Final agricultural economic data for 2015 is being released, and numbers are concerning.
Net farm income for 2015 is being reported at $56 billion, down $34 billion from the previous year.
At the same time U.S. farm debt climbed to a record $367 billion. Even when adjusted for inflation current farm debt is at $155 billion, the highest since the 1980s.
Another number from 2015 being noticed is the change in farmland values. Across the Corn Belt farmland declined in value by an average of 3 percent during the year. The greatest loss was in Iowa where farmland declined in value by an average of 5 percent.
Other states actually reported elevated farmland values though, such as Wisconsin where land gained 2 percent in the year.
Even though values have subsided, we continue to see investors show interest in U.S. farmland, according to a recent report. The difference between now and in the year past is that investors are becoming more selective in the ground they buy.
Investors claim to want higher returns than what most land purchases can bring them, so they are not bidding as much as in recent years. In fact, many land investors claim they are looking more towards low-end ground, and not competing with farmers.
There is an old saying that “land is a good investment regardless of value because it isn’t being made anymore.” This is not exactly true.
There is still land being brought into production, it is just not in the United States. Brazil alone has close to 400 million acres of potential farmland that can be tilled with little effort.
The only factors preventing this from happening are infrastructure, which are being improved, and low commodity values.
There is a general misconception on this land in Brazil that could be farmed. Much of it is prairieland, and not forests as thought.
The land is also reportedly higher in quality than much of what is being farmed right now. Once the market dictates, it is likely we will see expansion take place.
The seasonal shift on soybean demand is underway. Until this point, the United States has been a primary source of soybeans for the global market.
We are now at the stage where this demand will shift to South America for needs. From this point forward the United States may only fill voids in the market until congestion clears at South America’s ports.
One of the heaviest debated corn demand numbers remains ethanol. In the latest supply and demand report the USDA raised corn for ethanol demand by 25 million bushels to a 5.225 billion bushels total.
While this is a minimal increase, it is against the recent trend we have seen in ethanol manufacturing. The majority of analysts questioned believe corn for ethanol was over-estimated even before this increase was made.
There are several reasons analysts believe corn for ethanol is being over-projected. The main one is that ethanol demand has started to slow in recent weeks as fuel reserves have built to burdensome levels.
Another one is that today’s ethanol plants run more efficiently than older models, and even those plants are more efficient given recent upgrades. More ethanol plants are using corn specifically engineered for ethanol manufacturing, which produces more fuel per bushel.
Even though it has slowed in recent weeks, the United States has seen elevated demand for its ethanol and distiller’s dried grains in the global market.
Ethanol exports for 2015 totaled 835.6 million gallons, 1 million more than in 2014. DDG exports for the year reached 12.56 million metric tons, an 11 percent increase from the prior year.
The combination of these two is the equivalent of exporting 800 million bushels of raw corn.
Within the next few weeks we could easily start to see planting take place across regions of the Corn Belt. Most of this activity will be in far southern regions, but will give us our first indication of what we could see for potential acreage.
At this time, more interest starts to be placed on weather outlooks.
This is also the time of the year when we see elevated risk premium added to new crop futures.
Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only.
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