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UPDATE: Farmland Values In Midwest, Plains Rise in Second Quarter -Fed Banks
(Adds quote from Fed economist in the eighth paragraph, other details throughout.) August 15, 2013, WSJ By Mark Peters The farm economy showed signs of slowing in parts of the U.S. during the second quarter, even as agricultural-land values continued to climb, according to new Federal Reserve reports. Regional bankers in a quarterly survey by the Kansas City Federal Reserve Bank said farm incomes fell in the second quarter and declines are expected in the third quarter, too, amid sharp declines in the prices of crops such as corn and soybeans from record highs a year ago. Some farmers also are struggling with lingering drought in Kansas and Nebraska. A separate survey by the St. Louis Federal Reserve Bank found bankers expect a pullback in farm incomes in the third quarter after a modest increase in the second quarter. Farmland prices, which have risen rapidly in recent years amid historically high crop prices, continued to increase in the latest three-month period. But some signs of the market cooling are appearing. The Kansas City Fed reported that non-irrigated cropland values rose 1.8% over the prior quarter on a non-seasonally adjusted basis, showing a further slowing of gains. Still, land values were up 18% from a year ago for non-irrigated land and 25% for irrigated cropland. The St. Louis Fed, meanwhile, saw farmland prices rise 11% in the second quarter to $5,672 an acre, and bankers expect additional gains in the third quarter relative to last year. That followed a 2.3% decline in the first quarter in the region, which includes parts of the Midwest and Southeast. In the Kansas City survey, an increasing number of bankers in the region, which stretches from Missouri to Colorado, said they think farmland values have peaked. But a majority of those expecting declines see a drop of less than 10% over the next year. They also see a limited correlation currently between farmland prices and farm incomes, with low interest rates, overall wealth in the farm sector, and limited alterative investment opportunities playing a larger role. Farm incomes have climbed to levels not seen since the early 1970s when adjusted for inflation, so a lag is likely to occur between falling incomes and their effect on farmland prices. “It may take some time before low incomes translate into relatively lower wealth that would represent a drag on land-value gains,” said Nathan Kauffman, an economist with the Kansas City Fed. U.S. cropland values have surged in the past four years, with federal data released earlier this month showing a nearly 80% gain in the Midwest and a 125% jump in the Great Plains over that period. Driving the rise in land prices and incomes has been historically high corn and soybean prices, but expectations for a record corn crop and a near-record soybean crop this autumn have caused prices to plummet this year. U.S. corn futures are trading more than 40% below the record settlement price of $8.3125 a bushel last August. Bankers in the Kansas City survey reported a pickup in operating loan demand in the face of rising input costs, but loans for farm machinery and other equipment may fall. Mr. Kauffman said debt levels on average aren’t raising concerns, but groups such as young farmers and those who expanded rapidly during the recent boom have considerably higher leverage. Write to Mark Peters at mark.peters@wsj.com Continue reading
US Farmland Prices Keep On Rising
http://www.ft.com/cms/s/0/caa6bdd0-05c0-11e3-ad01-00144feab7de.html#ixzz2cP3tHszb August 15, 2013 By Gregory Meyer in New York Farmland values in a critical US agricultural region continued their rise in spite of weakening crop prices, as low interest rates and a dearth of investment alternatives spur wealthy farmers to amass more acreage, Federal Reserve economists have reported. Irrigated land in states such as Kansas and Nebraska gained 25.2 per cent year on year in the quarter ended June 30, the ninth straight quarter in which annual price rises have topped 20 per cent, the Federal Reserve Bank of Kansas City said in a survey of bankers published on Thursday. The sharp increase in the face of an expected decline in incomes will further stoke debate about whether land prices reflect fundamental farm economics or have been artificially inflated by low interest rates. In a separate survey of a district that includes Illinois and Indiana, the Federal Reserve Bank of Chicago reported farmland values rose 17 per cent from a year before. But second quarter values were unchanged from the first quarter, in the first flat quarterly results since 2009. The lion’s share of US farmland is still bought and sold by farmers, but it has also attracted large institutional investors such as TIAA-CREF and pension funds. Grain prices fell in the survey period, with hard winter wheat futures down 8 per cent in the year to June 30. Questions about the direction of US biofuels policy also weigh on investors’ minds, said Philippe de Lapérouse of consultant HighQuest Partners. The retreat in crop prices is expected to hit US farm revenues. Equipment maker John Deere forecasts a 6 per cent drop from a record $402.1bn last year to $379.7bn in 2014. The Kansas City Fed said: “Bankers expected income to drop further in the next few months due to the possibility of sharply lower corn and soyabean prices at harvest. Despite lower farm income and expectations of additional declines, farmland values surged further during the second quarter.” The survey found that farmers’ overall wealth