Land price fall hits US farm economy

COMPARED TO the East Coast of America where they have had up to 1m of snow recently, our tail-end of the same storm was wind and rain this week, and that’s on top of some pretty wet weather so far this year.

But, it’s been a fickle year for different parts of the country. Forecasts here were for high winds and rain which will add to our total in the Borders of 88mm or 3.5 inches – with only seven days of no recorded rainfall so far this year. However, nearer to the East Coast there has been approximately 50mm, or two inches more rain than further inland.

It’s not just the weather outlook that’s gloomy. Global markets have been stormy too, and the Liffe feed wheat prices were back again. For May, 2016, feed wheat futures were down £1.70 to £112.30 and for November new crop down £1.30 to £121.30. For November, 2017, wheat futures were also down £1.70 to £126.70.

Sterling sank to a seven-year low last week against the dollar and a 12-month low against the euro before rallying towards the end of the week. This gave some support to our wheat prices and allowed the UK to export some of its surplus stocks.

Globally, the market situation remains one of too much supply chasing too few buyers. With poor demand, particularly from countries with oil-based economies, the market view remains bearish and sentiment weak. Without a significant weather issue world-wide, grain prices could well move lower.

In the US, the decline in crop prices has seen farms in the key maize growing areas lose money for a successive season and returns in US farmland fell to a five year low of 10.4%, down from 12.6% from the previous year. Total returns for investors were -0.4% for the year and was due to a drop in land prices rather than lower income from crops. The drop in US farmland prices is accelerating and this is the 26th successive month of decline.

There is a continued downturn in farm profitability from weak crop prices which are well below the cost of production for many farmers, especially those with land rents to pay. The strengthening of the dollar and global economic weakness have pushed grain prices down by 8%, and slaughter cattle prices 28% lower over the past 12 months.

The weaker agricultural commodity prices discouraged farmers from buying agricultural equipment and sales in the US of four-wheel-drive tractors fell by 39% last year. Sales of two-wheel-drive tractors, as used by livestock farmers, have fallen by 26% and combine sales are down by 33%.

In New Zealand farm prices, though, have rallied by 4.1% since December, 2014, despite the ongoing depression in their all-important dairy industry. The volume of farm sales rose by 12.6% year-on-year and was up 31.5 % compared to the previous three months up to last November, but sales volumes over 2015 were 3.4% down on the previous year.

In a move to lower domestic prices, China is moving towards an unregulated maize market which should also reduce demand for maize substitutes. Farmers would no longer be subsidised through support prices and currently Chinese maize prices stand at more than twice international levels thanks to government support.

The price support is aimed at subsidising farmers and is part of a stockpiling programme that has seen a large tonnage of agricultural products accumulating. China’s combined grain reserves stand at an all-time high of 500m tonnes, with maize levels thought to be more than 200m tonnes.

It cut the price for maize last year and they are expected to do the same this year but there is no official confirmation on when support for maize will be stopped altogether.

Global wheat production will fall in 2016-17 for the first time in three years but not by enough to drag world tonnage of grain below this season’s record high according to the International Grains Council. World wheat production next year is expected to be 704m tonnes, which is down 25m tonnes on the year.

With only a small drop in all wheat area and average yields predicted, world production is projected 3% down year-on-year. The estimate for stocks of grains, comprising of wheat and coarse grains at the close of 2015/16 season is forecast up by 1m tonnes to a 29-year high of 454m tonnes.

A dry autumn in parts of Europe last year could see a drop in oilseed rape production by 200,000 tonnes to 21.3m tonnes. Plantings in in the EU, the top rapeseed grower and consumer, remained at 6.5m ha but there will be less production in Poland and the UK. Yield losses are likely in Poland due to drought-related planting problems and late re-sowing.

In the Ukraine a cold and dry autumn has cut planting to a 10-year low resulting in a reduction of 200,000 ha year-on-year. These figures would appear likely to leave the EU, which uses some 25m tonnes of rapeseed a year, having a significant need for imports, which the International Grains Council forecast will rise to 3.2m tonnes in 2015/16.

Brent crude oil has made a significant recovery from below $27 per barrel and earlier this week had soared by 8.7% to $31.80 per barrel, helping shares and many industrial commodities to recover. Since May last year, oil prices in sterling have fallen by more than 54% but retailers have only cut pump prices by 35%.

Diesel prices have fallen to their lowest level for more than six years at 97.7p per litre at the pump due to oil prices falling by around 30% since early December.