A More Speculative Bubble
A report from the Western Farm Press in California. “Agricultural land sales across California appear to be leveling off after peaking in 2015. Even the ’seller’s market’ conditions in North Coast vineyards appear to be becoming more buyer and seller neutral. For Ben Slaughter, senior appraiser with Fresno-based Correia-Xavier, Inc., this neutrality can be seen in a slow-down of land sales. Even open land in the Central Valley is not trading hands as much as it was in recent years, he says. Land price trends followed commodity prices, suggesting an economically-driven marketplace, rather than a more speculative ‘bubble’ previously seen in non-agricultural markets. ‘I never saw a bubble in farm values,’ he said. ‘I maybe saw a bubble in commodity prices, but not in farm values.’”
“For walnuts, those larger sales also appear to have hit a high in late 2015 and early 2016 before quickly ceasing. Almond prices that on the spot market peaked at over $4.50 per pound are now below $3 per pound with the early December range, depending on kernel size, between $2.10 and $2.90 per pound. Walnuts seem to be in a more severe ‘correction’ than the other popular nut crops, Slaughter continued. ‘Walnuts are more dependent on exports to China than the others,’ he said. ‘The shine is definitely off of the nut crops.’”
“Another trend he’s seen is the willingness to plant tree nuts – almonds and walnuts mostly – on rice ground in the southern Sacramento Valley. According to rice industry leaders and growers, that move came about as the price for rice fell below the cost of production. ‘When you see guys planting trees on rice ground you know something is going on,’ he said.”
The Columbus Telegram on Nebraska. “The U.S. Department of Agriculture’s 2016 Farm Income Forecast reported what a lot of Columbus-area farmers already know. For many, it’s time to tighten their belts. This is the third straight year when commodity prices were lower than the cost of production for corn and soybeans. Livestock producers also took a hit with low prices for dairy, cattle and swine, so diversified operations have been feeling the pinch, as well.”
“‘(Diversification) has been a fail-safe, but it’s not a fail-safe at this moment,’ said Allan Vyhnalek, a University of Nebraska-Lincoln Extension educator in Platte County.”
“Although revenues are down, it doesn’t look like Columbus-area producers are out of the game. Unlike during the farm crisis of the 1980s, Vyhnalek said most farmers today are older and have a firm financial footing. ‘They’re really well-established financially, don’t have a lot of land debt, don’t rent grounds,’ he said. ‘It stresses them because they don’t have the cash flow they had before, but it’s not like they’re going to worry about foreclosure.’”
“He also pointed out that many younger farmers are tied to their family’s operation, providing a cushion to help them through the tough times. Those who are struggling either don’t have a good marketing plan, pay high cash rents or have large machinery debt or high living expenses.”
“Brad Luchsinger with Buss Auction and Realty in Columbus said agricultural ground and machinery are still being bought and sold in the area, even if buyers are more hesitant. ‘I see more caution in the air,’ he said. ‘The farmer, he’s pulling into his shell.’”
From Cronkite News on Arizona. “Arizona farmland has declined over the decades, leaving one generation of a Buckeye farming family concerned and another content. The Kerr family, longtime dairy farmers in Maricopa County, raised four generations of farmers in the Valley. Brothers David and Jerry Kerr, primary witnesses to the decrease in farmland over three decades, fear for Arizona’s agricultural future. Their nephew, Wes Kerr, feels differently. He believes new efficiencies and technology mean farmers can do more with less land.”
“Jerry Kerr witnessed the decline firsthand throughout his 20 years in the cotton industry. ‘There’s three cotton gins left in Arizona now, and there were, when things were booming, probably 30,’ he said.”
“Studying soil nutrients and breeding heartier crops also contribute to today’s efficient farming culture, Wes Kerr said. And nutritional diets, up-to-date animal health care and spacious living conditions led to increased milk production. ‘Each cow produces about 75 pounds of milk per day,’ he said.”
“That amount fluctuates throughout the seasons, with decreased production in the summer and increased production in the winter. ‘Each cow is averaging 10 gallons of milk a day,’ Wes Kerr said. ‘When you think about back in the day, when technology wasn’t up to date, there was no way a cow could produce 10 gallons of milk back in the ’40s.’”
“U.S. dairies produce more milk today with one-third the number of cows seen decades ago, he said. ‘Back in 1940, in the United States, there were 26 million dairy cows,’ Wes Kerr said. ‘Today there’s less than 9 million dairy cows, and with those 9 million dairy cows we’re producing more milk than they had with 26 million dairy cows.’”
From Agriculture.com. “With a new production year about to unfold, it’s a good time to take a closer look at crop input costs and see how these might be restructured in order to bring a more positive outcome to year-end profitability. Standing front and center in most farmers’ economic picture is, of course, the cost of land rent.”
“‘It’s easily the biggest expense that farmers are trying to manage,’ says Dale Nordquist, associate director of the University of Minnesota’s Center for Farm Financial Management. ‘Most producers we work with rent more than 50% of their land. It’s not unusual for larger crop producers to rent as much as 70% to 80% of their land. These farmers work with a lot of different landowners.’”
“‘We see a tremendous variation in the rental rates that farmers are paying,’ he says. ‘With present economic conditions, it’s hard to find a profit in most of these rates, though.’”
“Scaling land rents back to a potentially profitable level requires negotiation with landowners, naturally. Both opportunity and risk are inherent in the process. A lowering of the rate would, of course, be a positive outcome for the producer. Yet, the negotiation process could also result in the producer’s loss of the land.”
“Nordquist encourages looking to your bottom line for insight about what’s at stake for you personally. ‘Producers can’t continue to lose money at the rate at which they have been losing money,’ he says. ‘In 2015, the average crop producer in Minnesota only made $27,000 from the whole farm. That doesn’t feed a family, and 50% of farmers made even less than that.’”
From Farm Futures. “In the last month or so, it is evident farmers are putting aside emotions and are once again bidding based on the merits of profitability. This week was the latest example. At auction, land comparable to a farm which sold for $12,000 an acre last December sold for just under $8,000. One could still argue $8,000 an acre is not profitable, but it’s a whole lot closer than $12,000! That’s a whopping 33% reduction. There have been several other land auctions with similar results, some parcels hardly even finding a bid.”
“The same is beginning to happen as land rents are negotiated. With red ink situations, farmers have reached the end of the line with excessively priced land rent contracts. Several ag professionals have told me the same thing: Real life business policies of dropping the bottom X percent of land, leases that underperform financially, is happening in the farm offices. Most the time these are also the landlord-tenant situations which teeter every year. Operations are tired of the uncertainty.”
“The common argument from land owners is this: ‘You guys made good money a few years ago, now you can give it back.’ This just isn’t right. When we were making good money (a rare era in farming) land rents went up, and much of the profits were spent on updates to equipment and facilities. Land rents are just now starting to retreat.”