levels, as well as “low interest rates and a lack of alternative investment options”, were more important factors behind the boom than expected incomes. To date, concerns about a looming bubble have been answered with the facts that farmers’ debts are low relative to their assets, speculators are in the minority and grain prices are still relatively high. Meanwhile, the average interest rate on farm real estate loans rose slightly to 5.38 per cent in the quarter, its first increase in more than two years in the Kansas City district. “Farm loan repayment rates softened in the second quarter and were expected to weaken in coming months with lower farm income,” the Kansas City Fed said. The Chicago Fed said most bankers envision stable land prices. “The anticipation of lower crop revenues – especially when combined with potentially rising interest rates on farm loans – portended softness in future farmland values,” its survey said. Nationally, farmland has gained 9.4 per cent on average from 2012, the US Department of Agriculture said earlier this month. Continue reading
Chinese Fragrance More Precious Than Gold
By Wang Jie ( Shanghai Daily ) 08:12, August 19, 2013 Many rich Chinese are buying luxury brands of famous designer perfumes, but the ultimate luxury fragrance — one far costly than gold — is agarwood or chen xiang (沉香), an ancient Oriental fragrance. Increasingly Chinese are rediscovering their appreciation for agarwood, which played a role as incense and oil in religious rituals throughout Asia and the Middle East. The deeply aromatic fragrance is considered an aid to meditation and was very popular in ancient China. Pieces of natural wood and fragrant carvings are sought by collectors. Incense and essential oil are precious. Whenever it is burned, heated or simply placed at room temperature, it gives off a pleasant aroma — from subtle to intense. What could be more luxurious than simply burning a piece of high-quality chen xiang that costs 10,000 yuan (US$1,629) per gram of highest quality and savoring the fragrance. And then it’s gone, up in smoke. But worth it, many people say. Arguably the most costly fragrance in the world is complex, layered and difficult to describe. It is sweet, rich and deep but balanced. It’s also called earthy, smoky and sweet — deeply pleasing. For most people, chen xiang (literally “wood with mellow fragrance”) is just a piece of rotten wood. It literally is rotten. Agarwood is a dark resinous heartwood that forms in aquilaria and gyrinops trees when they become infected with a particular fungus. Before infection, the heartwood is relative pale in color, but the tree produces a dark aromatic resin in response to the attack. It is this resinous wood that is valued in many cultures. The trees are large evergreens native to Southeast Asia, but most have been cut down and now trees are commercially raised and infected with fungus in a long process. The best and most expensive chen xiang is natural and old, and some areas produce better wood than others. Although commercial agarwood has an alluring fragrance, there’s nothing like the real thing. The cost is so high because trees in nature are scarce, and the commercial farming and processing is costly. Throughout the region, locals hunt for old wood and may happen upon buried pieces that they treat like gold. Trees grow in Vietnam, Thailand, Cambodia, Malaysia, Indonesia and India. Only very small amount is produced. For chen xiang collector Wang Yinan, this is the ultimate luxury, without parallel. “The reason is clear. If you buy a house, antique or jewelry, they remain as concrete items,” he says. “But chen xiang is different. It is burned for its fragrance, the fleeting moment of enjoyment. Nothing is left, but the fragrance, the temporary fragrance. Isn’t this the most luxurious thing on the world?” Wang, a famous TV host, is director of the National Chen Xiang Research Association. In ancient times, chen xiang could only be appreciated by imperial families and high-ranking nobles. It has been used in traditional Chinese medicine as a tonic, diuretic, stimulant and aphrodisiac. It was used to treat heart pain, stomach pain, fatigue, stress and anxiety. Today the price of a piece of high-quality chen xiang can reach several million yuan. At 10,000 yuan per gram, it is 35 times the price of gold which now costs 260 yuan per gram. Some is carved into artwork. As such, it’s coveted. “I always say that if you want to start collecting something, the best way is to study and learn,” Wang says. “Today the antiques field is chaotic, filled with traps and fakes and chen xiang is no exception — even worse. I would say that 90 percent of the chen xiang in the market is faked or artificially/commercially produced.” An educated nose is the best guide to authenticity, Wang says. “Because there is no physical way to judge the authenticity of real chen xiang, the only reliable tool is your nose,” he says. “I’m not opposed to commercially produced chen xiang, but the fragrance is a thousand miles away from original one, which could only be distinguished by the nose.” Wang once visited Vietnam to see how chen xiang is discovered. “It was a magical journey. Locals searched along the river and suddenly they spotted something in the mid. After washing and cleaning, it turned out to be chen xiang, an ordinary-looking piece of wood or enormous value,” he recalls. “I am enamored of chen xiang not only because of its profound fragrance but also because the fragrance envelops everyone, rich and poor, and it lingers. But when it’s burned, it’s gone, it’s a memory,” Wang says. Continue reading
