Replies to post #3329 on The Rising Influence of Rising Affluence

[moneyman1010]

does this help the dry shippers?

[DewDiligence]

SYT, BG in legal spat over GM corn:

http://www.bloomberg.com/news/2011-08-23/bunge-says-syngenta-suit-may-jeopardize-chinese-corn-exports-1-.html

The impetus for the lawsuit is the newfound importance of corn exports to China.

[DewDiligence]

US will surpass Brazil in 20111 ethanol exports:

http://www.reuters.com/article/2011/08/25/us-usa-ethanol-exports-idUSTRE77O3EO20110825

[DewDiligence]

Corn supply down, demand up, says USDA:

http://online.wsj.com/article/SB10001424052970204224604577027753890663164.html

One place in which federal forecasters do see increased demand for U.S. corn is China. They now expect total Chinese corn imports to reach three million metric tons in the current marketing year, which runs from September to August. That is an increase from the two million tons the agency predicted last month and an even bigger leap from the 980,000 tons China imported in the previous marketing year. Still, many analysts think even the upgraded estimate is too conservative.

[DewDiligence]

Prices of Prime US Farmland Reach All-Time High

[While commercial and residential real estate remains in the doldrums, the per-acre price of prime US farmland is higher than ever. Some farmland that was sold to developers is being returned to farming in order to maximize profit.]

http://www.reuters.com/article/2011/11/15/usa-farmland-idUSN1E7AE0XM20111115

›Tue Nov 15, 2011 5:02pm EST
By Carey Gillam and Christine Stebbins

KANSAS CITY/CHICAGO, Nov 15 (Reuters) - U.S. farmland prices in the third quarter surged to the highest levels in more than three decades amid an accelerating agricultural boom that has so far defied fears of a bubble about to burst.

Prices hit record highs in the U.S. Plains, where wheat and cattle dominate production, and jumped 25 percent in the Midwest Corn Belt, where bumper grain crops and recovering livestock markets put more money in farmers' wallets and enticed investors to bid up for the fertile ground, according to two Federal Reserve bank surveys issued on Tuesday.

The surge has picked up pace even as major crop prices fall from peaks earlier this year, cheering farmers who have seen their land values rise nearly tenfold in a decade, but vexing economists who worry that a country still mired deep in a housing slump can ill afford a destabilizing rural crash.

"It is amazing," said Carl Sousek, who has farmed for 30 years in east-central Nebraska. "I've been in this business long enough, I remember working a night shift just to get by, to be able to buy Christmas gifts for the kids. These are good times."

Investor enthusiasm is starting to cool as prices rise, fueling fear that the farmland value bubble may be about to burst. But many experts say the tell-tale signs of an unsustainable boom are lacking.

Unlike the 1980s, buyers are paying cash, not relying on credit, and farmers are paying down their debt loads. Demand for U.S. grains by China and other countries shows no sign of subsiding as the world's population tops 7 billion and is still climbing. And growing demand for biofuel, which uses about 40 percent of the U.S. corn supply, remain strong supportive factors, experts say.

Indeed, strong farmland prices are a rare bright spot for the U.S. economy. Grain farmers are retiring debt and building equity, moves that buttress farm banks and lenders like the Farm Credit System.

But early warning signs are starting to appear. While arable land in the world's most productive consumer is limited, South America and Africa are attracting billions of investor dollars for the tilling of land that is much cheaper than U.S. acres.

"We are essentially on the sidelines in the Corn Belt and Nebraska. In our judgment, prices there are too high," said James McCandless, head of global real estate-farmland for UBS AgriVest, a major investor in U.S. farmland production of 25 different row, vegetable and permanent crops.

UP 25 PCT ON 2010

Cropland values in the Plains states rose more than 25 percent over the past year to a record high while ranchland values increased 14 percent, the Federal Reserve Bank of Kansas City said in its quarterly survey of 243 banks in the region. It was the fastest rise in cropland values in the survey's history.

Nebraska posted the strongest gains with irrigated and nonirrigated land values rising approximately 40 percent above year-ago levels, the Kansas City Fed said of the Plains states. Oklahoma, mired in one of its worst droughts ever, saw a gain of just over 10 percent, however.

Meanwhile, the price of farmland in the Midwest Corn Belt rose 25 percent in the third quarter, the biggest year-on-year jump in more than three decades, a survey by the Chicago Federal Reserve Bank showed.

