December 26, 2016

From Buy, Buy, Buy To Stop, Stop, Stop

A report from Harvest Public Media. “Cropland in the Midwest is losing its value as the downturn in the agriculture economy continues. Record-high crop prices contributed to record-high land values in 2012 and 2013. But now, that party is over. Iowa State University economist Wendong Zhang says across the Corn Belt, and into the Great Plains, farmers are now suffering from oversupply, despite strong demand. The result has been a drop in commodity prices, and a bust in the farmland bubble. ‘Because we had this really high profits, everyone is trying to increase productions,’ Zhang says.”

The Farm & Ranch Guide. “Land values have been on a slow, gradual decline since their peak several years ago, but Brent Qualey, accredited land consultant/rural appraiser for Farmers National Company, said the land market is very localized and varies depending on land quality. ‘Right now there’s a good balance,’ he said. ‘When something comes up for sale, there’s still an adequate amount of buyers out there. There hasn’t been much land for sale this year, and there wasn’t much land for sale a year ago, but if we all of a sudden start to see some lender-encouraged sales and we start to see some people say ‘well now is the time to sell,’ then there will be a big influx of land being put on the market. That could definitely lead to a softening in values.’”

From KPC News. “Farm incomes will likely continue to slump next year, with grain prices remaining at or near their lowest levels in about a decade, according to an analysis by agricultural economists at Purdue University. U.S. agricultural exports are expected to recover slightly after two years of decline, but not nearly enough to offset increasing global grain stocks, says Chris Hurt, editor of the Purdue Agricultural Economics Report. ‘In the last three years, U.S. production has outpaced usage for corn, soybeans and wheat,’ Hurt says. ‘Abundant inventories of grains and soybeans mean low prices.’”

“Livestock producers typically benefit when the grain they use to feed their animals is cheaper. But three years of steadily increasing production has kept beef cattle prices low with little recovery in sight, says Jim Mintert, director of the Center for Commercial Agriculture. ‘After averaging near $153 per hundredweight in 2016, prices for 500-600 pound steers in Kentucky could average in the $120s in 2017,’ Mintert says. ‘Calf prices at this level are below the break-even price on many cow-calf operations, which could bring herd expansion to a halt in 2017.’”

“According to the annual Purdue Farmland Value Survey, an acre of average Indiana farmland was worth $7,041 last year, down from a peak of $8,129 in 2013 — a 13.4 percent decline. ‘The primary force behind the farmland value decline has been the decline in crop production profitability,’ says Craig Dobbins, farm management specialist.”

The Alberta Farm Express. “Errol Anderson’s opinion on the global economic downturn isn’t one you’ll read in too many newspapers. ‘I’m going to make a bold statement: We are at the end of an 80-year capitalistic cycle that has already been prolonged 10 years by central bank manipulation. It has to be refreshed, and it will be,’ said Anderson, president of ProMarket Communications. ‘I believe that economics always rule. Central bankers can do whatever they’re doing to kick the can (down the road) but in the end, economics always rule. There’s no sense in denying what’s going on in these financial markets right now.’”

“Central banks have been trying to jumpstart the flagging economy by printing money and adjusting interest rates, Anderson said at the Farming Smarter conference in early this month. ‘Right now, the central bank stimulus bubble is three times larger than the dot-com and the U.S. housing bubble combined,’ he said. ‘We’ve got a very sleepy market right now. In 2017, we’re going to see it start to swing because economics are going to start to cut into these markets…. Something has to give.’”

“So what does this mean for agricultural commodities? ‘Demand is king — not supply,’ said Anderson, pointing to the plunge in cattle prices. ‘Cattle are in short supply, aren’t they? Shouldn’t prices hold? The cattle market was in tight supply, and we were told that these prices would continue to go higher into 2016 and 2017, and all of a sudden feeders went to half price. Why? Demand.’”

“People tend to think that supply and demand equals price, but ‘in reality, it doesn’t work that way.’ ‘It’s the guy with the chequebook and what he wants to pay that dictates that,’ said Anderson. ‘So when you see strong demand — even on the grain side — all of a sudden it will quit and come back down. We go from buy, buy, buy to stop, stop stop.’”

“For wheat, the story is ‘very aggressive’ discounting by Russia and Ukraine, he said. ‘The Black Sea region is really dictating where global wheat prices are going. Russia’s currency crumbled about a year ago, and that gave them a huge competitive advantage. It’s going to be tough’ if you’ve only got lower-quality wheat to sell.”

“‘Grief’ is a good word to describe the cattle market right now, said Anderson. ‘What’s bugging cattle? Hogs. The hog market just fell apart,’ he said. ‘The meat protein market in the U.S. went into a glut, and beef had to compete against that.’ Right now, the situation for feeder cattle is ‘ugly,’ he said. ‘Backgrounders took the brunt of this. It went from $240 a hundredweight down to $120. This feeding cycle was worse than BSE,’ said Anderson.”

