number of “no sales” at auction rose in
2013 to 152 compared to 118 in 2012. The number of public auctions declined 25% to 30% in 2013 versus 2012, consistent with the decline in sales offerings in 2013. The
number of “no sales” at auctions was 6.7% in 2013, compared to 3% in 2012, Knuth states.
LANDOWNER 3 / February 11, 2014
INDIANA: BENTON COUNTY —
JANUARY 16: 241 acres northeast
of Fowler; 169 acres tillable; corn
PI 161 on cropland; farmstead
with 2 grain bins; $7,759 per acre.
Jim Hayworth, Schrader Real
Estate & Auction Co., Inc.,
Monticello, 800-808-8680.
KANSAS: BUTLER COUNTY —
JANUARY 16: 299 acres east of
Leon; native Flint Hills pasture; 3
ponds; $2,250 per acre. Jeremy
Sundgren, Sundgren Realty, El
Dorado, 316-377-0013.
WYOMING: NIOBRARA CO. —
JANUARY PRIVATE TREATY: 21,230
total acres 6 miles west of Lance
Creek. The Crockett Ranch consisting of 15,921 deeded acres,
640 acres state lease, 4,349
acres BLM lease, 320 acres
leased privately; $3,980,000 total.
Blair Newman, Newman Realty,
Torrington, 307-532-7131.
NEBRASKA: POLK COUNTY —
$
Recent sales
reported to...
Here’s a listing of
recent sales reported to us by real estate brokers and auctioneers
across the country. If you have recent sales you’d like to share, call us at 319277-1278 or e-mail us at [email protected].
ILLINOIS: MCLEAN COUNTY — FEBRUARY 4: 274 acres between Merna and
Cooksville. Tracts 1 & 2: 122 acres; 116 acres tillable; PI 142.5 (Bulletin 811
maximum PI rating is 147); $13,050 per acre. Tracts 3 & 4: 151 acres; 151
acres tillable; PI 132.1; $10,200 per acre. Kevin Meiss, Soy Capital Ag
Services, Bloomington, 309-665-0056.
IOWA: JASPER COUNTY — JANUARY 31: 80 acres southeast of Mitchellville; 79.5
acres tillable; CSR 89.7 (64.1 county average); $13,000 per acre. John and
Kathy Van Zee, Farmers National Company, Mitchellville, 641-521-0151.
IOWA: HENRY & JEFFERSON COUNTIES — JANUARY 30: 139 acres southwest of
Wayland. Tract 1: 43 acres; 35 acres tillable; CSR 66.8 (60.4 county average);
includes easement for owner and adjacent landower to have access to Tract 2;
$5,900 per acre. Tract 2: 96 acres; 67 acres tillable, 13 acres of which are in
CRP expiring in 2017; CSR 73.8 (56.6 county average); $3,400 per acre. Steffes
Group, Inc., Mt. Pleasant, 319-385-2000.
JANUARY 14: 318 acres southwest
of Columbus. Tract 1: 160 acres 9
miles west of Osceola; 141 certified irrigated acres; 149 acres
total cropland; pump and motor;
pivot not included; $1,405,000
total or about $8,781 per acre.
Tract 2: 158 acres 2 miles south of
Stromsburg; 146 certified irrigated
acres; pump and gear, power unit
and pivot not included; $1,460,000
total or about $9,241 per acre.
Mike Polk, Agri Affiliates, Inc.,
Kearney, 308-534-9240.
INDIANA: WHITLEY COUNTY — JANUARY 29: 121 acres 4.5 miles west of
Columbia City; 99 acres tillable; balance wooded; $2,806 per acre. Arden
Schrader, Schrader Real Estate & Auction Co., Inc., Columbia City, 800-451-2709.
KANSAS: RUSH COUNTY —
SOUTH DAKOTA: LINCOLN COUNTY — JANUARY 24: 151 acres southeast of
Lennox; 147.5 acres cropland; PI 75.3; includes $115-an-acre in fall fertilizer and
tillage which passes directly to the buyer at no additional cost; $6,300 per
acre. Chuck Sutton Auctioneer & Land Broker, Sioux Falls, 605-336-6315.
DECEMBER 3: 640 acres southwest
of Liebenthal. Tract 1: 170 acres;
139 acres cropland; $2,000 per
acre. Tract 2: 160 acres; 114 acres
cropland; $2,400 per acre. Tract 3:
160 acres; 155 acres cropland;
$2,400 per acre. Tract 4: 150
acres; 148 acres cropland;
$2,200 per acre. Tract 5: 10 acres;
farmstead; $290,000 total. Donald
Hazlett, Farm & Ranch Realty,
Inc., Colby, 800-247-7863.
