Prices for high-quality cropland remain stable across most regions, despite lower prices for many crops since last month’s Beige Book report. Crop prices are falling due to early reports of very strong crop yields and expectations for high yields in regions where harvest is just getting underway. This higher production is expected to offset some of the effect of lower prices on farm incomes. Federal Reserve Districts in Chicago, St. Louis, and Kansas City report very good crop conditions at the beginning of harvest. Chicago and Minneapolis expect large corn and soybean harvests. Drought conditions persisted in parts of the Atlanta, Dallas, and San Francisco Districts, but have improved with recent rains. Atlanta, Chicago, Minneapolis, and Dallas note that livestock, poultry, and dairy producers are benefiting from increased output prices and lower feed costs.

Prepared by the Federal Reserve Bank of Minneapolis and based on information collected through October 6, the Beige Book summarizes comments received from businesses and other outside contacts.

The following is a Fed region-by-region summary of farm sector economic conditions, starting in the Mid-Atlantic and moving west:

Richmond — Corn prices declined further over the past six weeks. Soybean prices also fell, while cotton prices were unchanged. A West Virginia farmer stated that grain prices declined after seven years of above-average prices. Farmers’ input prices were unchanged in South Carolina and Virginia. In South Carolina, corn harvesting is complete and peanut harvesting is underway. In West Virginia, crop planting, reseeding, and harvesting are on schedule.

Atlanta —Parts of Alabama, Florida, and Georgia have experienced abnormally dry-to-severe drought conditions, but conditions have improved across the region following recent rains.

After this month's Fed Beige Book reporting wrapped up Oct. 6, heavy rains fell across northern Mississippi, Tennessee, most of Kentucky, most of Alabama and northern Georgia. Large areas of drought stress have been reduced or erased, leaving both Kentucky and Tennessee drought/dryness free. Moisture conditions also improved in all parts of Alabama, the Florida Panhandle and southwestern and northern Georgia. Source: National Drought Mitigation Center

Lower corn prices continue to benefit poultry and livestock producers that rely on corn for feed. USDA has announced new financial assistance for Florida citrus growers to help with the removal and replacement of stock affected by citrus greening.

Chicago — Overall crop conditions were very good at the start of the harvest. The Midwest should see record corn and soybean harvests. Early results suggest yields for corn and soybeans will range from above-average to record-high levels. The huge anticipated harvests have pushed down corn and soybean prices. Crop income is lower than a year ago as higher yields will be insufficient to offset lower prices. Crop insurance will cover some of the lost income, but farmers already are planning to trim costs for next year, particularly on farm equipment and other capital purchases. Corn farmers helped bid up cattle prices, with the intention of using the abundant harvest as feed for their own cattle production rather than selling it. Hog and milk prices were higher as well, contributing to production expansions in pork and dairy products.

St. Louis — As of late September, about 75% of the District’s corn, rice, and soybean crops was rated in good or excellent condition. Similarly, about 60% of pastureland was rated in good or excellent condition; Kentucky’s pastureland, in particular, has improved significantly since the previous report. Harvest completion rates across the southern Midwest and northern Mid-South region have lagged behind their five-year averages.

Minneapolis — Agricultural conditions remain mixed. The most recent USDA forecast calls for substantially increased production of corn and soybeans this year in District states compared with 2013. Livestock and dairy producers continue to benefit from lower feed costs and high output prices. Most of the district’s crops are in good or excellent condition despite late planting; however, an early frost damaged soybeans in some parts of Minnesota and South Dakota. Relative to a year earlier, prices received by farmers in September were lower for corn, soybeans, and wheat; prices increased for hay, cattle, hogs, poultry, and milk.

Kansas City — Despite expectations of above-average yields, further declines in crop prices continue to weigh on farm income prospects in the region. However, crop insurance and some pre-selling of this year’s crop at higher prices earlier in the year may help mitigate the effect on overall farm incomes of recent spot price declines. The corn and soybean crops are mostly rated in good to excellent condition as harvest gets underway. Cattle prices have risen since month, while hog prices have fallen due to increased production, due to higher carcass weights. Demand for farm operating loans has risen substantially from last year as more crop producers borrow to cover operating costs. Bankers also report a rise in requests for agricultural loan renewals and extensions and note that loan repayment rates have edged down from the high levels seen the past few years. Despite the sharp drop in crop prices, farmland values are typically holding at high levels.

