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Greyson S. Colvin
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Mr. Colvin is Managing Partner and founder of Colvin & Co. LLP, an agriculture-focused investment manager. Mr. Colvin’s family has owned and operated farmland for over 120 years. Previously, he was an analyst at Credit Suisse in the Portfolio Management Group and at UBS Investment Research.... More
My company:
Colvin & Co. LLP
My blog:
Farmland Forecast
My book:
Investors' Guide to Farmland
  • Agriculture Rewards Investors in August 0 comments
    Sep 1, 2010 8:37 AM | about stocks: JJG, CORN, DBA, DE, CNH
    Fears over a double dip recession have created an unstable equity market while farmland has continued to yield steady returns. Farmland values have increased across the Midwest United States due to increasing grain prices and demand. U.S. crops have continued to remain in above average condition, based on historical USDA averages. This is not the case in other areas of the world. Droughts in Europe, Russia, and into China have caused a significant tightening of grain supplies, translating into higher grain prices this summer.

    La Niña has recently caused concern in parts of South America, calling for a dryer growing season ahead. Unseasonably cool temperatures in parts of Alberta have early frost concerns rising in Canada as well.

    Commodity Prices

    Grains have fared well during August. September corn prices increased by 7.9%, closing at $4.24 per bushel this month. Wheat prices decreased by 1.0%, closing at $6.52 per bushel while soybean prices also decreased, by 4.5%, closing at $10.08 per bushel. The rally in corn was due to the mediocre weather that the Corn Belt has received lately, and lower yield estimates arising from a number sources. Wheat prices are still being primarily affected by the droughts in Eastern Europe and Russia. Soybean production looks to be at record levels here in the U.S., which has caused the decrease in price.

    Local elevator basis prices have nearly doubled in some areas in the Midwest, limiting farmer income during this current rally in grain prices.

    Farmland

    Farm real estate, cropland, and cash rent values all increased over the past year. The USDA recently released its Land Values and Cash Rents 2010 Summary which tracks land and cash rent values in the U.S. Across the country, farm real estate, which includes all categories of farmland, appreciated 1.4% during 2009. The average price of U.S. farm real estate is now at $2,140 per acre.

    The total return (cash rents plus land appreciation) on U.S. cropland during 2009 was 4.9% which is significantly higher than last year’s 0.5% total return, but still below the 10-year average of 10.4%. We believe that the return on cropland will continue to grow as the demand for farmland is increasing at an alarming rate due to rising ethanol and food demands.

    Farmland values increased 6% in the Midwest during the past 12 months. North central Iowa and portions of east central Illinois reported that “good” farmland values increased by 14% and 8% respectively, according to the Federal Reserve Bank of Chicago. Farmland values have been steadily increasing due to elevated grain prices and increased buyer demand.

    WASDE

    The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report in mid-July. Extremely hot and dry weather across Europe and the former Soviet Union have lead grain prices on a rally and global supply to decrease. Estimates of U.S. corn yields were increased to a record 165.0 bushels per acre, but domestic supplies were lowered to a four-year low of 1.3 billion bushels.

    The USDA did not change their July estimate of soybean ending stocks of 360 million bushels due to an offset lead by increased exports and increased production. U.S. soybean production was estimated 88 million bushels higher than last month’s estimate, up to 3.4 billion bushels due to an increase in yields to last year’s record high, 44 bushels per acre. Exports were increased by 65 million bushels to 1.435 billion on an increase in buying from China, and lower ending stocks in South America making U.S. soybeans a more attractive buy.

    Demand

    The rising demand for grains, specifically corn and soybeans, by the Chinese has continued to increase. The primary problem facing China’s ability to feed itself is its land imbalance. China has roughly 20% of the world’s population although only 7% of the world’s arable land. The supply of arable farmland in China is decreasing rapidly as well. China has lost 20% of its arable land due to erosion, desertification, and development, and is expected to lose 10 to 15 million more hectares by 2020.

    To solve this imbalance, China committed $5 billion for agricultural development in Africa in 2008. China is sending expatriate farmers to Africa to cultivate the land and export the grain directly back home to ensure a consistent supply of grains. According to the Chinese Ministry of Commerce, over one million Chinese are farming in Africa dispersed throughout 18 countries.

    Outlook

    Colvin & Co. LLC cordially invites you to attend the Farmland Outlook for 2010 and Beyond conference on September 20, 2010 at The Allerton Hotel in Chicago, Illinois. The conference is an exclusive event, open to the public at no cost.

    The conference will address the world’s growing demand for grains and the developing agriculture boom over the next decade. Rapid population and economic growth in emerging markets has driven the country’s insatiable demand for grains. Economists have long shown that as GDP rises and a middle class develops, consumption of protein also rises. The transfer to protein will have a significant impact on the demand for grain as roughly one pound of meat requires seven pounds of grain.

    Read more about the conference at: http://farmlandforecast.colvin-co.com/2010/08/18/invitation-farmland-outlook-for-2010-and-beyond.aspx.

    Disclosure: No positions
    Stocks: JJG, CORN, DBA, DE, CNH
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