Seeking Alpha

Land Commodities'  Instablog

Land Commodities
Send Message
Land Commodities was established on the premise that the world is in the early stages of a secular bull market in agricultural commodities. The agricultural investment environment will be characterised by fundamentally constrained supply set against a backdrop of step changes in demand from a... More
My company:
Land Commodities
My blog:
Land Commodities
  • Agriculture Contributes To Accelerating Depletion Of US Groundwater Resources
    A study by the U.S. Geological Survey (USGS) released this week has found that draw-down from long-term aquifers has been accelerating driven in large part by water use for irrigation.

    These two maps, the first from the USGS report showing depletion hotspots, and the second from the United States Department of Agriculture showing the US's main wheat growing regions, provide a clear visual of the correlation between groundwater depletion and agriculture.

    (click to enlarge)

    (click to enlarge)

    According to the USGS report:

    The cumulative volume of groundwater depletion in the United States during the 20th century is large-totalling about 800 cubic kilometres (km3) and increasing by an additional 25 percent during 2001-2008 (to a total volume of approximately 1,000 km3).

    The rate of groundwater depletion has increased markedly since about 1950, with maximum rates occurring during the most recent period (2000-2008) when the depletion rate averaged almost 25 km3 per year (compared to 9.2 km3 per year averaged over the 1900-2008 timeframe).

    The study assessed long-term groundwater depletion in 40 separate aquifer systems or subareas to build a national overview of groundwater depletion (defined as a reduction in the volume of groundwater in storage in the subsurface). The figure below taken from the report shows the proportion of depletion due to irrigation (green shaded portion) in the Death Valley aquifer in California.

    (click to enlarge)

    Click here to read the full report, Groundwater Depletion in the United States 1900-2008.

    May 29 11:44 AM | Link | Comment!
  • US Agricultural Subsidies Will Continue Rising Under The New Farm Bill

    Notwithstanding a tokenistic proposed reduction (primarily due to minor cuts to the food stamp program, 'Supplemental Nutrition Assistance Program') the total combined value of subsidies and food aid under the new Farm Bill is set to remain the same at roughly US$100 billion annually.

    One of the more controversial subsidies, government support for crop insurance, is actually set to increase under the new bill. According to Fox News:

    The bill would cut about $2.4 billion annually from overall farm spending. But it would still expand federally subsidized crop insurance and raise some subsidies for rice and peanut farmers.

    The government spent an estimated $15.8 billion on the [subsidized insurance] program for the 2012 crop year after a drought destroyed many crops, up from $9.4 billion in 2011.

    The reality is that if past form is anything to go by talk of fiscal belt tightening is unlikely to deliver any real savings, with the Senate Farm Bill's current cost projection of just under $1 trillion over the next 10 years falling well short of the actual cost. According to the National Taxpayer's Union:

    The 2002 Farm Bill exceeded its post-passage cost by 42 percent, while the 2008 legislation is expected to run at least 50 percent over budget. Thus, relying on the Farm Bill to avoid the fiscal cliff is akin to tying a toy balloon around an anvil, hoping it will somehow fly.

    A producer support program, which according to the OECD has accounted for an average of 12.1% of US agricultural sector revenues over the last 10 years, clearly has a substantial impact on US agribusiness profits and has contributed to the recent run in farmland prices. By comparison, in Australia where there is no talk of a farmland price bubble, average Australian agricultural subsidies accounted for only 3.8% of sector revenues over the same period

    The irony is that subsidies benefit wealthy farmers to a greater extent than the smallholder farmers they are supposed to assist. With over three quarters of all direct subsidies to agriculture (totalling $277 billion since 1995) going to the largest 10% of farms, this will be a bitter pill to swallow for many cash strapped tax payers.

    What's more, US farm subsidies hurt producers in other countries, particularly those in the developing world, by flooding the global markets with agricultural commodities at artificially deflated prices.

    May 29 11:44 AM | Link | Comment!
  • Crop Farmers Did Better Out Of The US Droughts Than Livestock Farmers, Farmland Investors Did Even Better.

    According to a recently released report from Jason Henderson and Maria Akers of the Kansas City Federal Reserve Bank:

    Bankers in the Chicago, Kansas City, Minneapolis and St. Louis districts reported that rising crop prices [and crop insurance payments] offset high input costs, boosting farm incomes. Profits in the livestock sector, however, suffered under high feed costs.

    This is an insight into the inherent volatile nature of livestock enterprises. Although returns can be great in a good year, livestock enterprises generally have more volatile income profiles over the long term than cropping enterprises.

    This is certainly the case as a general rule in Australia and it's something agricultural investors need to be aware of if reliability of income is an important investment driver.

    The report also noted that despite the drought in the US farmland prices continue to rise driven by strong buyer demand:

    Despite the drought, farmland values continued to rise across the nation's mid-section. Bankers in the Corn Belt and northern Plains reported strong year-over-year farmland value gains. In Nebraska and South Dakota, non-irrigated cropland values remained more than 30 percent above year-ago levels. In the eastern Corn Belt, farmland values rose between 10 and 15 percent

    Good news for agricultural investors who bought a few years ago.

    As we note in another recent article, farmland prices in Australia are way, way lower than the US, so for investors who want to get into a market that's a little less frothy where the fundamentals are still solid, it's certainly not too late.

    Nov 11 1:25 AM | Link | Comment!
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.