Posts

Farm Economy Beginning to Show Signs of Stress

This is the third year of a financial crunch on the farm. It follows on the heels of a series of tremendous seasons since 2006. The extra money, from then, is now starting to run out.

The financial stress in the ag sector may really begin to show this fall if low commodity prices persist says the Director of the TIAA CREF Center for Farmland Research on the Univeristy of Illinois campus, Bruce Sherrick.

Quote Summary - It is already affecting cash rents and land prices some. However, on a percentage basis not as much as the current cash prices (would suggest) for delivery within this year at least.

Sherrick says a a couple of things have happened which explain this buffering. The last several years have been really quite good for agricultural incomes. So, farmers have pretty strong balance sheets. It is easier to weather a downturn, says Sherrick, after a few good years, than a bad year after a few bad years, “We are seeing, clearly, working capital crunches beginning to hit people. This is the first year that is material, and lenders are seeing and uptick in volume. As we’ve adjusted to more normal stocks, we are into a period were we think, ”this might be the last year were people can really just stand for what’s going on without making some major changes in how they manage cash rents, or inputs, or financial structures".

This does not mean the price of farm land will plummet. Long term interest rates are very, very low and the rate of turnover in farmland is supper small.

Money is cheap and farmland for sale is scarce.

Quote Summary - If you look at the number of acres that sell, maybe around 2% transfer per year within the agriculturally intense states. Only half of that moves outside of a family. The market is thin, and this helps buffer or slow down changes in farmland values because of changes in short term farm income. The low interest rates help people pay for a longterm investment with a stable cash return that can be rented for perhaps 3% of its value on a cash basis.

Farm land doesn’t look like such a dire situation, then, when you step back from it. It also has shown, very reliably says Bruce Sherrick, a positive correlation with inflation. Even if the price of commodities stay relatively low, it may be that the price of farmland, as an owned asset, will help farms stay afloat.

Ukraine Aiming to be World's #2 Ag Exporter

APK-Inform reports Ukraine to take the second position for agricultural products exports, following the USA.

Ukraine has rather good prospects for strengthening the positions of domestic agricultural commodities on the world market, declared the Verkhovna Rada deputy, President of Ukrainian Agrarian Confederation, Leonid Kozachenko.

According to him, in order to hold up its status of agrarian superstate, Ukraine has to invest at least 70 bln USD in the agricultural industry, and enlarge the production volumes of foodstuffs.

Ukraine will consume nearly 20% of the produced commodities, and export the remaining volumes, which will significantly replenish the state budget. Ukraine requires nearly 10 years of consolidated and stable work for development of effective public policy, deregulation and fight against corruption, to achieve the reporting objective. Only in such case, in the future Ukraine can confidently reach the second position following the USA by exports of agricultural products, said the President of Ukrainian Agrarian Confederation.

National New Era Cash Price Midpoints for Corn & Soybeans

The ag economists at the University of Illinois have updated their work predicting the “New Era” long range cash prices for corn and soybeans.

Seven years ago Darrel Good and University of Illinois colleague Scott Irwin predicted the average cash price for central Illinois corn and soybeans would be $4.60 and $11.20. It started with a simple idea. The last time the price of corn and soybeans had really changed was during the 1972/73 crop marketing year says Scott Irwin.

Quote Summary - Right. The first era was a $1.28, the second era was $2.36. The price jumped about 90%. We took that as our starting point and then realized this magnitude of jump made some sense given the market and other modeling exercises. We decided it seemed a reasonable estimate and to go with them. The equivalent numbers now are $4.35 on corn and $10.44 on soybeans.

As it turns out, those are pretty close to the actual national average monthly cash price over the first eight years of the new era. Corn has averaged $4.39 and soybeans $10.61. The fundamental question today, says Irwin, is “are these numbers still good or was the ”new era“ a temporary uptick in the market”. He is confident the numbers are solid, but cautions it was a one time move up from the old era. Pragmatically he means farmers cannot market their crop today the way they did as the move was happening.

Quote Summary - And you were rewarded for waiting, almost all the time, to do your marketing as that curve shifting occurred. I think we see the kind of opportunities in the grain markets that might be presented as the more traditional short-crop long-market-tail. If you do get that situation emerging… say corn prices, and I am not forecasting this… but let’s say there is a substantial production problem in the U.S. and corn rallied to $5.00. We wouldn’t expect that to last a long time.

There would be a quick and decisive production response in reaction to such a move in the market. The higher price then, would need to be rewarded sooner rather than later. The current rally in soybeans could be indicating just such a move, however, it would be based on poor weather conditions in South America rather than in the United States.

Quote Summary - Warning lights are flashing, that there may be opportunity ahead. Be prepared with a marketing plan, where you have some really well thought through pricing targets for your operation and be ready to execute when those opportunities arise.

You may read about the new era cash prices Scott Irwin and Darrel Good are projecting on the Farm Doc Daily website. The address is www.farmdocdaily.illinois.edu.

4-H Robotics Competition @ ILLINOIS

Did you know 4-H, that’s the world’s largest youth organization, is into robots. It is, and so are kids. Todd Gleason has more from an amazing robotics competition held in mid-April on the University of Illinois campus in Champaign, Illinois.