The Wall Street Journal had a fairly extensive article in today’s paper on the extension of the ban of wheat exports by Russia from December of this year until after next year’s crop.  However, as most traders and farmers know, you will believe what Russia says at your own risk.  What we do know from the article is as follows:

• Wheat stockpiles are still much higher than in 2008, however, the original news of the Russia ban led to a 5% rally in food prices last month.  Wheat rallied substantially, along with corn and sugar.
• Russia last year accounted for 14% of all wheat exports and if the ban continues to next year’s crop, then this will drop to zero.  The Ukraine and Kazakhstan will also have sharply reduced exports this year.  During the the current 2009-2010 crop year, Russia exported about 650 million bushels up from 40 million bushels in 2000-01.
• A possibly bigger concern is that the winter wheat crop will not get planted if the drought continues.  Normally, 44 million acres get planted to winter wheat and Russia right now assumes the worst case scenario for this year is closer to 2/3 of that number and that may be too high.  If that is the case, even if the drought is lifted for next spring’s crop, spring wheat normally produces less than winter wheat.
• Also, drought is hitting Argentina and Australia, and Germany had a wet season and the quality of their crop is way down.  They have had to import wheat from the US which rarely happens.
• Egypt, which historically has not bought much wheat from the US, just struck deals to import about 8 million bushels at prices 5% higher than last month.

This is the second day in a row that the Wall Street Journal had an article on wheat exports  and I think we will see several more over the next few months.

I have read several articles recently regarding the trend in yields for corn and beans over the last 20-30 years.  During the 1980′s and early 1990′s, the average increase in corn yields was about 1.5%.  During the last 15 years or so, the yield increase has been closer to 2%.  How will corn yields look over the next 50 years assuming that they increase by either 1.5% or 2%.  This table recaps those potential yields based upon using the 2009 average yield of 162.9:

                                     1.5%                           2.0%

• Year 10                 189                             199
• Year 20                 219                             242
• Year 30                 255                             295
• Year 40                 296                             360
• Year 50                 343                             438

Just a .5% difference in yield results in overall yield in year 50 being 438 bushels per acre instead of 343 or a difference of about 28%.  These numbers do look very high, but think back 20 or 30 years.  At that time, did you think that corn yields would go from less than 100 bushels per acre on average to an estimated 165 bushels for this year.  I know that several of the seed companies are discussing 300 bushel corn as not being too far off for the average farmer in the corn belt.

For beans, the average increase has been lower on average per year at about 1.3%.  Plugging these numbers into the same table basing it on the 43.3 2009 bean average results as follows:

                                    1.3%                          

• Year 10                 49                   
• Year 20                 56                            
• Year 30                 64                            
• Year 40                 73                            
• Year 50                 83

These increases in yields probably account for some of the increase in land prices over the last 10 or more years.  With yields going up by around 1.3% to 2% per year, the return per acre is going up by this amount (assuming prices stay steady).  This would result in prices going up by at least this same amount to reflect the extra income.

Today, we have a very long drive ahead of us as we traveled from Spenser, Iowa, headed north into Minnesota.  We then headed west almost to the South Dakota border.  We then turned north and started to do our counts in those four counties along the border.  At Canby, we then turned south and east and worked our way back to Interstate 90.  All in all, we put on about 350 miles today.

Corn yields were all over the map and we saw a lot of lodging that will show up at harvest.  That will not be fun to combine this year.

We got into Austin, Minnesota tonight and had our final meeting with the local farmers and met up with the eastern crop tour participants.  The estimated yields were given at the meeting and the early call on Minnesota was a .08% increase in yield.  The big surprise was an estimated 6% plus drop in Iowa corn yields.  There are a lot of soybeans out there, however, the crop is much further along this year than last and so many of the pods last year were still blooming and not counted.

This was my first crop tour and I really enjoyed it.  It is hard work driving that much and making that many stops, but very rewarding.  I would higher encourage any of my readers to do it at least once.  You meet a lot of interesting people, not just farmers, but traders, USDA personnel and many others involved in ag.

I look forward to doing it again and we will see what the final numbers look like tomorrow.

Remember to check out the progress at www.agweb.com.

Today was a free form day for us.  We had Brian from Pro Farmer with us and he was doing multiple radio interviews through out the day so we had to stop at various times and let him make his calls in the best cell phone area that we could find.  I have A T & T and I can tell you that there is almost no coverage unless you are near a city with at least 5,000 in population or more.