ILLINOIS: MACON COUNTY —
NOVEMBER 22: 80 acres east of
Neponset; 73 acres tillable; PI
139.3 (147 maximum); $9,000 per
acre. Rediger Auction Service,
Wyanet, 815-699-7999.
COLORADO: LOGAN COUNTY — JANUARY 28: 160 acres 15.5 miles south of
Sterling; 147.6 dryland acres; $1,795 per dryland acre. Marc Reck, Reck Agri
Realty & Auction, Sterling, 800-748-2589.
NEBRASKA: CUSTER COUNTY — JANUARY 27: 320 acres 9 miles west of Merna;
314.6 acres cropland; 270 acres irrigated, 44.6 acres dryland; 2 pivots plus
pumps and wells; SRPG 63.1; $7,000 per acre. Dave Davis and Jim Eberle,
Farmers National Company, Broken Bow, 308-872-6413.
IOWA: EMMET COUNTY — JANUARY 22: 147 acres 2 miles north of Esterville;
140 acres tillable; CSR 74.2 (66.8 county average); $8,700 per acre. Jon Hjelm,
The Acre Co., Spencer, 712-262-3529.
INDIANA: CARROLL COUNTY — JANUARY 22: 120 acres 4 miles southeast of
Idaville. Tract 1: 70 acres; mostly all tillable; corn PI 148.7; $8,746 per acre.
Tract 2: 27 acres; mostly all tillable; $8,722 per acre. Tract 3: 23 acres; mostly
all wooded; $2,696 per acre. A.J. Jordan and Larry Jordan, Halerman Real
Estate Services, Peru, 317-697-3086.
ILLINOIS: HENRY COUNTY — JANUARY 22: 78.6 acres 6 miles south of
Geneseo; 76 acres tillable; PI 108.9 (147 maximum): $10,100 per acre.
Edward Kiefer, Hertz Real Estate Services, Geneseo, 309-944-2184.
LANDOWNER 4 / February 11, 2014
Outlook Provided by Pro Farmer
EQUITIES
Stock market watching economic situation closely
S&P 500 Index
1,850.84
The S&P 500 Index started 2014 with a push to an all-time high.
As economic uncertainty reentered the market and a new Fed
chairwoman was sworn in, profit-taking turned aggressive.
1,729.86
Despite a skeptical investment climate,
the long-term trend in equities is still higher.
Fundamental trends
STOCK MARKET: LaSalle Economics President Dr.
Vince Malanga says the Federal Reserve Board’s position that the U.S. and global economies are healing is
backed up by U.S. real 4th-qtr. GDP growth of 3.2% following summer growth of 4.1%. Normally, that would
set the stage for a warm welcome to Janet Yellen, the
new Federal Reserve chairwoman.
Malanga warns, however, “History shows financial
markets have not been kind to incoming Fed chairmen.”
He says we should anticipate downward revisions to
second-half 2013 economic growth estimates and for
similar economic growth (still slow) in 2014. If right, he
says the markets may begin to question the wisdom of
the Fed’s decision to scale back asset purchases.
Corn demand is good
CORN
Weekly Corn Futures
A close above $4.50 would signal at
least a short-term low has been posted.
But bulls need closes above $5.51 and
the downtrend from the all-time high to
signal a potential trend reversal. Key
support is at the long-term uptrend
and the January low at $4.06 1/4.
Violation of the January low would
signal corn futures are going to
test the waters below $4.00.
$4.50
$5.51
$4.06 1/4
Fundamental trends
Corn: Domestically, ethanol plants are fired up and
livestock and dairy producers are adding pounds to
most carcasses and pushing for more pounds of milk
per cow. Cold temps are also increasing animal intake
just to maintain production. Internationally, importers
are coming to the U.S. for feed supplies with excellent
export sales of old-crop corn in the week ended Jan.
30 at just over 1.7 million metric tons (MMT). And
while China is rejecting/cancelling corn purchases
due to a non-approved GMO trait, much of that corn
is still finding a home in other Asian countries, such
as South Korea.
LANDOWNER February 11, 2014 / Outlook page 1
End-of-year North Dakota Dryland Cropland Values
Below are the region-by-region and county-by-county
land values for North Dakota dryland cropland as of
the end of 2013. The information is supplied by 34
land appraisers and farm management professionals
responding to the 17th annual land values survey conducted by the North Dakota chapter of the American
Society of Farm Managers and Rural Appraisers.
(More on Page 2.) The survey also includes pasture
values as well as cash rents, which are not included
due to space limitations. The survey is considered a
“snapshot” as it looks only at end-of-year prices and not
at market conditions throughout the year.
Region 1
Region 2
Region 3
Region 4
Region 5
LANDOWNER February 11, 2014 / Outlook page 2