Dallas — Drought conditions eased slightly over the past six weeks, although more than half of Texas remains in a drought that has plagued the state since the end of 2010. Harvesting of row crops like cotton and corn continues, and crop conditions are slightly better than last year. Cattle prices continue at a record high while feed prices have fallen, boosting profitability for cattle producers. Domestic and export beef demand remain strong despite retail beef prices reaching a record high in August. Improved moisture conditions overall have increased optimism for winter crops and expanded prospects for cattle herd rebuilding.

San Francisco — Conditions are mixed. Continuing droughts in California and parts of Washington and Idaho have increased water costs and crimped production of cotton and various grains, vegetables, nuts, and legumes. Farmers have increased the number of acres lying fallow and reduced herd sizes. However, low corn prices and stable fertilizer and machinery prices are benefiting dairy and feedlot operations. Milk prices have increased, and export demand for hay from the West Coast reached an historical peak. Agricultural land prices remain relatively high. ■

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Cash rent negotiations for 2015 are still in flux in many areas as landowners contemplate $3.80 per bushel for next year’s corn crop and farm tenants seeking to leverage the current weak prices into lower rents. Farm tenants are even getting help on suggestions for cutting rents from state universities, such as this August post on University of Illinois’ farmdocdaily site.

While farm income is forecast to fall 6% this year, it is still expected to remain well above the previous 10-year annual average.

With demand to lease land still strong, most observers don’t see rents adjusting as much as some farmers would like. For example, an early September open-bid cash rent offering in South Central Wisconsin of seven parcels generated top bids averaging $295/acre for two five-year leases, and an average $323/acre on four three-year leases.

On September 29th, the Door County Cherryland Airport also learned how it can pay to expose cropland to the open market. The airport had historically negotiated rates privately with area farmers for its 147 acres of cropland. Tenants struck rent deals to pay $45/acre in 2012, $50/acre in 2013 and $55/acre in 2014. This fall, the airport put the land out for competitive bid for the first time.

Door County Cherryland Airport in east-central Wisconsin will see its cropland lease revenues nearly triple from $55 per acre to $151 per acre as a result of its recent open-bid lease offering.

The winning bidder for a three-year lease starting in 2015 will be paying $151/acre or nearly three times the below-market rates local farmers had negotiated.

The airport’s $151 lease rate is well ahead of the $89 average rate for non-irrigated cropland as reported in our 2014 Cash Rent Survey Report of USDA data.

However, the winning $151 bid nearly matches the average expected cash rent rate in our 2015 Expected Rents® Report for Door County, which calculates an average expected rent of $149/acre and a range of $107 to $192.

Open-bid rent offerings are the most effective way to discover the true lease value for your land.  Though obtaining a competitive rental rate is clearly a chief consideration when evaluating lease bid proposals, it’s also important to consider the qualifications and experience of the bidders, their reputation for farm care-taking and stewardship of the land, feedback from references and other landowners who do business with the prospective tenant, the bidder’s business stability and financial strength, and the completeness and clarity of their lease offer.

If you lease your land to a local farm operator, it’s important to gather as much timely lease market intelligence as possible to ensure your lease rate reflects current market conditions. This can be increasingly difficult during volatile farm commodity markets.

Our Cash Rent Analytics offer two resources to increase your lease market knowledge. Save $5 with our Cash Rent Combination Analytics Packageand get better insights into rent price points by accessing both our 2014 Cash Rent Survey Report and 2015 Expected Cash Rents® Report. ■

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Farming contacts in many regions across the U.S. are reporting record-high crop yields, prompting price declines for cotton, corn, soybeans, and other agricultural commodities. The lower prices are cutting income expectations for crop producers, while reducing feed costs for livestock producers. The Federal Reserve Bank of Dallas reported that record high cattle prices are slowing the efforts of Southern Plains cattle producers to rebuild their herds. The Chicago Fed notes that Midwest hog and cattle prices have slipped since early July; however, higher milk prices are helping the livestock sector remain profitable. Contacts report drought-related disruptions in the Southeast, Southern Plains and Pacific West. The San Francisco Fed notes that shipping costs for produce growers are rising because locomotives are being diverted to the Midwest to haul oil and gas rail cars to refineries in Texas

Prepared by the Federal Reserve Bank of Philadelphia and based on information collected through August 22, the Beige Book summarizes comments received from businesses and other outside contacts.

