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.’”