Friday, February 15, 2019

"Midwest and Mid-South: Farm Income Down, Farmland Values Up"

That is not the way it is supposed to work, see after the jump.
From AgPro:
“We have heard rumors of large farmers filing for bankruptcy. Farmers in our area still have crops in the field,” according to a Missouri lender. ( Farm Journal )

Farmers continue to face declining farm income in the Midwest and Mid-South regions, according to the latest report from the Federal Reserve Bank of St. Louis. Yet, values for quality farmland, ranchland and pastureland all rose.

The Federal Reserve Bank of St. Louis, which is the Eight District, includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Lenders continue to report declines in farm income relative to a year earlier. The current index value marks the 20th consecutive quarter with a value below 100. Based on a diffusion index methodology with a base of 100, the fourth-quarter index value for farm income was 41. Expectations for farm income in the first quarter of 2019 were only slightly better with an index value of 48.

“We have heard rumors of large farmers filing for bankruptcy. Farmers in our area still have crops in the field,” according to a Missouri lender.

“Tariffs are beginning to take a heavy toll on local farmers and agricultural businesses in our region,” reported an Arkansas lender....MORE
From January 7's "Corn and the Price of Farmland"

We've been harping on this topic for years, here's a version from 2017:
Our standard boilerplate:
The thing to keep in mind about farmland: It is worth the cash flow it can produce which ultimately means commodity prices rule. If memory serves, U.S. farmland has outperformed prime London residential....
The exception:  (unless you're on the edge of a metro area and have some non-public zoning info)

Now whether the "worth" has any relation to what someone is willing to pay is another matter. And this article specifically talks about production we don't pay a lot of attention to, cattle and cotton. We are keeping an eye open for private equity to move into row crops and wheat but that's not happening in any big way, yet....
So last week when FT Alphaville's Brendan Greeley retweeted Sarah Taber PhD. on farming and slavery, I looked at her timeline and, lo and behold:
"Corn is a platform with both limitless purposes, and one purpose: to turn rural land into a dependable & infinitely fungible financial asset."
Here's the thread:


If you want to understand US agriculture, you gotta understand one thing.
It's not even about making food.

It's a real estate hustle. 
Can I be honest for a second, as an ag person who's done most of their work in CA & the South?

Land in the Midwest ... isn't really good for much. Sure, the soil's real nice, but the growing season is too short for most globally-traded cash crops.
Coffee.

Sugar.

Chocolate.

Cotton.

Tobacco.

Rice.

Palm oil.

The Midwest is exactly the kind of giant wet low-population area you'd want for cash crops. Except most of the big-money ones are tropical, & Midwest has a 3-6 month growing season. You're stuck with annual crops.
"Well what's wrong w wheat, flax, oats, rye, hemp, & other short-season cash crops?"

1) Hemp ain't been legal

2) We can't use an entire Midwest's worth of oats & rye

3) Wheat & flax grow nearly everywhere, including huge areas of arid US west. Too much competition to rely on.
Enter maize & soybeans. Here's what they bring to table:

1) Short-lived enough to make use of Midwest growing season

2) Need lots of water- that cuts out competition from the US West

3) Humans can't eat them, but that's ok, they're just infinitely fungible starch & protein. 
...MUCH MORE
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