The corn and beans looked very good down in Southwest Iowa.  Our counts were about 200 bushels or a little better for corn.  As we moved north and a little east, the corn count dropped off dramatically into the low 100′s.  Then, as we moved into District 1 in Northwestern Iowa, the corn counts started going over 200 bushels topping out at about 230 bushels per acre.

We saw some really good soybeans today.  We had two separate plants with more than 200 pods on each plant topping out at almost 240.  We also started noting some sudden death syndrome in the soybeans as we got farther north.   A couple of fields had several spots, but overall, I do not believe we saw more than a couple of acres of total loss during the whole day.

We are spending tonight in Spencer, Iowa and we will have a meeting to discuss how all of the other routes went.  If there is any important news from that, I will let you know tonight.

As always, please go to www.agweb.com to get any updates on the crop tour.

We spent the night in Grand Island, Nebraska last night.  It had rained a little bit last night during the update, but I did not expect to wake up to constant rain and to find out that we had gotten 2.44 inches of rain overnight.

We left the hotel at about 6:45 and headed due south.  Our first stop was just about five miles from the hotel and we ended up scouting the best beans that we saw all day and pretty good corn at around an estimated 200 bushels per acre.  After the next stop, the rain gradually tapered off to a mist or no rain at all.  We headed south almost to the Kansas border and then turned due east and went almost to the end of Nebraska and then turned north to spend the night at Nebraska City.

Our biggest estimated corn yield was about 240 bushels and we had at least 8 samples greater than 190.  Soybeans looked good and consistent.

At the meeting that night there were about 200 people in attendance and it appears the Indiana crop will be about 6% higher than what USDA projected.  The Crop Tour is pegging the Nebraska crop at almost exactly the same yield as last year.  What the Southeast part of the state lost, the Northeast part gained.

Tomorrow, we head east and due north to Spencer, Iowa.  It looks like there will be sunshine and I hope my first step tomorrow does not involve the sucking sound of wet mud like today’s first step was.

I got into the Kansas City airport yesterday about an hour late due to mechanical issues.  My partner in the farm picked me up and we then traveled about 350 miles to Sioux Falls and met up with the Pro Farmer Crop Tour participants.  There were about 30 people at the meeting and we had about an hour and half meeting to discuss how to do the counts, who were were traveling with, etc.

We left Sioux Falls this morning with about 8 different groups traveling southeastern South Dakota and Center Nebraska.  We headed west on I-90 to about 10 miles west of Mitchell and then turned south toward Nebraska.  Our first two corn fields that we checked turned out to be the worst ones we say all day with yields much less than 100 bushels per acre.  We sampled about 7 or 8 fields in South Dakota and crossed the Missouri River into Nebraska at Fort Randall Dam. 

We made a couple of quick stops right after crossing the river and we did not see another corn or bean field for at least 35 or 40 miles traveling through most of Holt County.  Almost all of the fields in South Dakota were dry-land, whereas, almost all of the fields in Nebraska were irrigated ground.  We saw a couple of fields that should yield more than 200 bushels but all in all, I would say most were in the 120 to 175 range.  We made a total of about 18 corn stops and 17 bean stops.

Talking with a farmer from Illinois that was in the car with us, he thought the yields we saw today were slightly lower than last year.

I am on the way to meet up with all of the groups to see how they saw things and will write another post tonight after that meeting.

I am flying out of Seattle early Sunday morning and meeting up with my farm partner at the Kansas City airport.  We are then driving up to Sioux Falls, South Dakota to meet up with all of the Crop Tour participants that are doing the western leg of the tour.

The plan is to spend Monday to Thursday traveling through South Dakota, Nebraska, Iowa and Minnesota.  Another set of participants will leave Ohio on Monday and then meet up with us in Austin, Minnesota on Thursday afternoon. 

I plan on writing a updated post each night and let you know what we did that day and what my thoughts about the corn and bean crop are.  This is my first time of participating and I look forward to it.

One of our readers sent me an e-mail yesterday regarding an article posted by www.farmgate.com regarding the return on farmland investment from 1970 top 2009.   This post was based upon the research done by Iowa State University.

Over the years farmland investment have yielded a very competitive rate of return compared to other investments.  However, about half of the return comes from appreciation in land, which can be unpredictable and it does not provide any cash to cover expenses or mortgage payments.