The top U.S. corn-growing state of Iowa is seeing eye-popping prices, according to land brokers.

Last month, buyers of an 80 acre farm outside Des Moines paid $16,200 an acre for the row crop and pasture land, a staggering amount that surprised veteran land agent and auctioneer Jeffrey Obrecht of Farmers National Co in Iowa.

Ten years ago, farmland in the county was valued at $1,892 an acre, according to an annual Iowa State University survey.

"We had an opening bid of $10,000 an acre, and it kept going up and up and up," Obrecht said. "That was a lot, even for what we're seeing out here."

The rising values have helped buoy earnings for big farm equipment firms [e.g. DE] as flush farmers feel more comfortable investing in new tractors and other equipment, although it has not helped their shares outperform the broader U.S. market this year.

No. 1 Deere & Co is down 10 percent, No. 2 CNH Global NC down 17.5 percent and No. 3 Agco Corp down 8.8 percent so far this year, while the broad Standard & Poor's 500 index is little changed. All three companies' shares are up sharply over the past month, though.

BUBBLING UP?

Fears of a farmland bubble have been spreading for more than a year, fueled by warnings from some analysts and federal monetary leaders.

Leland Strom, CEO of the Farm Credit Administration, told Reuters Tuesday that he viewed the current climate with "extreme caution."

"I'm not ready to term it an asset bubble. I think we are in an era that warrants extreme caution by those in the industry, the farmers or investors who are purchasing land," he said.

Many say fears of a bubble are overblown, however. They point to fundamental demand for food and the fact that speculative investment in the sector is limited.

"Agriculture is cyclical, but typically when you have a bubble you have certain characteristics that are not in this market," said Loyd Brown, president of Hertz Farm Management, which handles acquisitions and farmland management from Colorado east to Illinois.

Although crop prices are down some 20 percent or more from their peaks earlier this year and about flat from a year ago, livestock prices remain higher, supported by strong demand.

The Chicago Fed also said that farm credit conditions continued to improve and interest rates on farm loans fell below the prior quarter's record lows.

"Farm credit conditions generally held steady across all district states in the third quarter," the Kansas City Fed said. "Bankers reported strong agricultural loan portfolios even with varied farm income levels. The loan repayment index was little changed from the second quarter and remained well above year-ago levels," it added.

Back in Nebraska, Sousek and his 24-year-old son would like to buy more land but have so far focused on paying down debt and improving their cropland. The good times are good, he said, but he is cautious about making more acquisitions.

"We've had good times and bad times ... things can change in a big hurry," he said.‹

[DewDiligence]

Boom Times Continue for US Farming

http://www.ft.com/intl/cms/s/0/8c6a37f0-1b33-11e1-8b11-00144feabdc0.html

›November 30, 2011 10:03 am
By Javier Blas

What makes North Dakota, Nebraska and South Dakota different from the rest of the US?

The first difference is that they have the lowest unemployment rate: 3.5, 4.2 and 4.5 per cent, respectively, compared with a national average of 9 per cent in October.

The second big difference is farming. Agriculture has the largest share of gross domestic product in the three states. While the national average is less than 1.5 per cent, it is 10.9 per cent in North Dakota, 9.4 per cent in South Dakota and 6.8 per cent in Nebraska.

A large agricultural sector was a curse in the 1980s and 1990s, but today, it is a blessing.

The US Department of Agriculture said on Tuesday that the net value added of agriculture to the US economy – adjusted by inflation – will be the highest this year since at least 1974. And the boom is likely to continue. Official figures, also released on Tuesday, show that in 2011, US farmers will take home for the first time more than $100bn in a single year. As Tom Vilsack, the agriculture secretary puts it, “agriculture continues to be a bright spot” in the US economy. Indeed, farming, together with natural resources production, particularly oil, is one of the few bright spots.

The agricultural boom has been a windfall to the US agribusiness sector, moving it for the first time in years into the mainstream consciousness of investors. Companies from Deere & Co, the world’s leading manufacturer of tractors and combine harvesters, to Monsanto, the seed and pesticides producer, to Cargill, the world’s top agricultural commodities trader, have benefited. At the same time, the price of farmland in agricultural states – now another popular investment – has surged, with year-on-year gains topping 25 per cent.