The following is a Fed region-by-region summary of farm sector economic conditions, starting in the Mid-Atlantic and moving west:

Richmond – Prices for some crops continued to decline, while input prices were unchanged. Cotton prices decreased in the last six weeks and corn prices fell year over year. However, farmers reported no change in input prices in recent weeks. Planting and harvesting continue on schedule. A Virginia producer reported completion of summer soybean planting and barley harvesting, while corn harvesting has begun in South Carolina. A sod farmer notes that he expects high demand and tight supply to end soon.

Atlanta – Parts of Georgia, Florida, and Alabama experienced abnormally dry to moderate drought conditions since early July, while the rest of the Southeast ended the period drought free. USDA designated several counties in the Florida Panhandle as primary natural disaster areas due to damages and losses caused by excessive rain earlier this year. Lower corn prices are benefiting livestock and poultry producers that rely on corn for feed.

Chicago – Corn and soybean production in the Midwest should exceed last year’s levels. Although much of the region recently weathered a dry spell, cool temperatures have so far helped reduce the stress on crops. Nonetheless, crops in the northern parts of the Midwest may not fully mature before the dates of normal first frosts. With national records expected for the corn and soybean crops, prices have moved down since the July 7th report. To avoid selling crops for lower prices than in recent years, farmers have explored options for storage and livestock feeding. Higher milk prices are helping the livestock sector stay profitable even though hog and cattle prices have slipped. Ethanol prices have eased, but production remains profitable.

St. Louis – As of mid-August, around 73% of the southern Mid-South and northern Delta region’s corn, rice, and sorghum crops was rated in good or excellent condition. In contrast, only 56% of the region’s pasturelands was rated in good or excellent condition. Farmers will likely produce close to 9% less corn in 2014 than in the previous year. However, District rice, cotton, and sorghum production will be 34%, 17%, and 11% higher than last year, respectively.

Minneapolis – Agricultural conditions have been mixed since the July report. Most of the Northern Plains region’s corn and soybean crops were in good or excellent condition through mid-August, with strong yields forecasted. Livestock and dairy producers continue to benefit from higher output prices and lower feed costs. A majority of lenders responding to the Minneapolis Fed’s second-quarter (July) survey of agricultural credit conditions reported lower farm incomes compared with the previous quarter. Relative to a year earlier, prices received by farmers in July were lower for corn, soybeans, and wheat; prices increased for hay, cattle, hogs, poultry, eggs, and milk. A mildew outbreak in North Dakota may reduce sunflower yields.

Kansas City – Crop prices, along with farm income expectations, were lower due to improved growing conditions and elevated crop production levels. Improved growing conditions and the potential for record crop production this fall depressed prices and lowered farm income expectations since the July report. The majority of the Plains region’s corn and soybean crops are in good condition but improved yields may not offset the effect that recent price declines will have on income. Farm income expectations remain well below year-ago levels even with strong profits in the livestock sector, due to rising cattle and hog prices. Demand for farm operating loans rose further, but loan-to-value ratios remain relatively conservative. Still, some bankers report loan repayment rates have weakened since last year and also note a rise in loan renewals and extensions. Despite lower farm income, cropland values are generally holding steady, while strong demand for high-quality pasture is supporting modest gains in ranchland values.

Dallas – Agricultural conditions are improving as the severity of drought conditions in the Texas Panhandle and southern New Mexico eased since early July. Texas’ cotton crop was mostly in fair to good condition and harvesting started in some areas. Most crop prices declined over the past six weeks due to expectations of very high U.S. corn, cotton, and soybean production. Domestic demand for beef remains solid despite continued record-breaking cattle prices. Some cattle producers have started to rebuild their herds after the sharp liquidations that took place over the past few years, but progress has been slow because of historically high cattle prices.

San Francisco – Contacts reported good agricultural conditions in the District overall. Excellent cotton and grain harvests are expected. Produce supplies are somewhat constrained due to the drought in California, and prices of some products, including grapes and nuts, are high. Growers in California were able to tap underground aquifers this year but are concerned about water sources next year should the drought continue. Contacts reported a spike in growers’ shipping costs due to the diversion of locomotives to the Midwest to haul oil and gas rail cars to refineries in Texas. ■

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