Agriculture: The Year To Come

At the dawn of the new year, farmers are strategizing planting for season ahead. Most of the U.S. Corn Belt has a solid frost, which is starting to kill soil pests, fungus and other crop nuisances, which gives U.S. farmers an advantage unseen in South America. Grain prices suffered in December due to expectations for higher grain production worldwide in 2013 and budgetary concerns in Washington. China has been restructuring its soybean purchases by cancelling multiple 2012/13 orders from the U.S. in hopes of buying at lower prices, although a weak U.S. dollar may provide the stability grains need.

Grain Prices
Corn prices decreased by 6.7% this month, closing at $6.98 per bushel. Higher corn acreage in the U.S. and South America in 2013 lead to a decline in corn with spillover from the soybean market. The USDA kept corn balance sheets unchanged this month in the WASDE Report. Supplies are still very tight as the stocks-to-use ratio is at 5.8%, the lowest since 1995.

Year-over-year, more than 2.1 million more acres of corn will be planted in the U.S. in 2013 according to Informa Economics, putting the total acreage at 99 million acres. Informa's corn acreage forecast increased due to additional acres projected in the Western Corn Belt, including 500,000 additional corn acres in North Dakota.

Soybean prices decreased 1.3% this month to close at $14.18 per bushel. In early December, soybean prices rallied due to excess moisture delaying the planting in Argentina and the USDA decreasing the amount of estimated ending stocks in the U.S. by 10 million bushels to 130 million bushels on increased crush usage. The hot and dry weather improved in Brazil and soybean prices declined mid-month. China has cancelled U.S. soybean orders totaling close to 1 million metric tons to purchase later at cheaper prices.

Wheat prices declined this month by 7.8%, closing at $7.78 per bushel. U.S. ending wheat stocks were estimated 7.1% higher by USDA to 754 million bushels due to slowed exports and strong competition globally for the second straight month. The drought in the U.S. Plains is a growing concern although recent snowfall has helped conditions.

Farmland Values
Farmland sale prices have continued to increase throughout December as the typical selling season is in full motion. Landowners hoping to take advantage of smaller long-term capital gain taxes were eager to sell and close in 2012 providing opportunity for farmland purchasers.

The amount of investors buying farmland in the U.S. has continued to decline. Farmers have increased from comprising of 70% of all farmland buyers in 2010 to now 78% with only 18% being investors, according to Iowa State University's Land Value Survey released in early December.

The price of Iowa farmland increased by 23.7% from 2011 according to Iowa State's recent land survey. This is the third year in a row that Iowa farmland values increased by more than 15%. High grade farmland, on average, is now valued at $10,181 per acre in Iowa. Low interest rates and increasing commodity prices were two key factors for such an increase in value, according to Professor Mike Duffy.

The Creighton University Farmland Price Index decreased slightly to 82.5 from 83.9 the previous month. This marks the 35th consecutive month the index has been above growth neutral. The farm equipment sales index increased to a 67.0 vs. 60.4 last month. Bankers were asked where cash rents have moved over the last 12 months and respondents believe cash rents have increased by 15%.

South America Crop Conditions
Heavy rainfall totaling over four inches in Argentina's fertile Pampas region in late December has put more pressure on farmers trying to finish planting corn and soybeans before it's too late. The long-term weather forecast appears to be drier in Argentina as a final hope for farmers.

In northern Brazil, the first harvest has recently started on early maturing soybeans. Hot and dry weather had given farmers problems while trying to plant soybeans last month, but cooler weather and adequate rainfall has since helped insure planting was successful. We are closely monitoring any further delay in the South American growing season as it may position U.S. exports to fill a worldwide short-term supply void.

Outlook
Farmers are preparing for the upcoming planting season by purchasing inputs and trying to acquire additional acres by means of renting or purchasing. Investors will also be sourcing farmland for sale as the typical buying season is still in session for a few more months. We will be closely monitoring planting expectations for 2013 as farmers strategize to take advantage of high commodity prices.