The USDA suggests that the country’s farm sector is heading to another good year in 2012, extending the boom for a fifth consecutive year. Over the past decade, net farm income has almost doubled as the US has expanded its production of food commodities – particularly corn – and prices have surged to historic highs. In 2001, the country’s farmers took home more than $50bn; this year, the USDA estimates they will earn $100.9bn, up 28 per cent from 2010. At the same time, government handouts paid directly to producers are set to drop to $10.6bn this year, down 1.4 per cent from 2010.

The surge in farm income is the result of a rare boom in agricultural commodities. Over the past 30 years, food prices have increased only briefly in a few occasions. Most of the time the spikes were isolated to single commodities – wheat, corn or soyabean. The current boom, however, is lifting the price of almost every agricultural commodity at the same time, a phenomenon last seen in 1973-74.

The boom has its roots in strong demand for agricultural commodities in developing countries, particularly China and India, the voracious appetite of the US biofuel industry, and supply and trade disruptions in key producers, from Russia to Australia.

There are some clouds on the horizon, however.

There has been a sharp increase in costs, with fertilisers up 28 per cent year-on-year and fuel up 27 per cent year-on-year. All in all, production expenses will rise 12 per cent to a record $320bn. The 2011 jump resembles the worrying increase in expenses witnessed in 2007 and 2008.

Also, the boom could be coming to a natural end. The multi-year run of high prices is an oddity. Historically, production of food commodities eventually outruns demand triggering a protracted period of low prices. Whether the continuing strong demand will curb the natural tendency of farmers to overproduce themselves out of prosperity remains to be seen. But in the meantime, North Dakota, Nebraska and South Dakota will continue to remain different.‹

[DewDiligence]

Faulty USDA Forecasts Roil Corn Market

[As a long-term investor rather than a trader, the machinations described in this article don’t interest me much; nevertheless, it’s helpful to understand them to be ready to take advantage of temporary price weakness in such stocks as MON and DE caused by USDA forecasts.]

http://online.wsj.com/article/SB10001424052970203752604576641561657796544.html

›DECEMBER 5, 2011
By LIAM PLEVEN And TOM MCGINTY

Government reports about the U.S. corn crop have become increasingly unreliable of late, contributing to wild swings in corn prices, a Wall Street Journal analysis shows.

Over the past two years, the Department of Agriculture's monthly forecasts of how much farmers will harvest have been off the mark to a greater degree than any other two consecutive years in the last 15, according to a Journal analysis of government data. This year's early-season forecasts also appear to have been way off. The next monthly report is due on Friday.

At the same time, periodic stockpile reports—government estimates of how much corn is stored in farm silos and other storage facilities—have generated big surprises. The average monthly swings in stockpile estimates between May and October, the heart of the growing season, have been greater this year than in any year since 1996, according to the Journal analysis.

The stockpile reports have had a big effect on markets. On Sept. 30, the USDA said a quarterly survey showed corn stockpiles were 23% higher than it had estimated earlier that month. Corn prices fell 6.3% in the futures market that day, shaving $5 billion off the value of corn in the fields.

"There is very much a lack of confidence right now among farmers" in the government data, says Bill Christ, who harvests roughly 100,000 bushels of corn a year in Metamora, Ill. "Can't they get it right?"

USDA officials blame unpredictable weather for recent errant production forecasts. They say the figures are snapshots that change based on fresh information, such as damage caused by heat waves or changes in consumption patterns.

"If somebody's going to be in these commodity markets, they better understand these things are subject to change," says Gerald Bange, chairman of the USDA's World Agricultural Outlook Board, which is involved in producing the data.

The U.S. grew 38% of the world's corn in 2010, when the domestic crop was worth $67 billion. Strong demand from foreign buyers, and from the growing ethanol industry, has added to market volatility. Jerry Norton, who tracks corn for the USDA, says because corn supplies are tight, "the market is much more sensitive" to changes in the department's reports.

The Chicago Board of Trade has long had limits on single-day price moves on corn and other commodities in the futures market. Corn prices have hit the basic limit 20 times since the start of 2009, with eight of those instances, or 40% of them, coming on the day of a USDA report, according to a Journal analysis of price data. Between 1996 and 2008, only 20% of such limit moves came on reports days.

Like many farmers, Mike Yost, a former USDA official who is now a partner in a Murdock, Minn., dairy farm, pays close attention to the reports. In January 2010, the USDA forecast a record crop, causing corn prices to plummet. Mr. Yost figured a record crop would keep corn prices low, so he didn't lock in his feed prices.