“The boom years appear to be over, and producers — like those in the oil and gas sector — are going to have to adjust to the ‘new normal,’ said Anderson. ‘The new normal is prolonged, slow economic growth globally. Nothing is going to change that.’”

All The Signs Of A Housing Bubble Were Prevalent

A report from the National Post in Canada. “Since housing supply was a challenge in Fort McMurray long before the fires destroyed more than 2,400 buildings in what had been an overpopulated city, and since thousands returned after the fire to find their homes damaged beyond repair, you would expect housing to still be an urgent concern in the Alberta oil-sands capital. But the city was strangely prepared for an emergency like this after solving that 20-year-long housing crunch, and everyone in Fort McMurray is celebrating the holidays this year with a roof over their head.”

“By 2014 with the oil industry beginning to suffer, local urban development plans were put on hold. In the months before the fire, the downturn in oil prices left Fort McMurray with a new problem: the city actually had too much housing. ‘With the economic downturn, you have areas where houses are just sitting empty,’ says Tim Gensey senior public affairs adviser of the Canadian Mortgage and Housing Corp. ‘Homes that were selling for $800,000 dropped to $650,000.’”

The Australian. “In Lamington, a country area of Western Australia covering mining towns such as Kalgoorlie, 2600 households are suffering ‘mortgage stress.’ The pain is more severe in Harris­town in Queensland, about 130km west of Brisbane, where more than 4500 households are in difficulty. Research covering the top 20 postcodes with the greatest mortgage stress features many country areas but Melbourne’s Essendon and Preston each have around 2500 households in difficulty, as does western Sydney’s Bossley Park.”

“Despite record low interest rates and unemployment below 6 per cent, Standard & Poor’s said arrears ticked higher in October and the proportion of ‘non-conforming’ borrowers behind on payments was near record levels. Former Commonwealth Bank chief David Murray this month said all the signs of a housing ‘bubble’ were prevalent, such as ‘people’s behaviour … and ­defensiveness about any correction.’ Mr Murray told Sky Business that investors owning multiple properties that were cross-collateralised who could become forced sellers were the ‘risk to the system.’”

The Borneo Post on Malaysia. “In an economic climate as testy as Malaysia’s now, it comes as no surprise that less and less homeowners are buying properties. According to PropertyGuru Malaysia country manager Sheldon Fernandez, the residential property market to date has seen a decline in transaction volumes in tandem with the market slowdown. ‘It is typically a buyers’ market as buyers have more choices now, taking their time to find the best deals,’ Fernandez observed. ‘Horror stories on buying first home properties occur because many are not aware of the steps one should take or check before purchasing a home.’”

“Second-hand units are common in the scene, but as Daniel Hii Jun Chung discovered, things can go wrong just as easily. ‘My first home was a second-hand unit. The owner was always away during the daytime so I had to view the home at nights. This was one of the biggest mistakes I ever made,’ he explained. ‘At night, any stain — be it water marks or uneven paint colouring and wall tiles expansion — are very hard to notice. Furthermore, with artificial lighting, there are shadows everywhere so many imperfections were hidden.’”

From Frontier Myanmar. “It is not unusual to hear the word ‘weak’ used in connection with the high end of the real estate market in Myanmar. The market has been squeezed since 2014 and the consensus is that sales are unlikely to improve anytime soon. If realtors are saying the general condition of the real estate market is not good, you can be sure that the high-end situation is grim. That’s certainly reflected in the Colliers figures, showing that luxury and high-end units – with an average contract price of US$784,000 and $535,000, respectively – account for 62 percent of total pre-sales stock.”

“‘The market right now is focusing on the high-end; I don’t think that’s the market,’ said Mr Melvyn Pun, chief executive of Yoma Strategic Holdings, a big player in the real estate sector. ‘Very few people can afford them and that’s not the general direction of the country,’ he told journalists. ‘Now the prices are higher than Malaysia, even Thailand. We need real innovation, real thinking to bring prices down.’”

The Diplomat on South Korea. “A notable beneficiary of corporate lending for the last three decades has been the Korean real estate market. A popular outlet for capital accrued in better times, Korea’s property market has witnessed the construction of hundreds of new apartment complexes, resorts, and luxury hotels. Companies like Lotte, SKT, and Hyundai, which traditionally had nothing to do with real estate, invested heavily in new property. This investment has continued in 2015 at a record pace, despite the fact there has been a serious housing glut in recent years with tens of thousands of apartment units remaining empty, prompting concerns about the inevitability of a substantial property bubble.”

“In the last decade, average Koreans have been engaged in what can only be described as a borrowing binge. At the start of 2015, South Korea was one of only seven countries named by the McKinsey consulting firm to have unsustainable household debt. These reports, unfortunately, have fallen on deaf ears as Korea’s household debt has continued to balloon. When watching the current political scandals, one can only imagine how much incompetence and corruption might have been complicit in creating the various economic dangers outlined above. Taken together, the informed observer can only face the future with trepidation as it looks like a long series of dominoes have already been lined up, just waiting to fall.”