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Archive for December, 2011

Crop Insurance Premium Rates to be Lowered

December 20th, 2011

Contributed by William Edwards, extension economist

A recent study of historical crop insurance payments concluded that loss payments in the Midwest have been decreasing in recent years, and that a general reduction in premium rates is justified.  Changes in both technology and weather trends are responsible for lower loss ratios.  The Risk Management Agency (RMA) has announced that 2012 rates will be reduced by an average of 7 percent for corn and 9 percent for soybeans across the country.  However, premiums reductions in Iowa will be even greater, averaging 13 percent for corn and 9 percent.  Adjustments will vary by county, however.  Rates for other crops are being studied, and possible adjustments will be implemented in 2013.

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Crop Insurance

Farmland Value Reaches Historic $6,708 Statewide Average

December 14th, 2011

Mike Duffy, ISU Extension economist, releases results from the 2011 ISU Land Values Survey.

Average Iowa farmland value is estimated to be $6,708 per acre, an increase of 32.5 percent from 2010, according to results of the Iowa Land Value Survey conducted in November. This is the highest percentage increase ever recorded by the Iowa State University annual survey. The increase matches results of other recent surveys of Iowa farmland value — the Chicago Federal Reserve Bank’s estimated 31 percent increase in Iowa land values and the Iowa Chapter of the Realtors Land Institute’s 12.9 percent increase estimated for six months of 2011. The 2011 values are historical peaks.

“The 2011 land value survey covers one of the most remarkable years in Iowa land value history,” said Mike Duffy, Iowa State University economics professor and extension farm management economist who conducts the survey. “This is the highest percentage increase recorded by the survey, and the average land value of $6,708 per acre, when adjusted for inflation, is at an all-time high.” The previous inflation adjusted high was in 1979.

Scott County, with an estimated $9,223 average value for all farmland, saw the highest percentage increase and highest increase in value, 37.7 percent and $2,524 respectively, of the 99 Iowa counties. However, O’Brien County farmland estimates of $9,512 were the highest average county values recorded by the Iowa Land Value Survey. The Northwest Crop Reporting District, which includes O’Brien County, reported the highest land values at $8,338, an increase of $1,983 (31.2 percent) from 2010.

“This rate of increase in 2011 has led to concerns that farmland may be the next speculative bubble,” said Duffy. “Some people feel farmers are setting themselves up for a fall similar to the 1980s. Without a doubt, it’s an interesting time and something to watch, but it isn’t a time to panic.”

Why Iowa farmland values are increasing

Duffy said that examining some of the causes for the current increase in farmland values and the reactions is helpful in assessing the situation. Farmland values are highly correlated with gross farm income. As gross farm income increases, so will land values. In 2005, corn prices averaged $1.94 per bushel in Iowa. The preliminary estimated price for November 2011 is $6.05. Soybean prices changed from $5.54 to $11.40 over the same period.

There has been considerable variation in commodity prices over the past few years, but net farm income has increased substantially and is projected to increase even more for 2011. The Iowa State economist goes on to say, this increase in income has been the primary cause for the increase in farmland values, but not the only one.

“There are other causes for the increase,” Duffy said. “Interest rates are at the lowest level in recent memory. Farmland purchased by investors went from 18 percent in 1989 to 39 percent of purchases in 2005, but investor purchases decreased this year to 22 percent.”

Duffy pointed out another factor that should be considered, the relatively dismal performance of the stock market – people want to buy farmland or are not selling it because they don’t know where else to put their money. The increase in farm income, the changes in investor demand and the changes in investment alternatives have all led to a volatile market. One area where the volatility is revealed is in the number of sales. Land value survey respondents have shown considerable variation over the past few years when queried about the number of sales. Sales decreased considerably in 2009. They improved somewhat in 2010 and based on the results reported in 2011, most people are seeing more sales or at least similar sales in 2011 relative to 2010.

One of the differences is in the use of auctions; respondents noted what appears to be a rapid increase in the use of this method of sale. Preliminary analysis of 2011 sales data shows an increase in price by using an auction. As one respondent said, economics may get the person to the auction but emotion often leads to the purchase.

Duffy believes farmland values should remain strong for the next several months at least. Beyond that there is a fair degree of uncertainty with respect to whether land values can maintain their current levels. The economist said there are several key components to watch:

  • The amount of debt incurred with land acquisition
  • Government policies – especially policies related to energy
  • What happens to input costs – land being the residual claimant to any excess profits in agriculture
  • The performance of the overall economy, especially with respect to income
  • Government monetary policies as they relate to inflation and interest rates
  • The performance of the U.S. economy and economies throughout the world – which impact commodity prices, which in turn impact land values
  • Weather related problems – both here and around the world

Overview of 2011 Iowa land values

While the highest county land values were reported in O’Brien County, Decatur County had the distinction for the second year in a row as having the lowest reported land value, $2,721 per acre, and the lowest dollar increase, $636. Washington County had the lowest percentage increase, 28.2 percent, with a reported $7,166 average value.

Low grade land in the state averaged $4,257 per acre and showed a 26.8 percent increase or $900 per acre, while medium grade land averaged $6,256 per acre; high grade land averaged $8,198 per acre. The lowest land value and smallest percentage increase were estimated in the south central crop reporting district, $3,407 and 26.7 percent respectively. The southwest crop reporting district reported a 36.5 percent increase, the highest district percentage reported. Maps showing 2011 values, percentage change and comparisons to 2010 data and additional information from Duffy are available at www.extension.iastate.edu/topic/landvalue.

The Iowa Land Value Survey was initiated in 1941 and is sponsored by the Iowa Agriculture and Home Economics Experiment Station, Iowa State University. Only the state average and the district averages are based directly on the ISU survey data. The county estimates are derived using a procedure that combines survey results with data from the U.S. Census of Agriculture.

The survey is based on reports by licensed real estate brokers and selected individuals considered knowledgeable of land market conditions. The 2011 survey is based on 487 usable responses providing 642 county land value estimates. The survey is intended to provide information on general land value trends, geographical land price relationships and factors influencing the Iowa land market. It is not intended to provide an estimate for any particular piece of property.

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Land

Prices Drop with Weakening Demand (12/10/11)

December 12th, 2011

Chad Hart , ISU Extension Grain Marketing Specialist, provides a summary of the latest report from USDA.

USDA updated the supply and demand situation on Friday.  The update showed continued weakening of corn and soybean demand, which has brought prices down since September.  As is typical in the December report, the supply side was left unchanged.  Corn production is estimated at 12.31 billion bushels and soybean production is estimated at 3.046 billion bushels.  The changes that did appear are on the demand side.  For corn, the adjustment was slight, a 5 million bushel drop on food and seed demand, mainly attributed to lower corn sweetener needs.  For soybeans, the changes were more substantial, a 10 million bushel drop in crush demand and a 25 million bushel reduction in export demand.

Adjustments in world production and stock levels were also bearish to the markets.  World corn production was raised 1%, based on a jump in the expected Chinese corn crop.  World corn stocks are projected to be 4.6% higher as well.  World soybean stocks are also projected to be 1.5% higher.

With the increased availability of corn and soybeans worldwide, USDA eased back on their projections for the 2011/12 season-average prices.  For corn, the midpoint of USDA’s range dropped 30 cents, to $6.40 per bushel.  For soybeans, the drop was sizably larger at 90 cents, to $11.70 per bushel.  However, the futures market are projecting even lower prices for the 2011/12 crops.  Currently, the season-average price estimates based on futures are around $5.70 for corn and $11 for soybeans.

Ag Decision Maker (AgDM)

An agricultural economics and business web site.

Crop Outlook