Six months later, the department said corn stockpiles were smaller than he and many others had expected, despite the bountiful crop. Prices shot up, and Mr. Yost's dairy operation had to pay an extra $200,000 to buy feed. "We just got too comfortable going on the government numbers," he says. "There's something not quite right in their formula."

Critics of the reports contend that weather alone doesn't explain the erratic numbers, especially in the stockpile reports.

Darrel Good, a professor at the University of Illinois who has written extensively about USDA data, says that a number of recent quarterly stockpile reports have been simply incorrect—the numbers have been higher or lower than the actual amounts in storage. "Things went haywire in June and September," he says. "The cumulative numbers just don't make sense."

A USDA spokesman says the agency stands by the numbers.

The USDA data drive all sorts of decisions in the agricultural economy and beyond. Farmers use the information to help decide how much their corn is worth and when they should try to sell it. Ranchers, ethanol producers and food companies all pay attention when making their own corn purchases.

Many other nations rely on U.S. corn for feed, and some foreign buyers key on the reports. China, for example, swooped in to buy U.S. corn when prices fell after this year's June 30 stockpile report.

For all their shortcomings, USDA production figures are considered the best domestic agricultural estimates available.

Corn buyers and sellers say the department's task has gotten harder in recent years. With global demand for corn on the rise and prices soaring, U.S. farmers have been planting more. Production has grown by 30% over the past decade. The growth of the ethanol fuel industry, which has become a massive consumer of corn, has further complicated matters.

Accurate information about agriculture has been a national priority since the Civil War. Today, two measures of the corn harvest that the USDA focuses on are how big the next one will be and how much is in storage.

In eight of the 11 years from 1998 to 2008, the difference between monthly production estimates made between May to October—when the size of the crop is less certain than late in the year—and final U.S. production totals averaged less than 3%, according to the Journal analysis.

Last year, the USDA overestimated the size of the harvest in its monthly forecasts by an average of 6%, the widest average overestimation since 1995. That means the final harvest was about 750 million bushels smaller than what was forecast—equal to about 20 days of consumption. In 2009, the department underestimated the crop by an average of 4.5%, the biggest underestimation since 2004. Current USDA figures for this year suggest that the department overestimated the total crop by nearly 10% early in the season.

The USDA is trying to improve its production estimates, which it provides each month starting in May. In May, June and July, the estimates are produced by Mr. Bange's Outlook Board, and typically are based on recent yield trends, weather conditions and surveys of farmers by the department's National Agricultural Statistics Service, which asks them how many acres they plan to fill with corn.

The USDA's statistics service takes over each August. As the crop begins to take shape, it asks tens of thousands of farmers how many bushels per acre they expect to produce.

To fill out the picture, the statistics service sends corn counters into hundreds of fields in corn-growing states. They stake out 15-foot sections, then count stalks and measure the length and diameter of cobs. [Not exactly my idea of an exciting job, LOL.] Their goal is to extrapolate total production [duh].

Joseph Prusacki, a top official at the USDA's statistics service, says the department is trying to figure out a more reliable guide to what developing corn will weigh when it is mature.

The stockpile reports pose different challenges. The statistics service produces the quarterly reports, using surveys of farmers and commercial grain facilities to determine how much corn the nation has in storage. The Outlook Board issues monthly estimates of the stockpile size at the beginning and end of the marketing year, which starts with the fall harvest. Quarterly surveys can lead to changes in monthly estimates.

Frustration over the data has mounted in recent years. After the June 2010 stockpile report that caught Mr. Yost off guard, the statistics service that August increased the Outlook Board's July production forecast by 1%, even as analysts were raising concerns about the threat from a heat wave. The service then slashed its production estimates in September and October.

By the time the harvest was in, the August forecast turned out to be more than 900 million bushels too high.

This year, the stockpile figures released June 30 were higher than analysts expected. Corn prices, which had been nearly $7 a bushel, plunged to $6.29 in a single day.

"The USDA overstated the crop, and we believe that's why we've seen a correction since then," Bill Lovette, chief executive officer of Pilgrim's Pride, one of the nation's largest poultry firms and a major feed buyer, told investors in late July, after prices bounced back.

Mr. Yost, the Minnesota farmer, who headed the USDA's Foreign Agricultural Service from 2006 to 2009, says if the USDA numbers were more reliable, "it would serve the whole food chain better."‹