May 22, 2017

The Crux Of The Problem Is Oversupply

A report from Fox News. “Top Republican lawmakers have expressed concerns about the cuts President Trump plans to make for the 2018 budget year, which is due out Tuesday. The blueprint is certain to include a wave of cuts to benefit programs such as Medicaid, food stamps, federal employee pensions and farm subsidies. ‘We think it’s wrongheaded,’ Rep. Mike Conaway, R-Texas, chairman of the House Agriculture Committee, said about the looming cuts to farm programs. ‘Production agriculture is in the worst slump since the depression — 50 percent drop in the net income for producers. They need this safety net.’”

From Iowa Public Radio. “Don Batie farms in Dawson County. Batie is 58-years-old and says that makes him one of the younger farmers around. He and his wife farm about 1,500 acres of mostly corn and soybeans. They’re raising more grain than ever before, but it’s not paying off right now. ‘We’ll probably end up losing money for the year,’ Batie says. ‘Unfortunately that’s kind of the way agriculture goes, we have boom and bust.’”

The Des Moines Register in Iowa. “When his 31-row planter broke down while sowing soybeans earlier this month, Michael Fritch and his dad patched it up as best they could, after deciding to put off buying new equipment for a while. It’s one more way to cut costs when commodity prices are dismally low and a farming downturn is now in its fourth year. ‘There’s no question, you stress about it,’ said Fritch, 39, who farms near Mitchellville.”

“This year could be pivotal for many Iowa farmers, battling to turn a profit as they plant 23.4 million corn and soybean acres across the state. Delinquency rates are rising from record lows to around historic averages, said Chad Hart, an Iowa State University agricultural economist. Record corn and soybean production last year helped blunt the financial drag, but farmers are paying for it this year as the glut of grain depresses prices, he said. Iowa farmland values have fallen about 18 percent to $7,183 an acre from a 2013 record high, according to ISU land surveys. ‘There could be a wave of financial issues still coming in the farm sector as we continue to see low prices and the erosion of the farm financial sheet,’ Hart said.”

The Lincoln Journal Star. “Total agricultural land property values across Nebraska dropped for the first time since at least the early 1990s, based on the Department of Revenue preliminary valuation report for 2017. Commodity prices have declined to about half of what they were in 2013-14. We are entering the fourth consecutive year of a downturn in the ag economy since the near record incomes of 2013, said Nathan Kauffman, assistant vice president with the Federal Reserve Bank of Kansas City.”

“Commodity prices have a lot to do it, said Hall of the ag land valuation decrease. ‘Cash rents are down, too. So if someone is buying land to make a living, it is going to be less,’ he said.”

From Kansas Farmer. “If you are hoping for a turnaround in the free fall of the ag economy over the past couple of years, you’ll be disheartened by what USDA Chief Economist Rob Johansson had to say to the North American Ag Journalists when he addressed them in Washington, D.C. If his read on market signals is accurate, farmers will be facing a decade of prices very close to what they are seeing today.”

“The crux of the problem, he said, is oversupply. U.S. farmers produce far more corn, soybeans, wheat, cotton, beef, pork and dairy products than the U.S. can consume. Johansson said commodity prices are already down between 50% and 70% even as production is increasing, creating the likelihood that prices will stay depressed. ‘Right now, it looks like record crops of corn and beans will be coming out of South America, and that will continue the downward pressure,’ he told the journalists.”

The Tennessean. “Members of the Rollins family were looking to diversify their real estate portfolio beyond industrial properties that house their Nashville Wire Products Co. when they stumbled upon the concept of investing in farmland. ‘Unless people are burning down forests to create more arable land, it’s pretty much a fixed thing,’ said Steve Rollins, third-generation president of shelving products maker Nashville Wire Products.”

“Investing in farmland is seeing growth as a vehicle for taking advantage of the long-term need to feed a growing world population. More wealthy individuals, pension funds and other institutions also see that emerging asset class as a way to reduce risk in their portfolios. Randy Dickhut, senior vice president of real estate operations for Omaha, Neb.-based farm and ranch management and real estate company Farmers National Co., sees direction of interest rates and effects of grain and livestock prices impacting land prices and values. He also cites risk factors such as projections of global population growth and food and fiber demand falling short and expectations of slow improvement in farm incomes, which means farmland values might not rise as much in the near term.”

“Dickhut cautions investors to seek help from people who understand variations in the quality of land, which can determine the rate of appreciation in value and income for the farmland owner. ‘When people invest in farmland and don’t know everything they need to know and engage the right experts for help, it ends up being a poor investment because farmland is a long-term investment,’ he said.”