This research broke down the years between four distinctly different periods:

• The farm boom period from 1970 to 1981,
• The farm crisis from 1982 to 1987
• The recovery period from 1988 to 2003
• The Ethanol Boom from 2004 to 2009

During the farm boom period, an average farmer enjoyed 7.3% average cash rent return on their land and their land appreciated in value from an average of $392 per acre to $1,941 per acre or an average return of about 14.3%.  Therefore the total average return for this period was about 21.6%.

During the farm crisis, the average cash rent was actually at the highest average of about 8%, however, this was due to the decrease in land prices.  During this period, land values decreased from $1,941 per acre to about $786 per acre or an average negative return of (14%), which about wiped out the returns during the farm boom.  Overall average returns during this period was a negative (6%).

During the recovery period, average cash rents were about 7.25% and land prices increased from about $786 to $2,010 or an average increase of about 6% or a total annual return of 13.25%.

Therefore, the overall return during the 40 year period wsa about 6% from appreciation and 7% from cash rents for an overall annual return of 13%.

During the Ethanol Boom, the average cash rents was the lowest at about 4.4%, but the increase in price from $2,010 to $3,850 or 11.4% equals an average annual return of about 15.8%.

The best cash rent return was 9.6% in 1987 at the peak of the farm crisis and worst return was 2008 at 3.8% during the Ethanol Boom.  The best appreciation year was 1977 at 36.8% and the worst was 1985 at a negative 28%.

It is projected by 2019 that Russia may become the world’s largest wheat exporter and Russian, Ukranian and Kazakhstan (RUK) wheat exports collectively may double the United States wheat exports according to the June 2010 issue of Amber Waves.  This growth in wheat exports may help mitigate global food security concerns and help offset the the shift in US acreage to corn, soybeans and other more profitable crops.

USDA is projecting that wheat exports by there three counties could increase by about 50 percent to over 50 million metric tons by 2019 or about 1.9 billion bushels.  The region may account for over half of the increase in wheat exports and could supplant the US as the “wheat breadbasket of the world”.

The US has been in second place since World War II but could easily slip to second place especially if the trend to more corn and bean acres at the expense of wheat production continues.

The US share of wheat exports may drop from the current 24 percent range for 2001-09 to an estimated 16 percent by 2019.  The European Union, Canada and Argentina will also lose market share while Australia is expected to remain flat.  The three former Soviet Union counties should see their market share go less than 20 percent to over 33 percent by 2019.

There are two main reasons why RUK have become larger wheat exporters.

1. The region’s transition from planned to market-orientated economies that began with collapse of the former USSR in the early 1990s.  During the late Soviet period of 1987-91, the USSR imported 35 mmt of grain, while in 2009, the former USSR nations exported nearly 55 mmt.  This is a turnaround of over 90 mmt or about 3 billion bushels of grain.  Also, the large contraction in the livestock sectors led to market driven importation of meat and exports of grain.
2. The region’s yield has risen steadily during the 2000s.  During the 1990s, wheat yields actually decreased primarily due to bad weather and a lack of inputs, especially fertilizer.  However, during the 2000s, wheat yields have risen about 32 percent in Russia and about 25 percent in Kazakhstan.  A lot of this increase is due to the large vertically integrated enterprises that are in charge of the crop from the very beginning to the final wheat sale.

If the world market for grain was expected to remain steady, this increase in Soviet production could lead to much lower prices, however, the world will add another 750,000 or so people over the next 10 years and they will eat a lot of wheat so wheat prices may actually rise over this period.

The Federal Reserve Bank of Kansas City issued their quarterly report on agricultural credit conditions for the first quarter of 2010.  They indicated farmland values rose due to strong demand and the rebound in livestock prices.  Both farmer and non-farm demand appears to be very good.  Looking ahead, they expect farmland values to hold steady.

However, most district bankers reported that farm income fell slightly in the first quarter, however, they expect higher levels in the second quarter with the year being steady.

Farmland values for the quarter rose about 2% with Nebraska having the highest gains of about 6%, however, Oklahoma and the mountain states were lower for the quarter.  This was the strongest gain in over a year primarily due to the livestock rebound.  Interest rates edged down slightly, averaging 6.6 percent.

In reviewing the long-term chart shown in the report, there have only been 3 quarters that have been negative since 1990.  Two quarters were in late 1990 when the Internet bubble was at its highest and one quarter last year.   Owning farmland has been a very good investment over the last 20 years.  We all hope the trend continues for the next 20 years.