Tag Archives: chicago
Agriculture Funds Ponder The 14 Billion Bushel Question
By: Jonathan Boyd 05 Aug 2013 Latest projections that the US will have its first ever 14 billion bushel harvest of corn in 2013 has helped drive prices on the Chicago Board of Trade exchange to their lowest since November 2010. The price fall comes as organisations such as the International Grains Council confirm that this year will see a sharp rebound in output of crops such as corn and wheat in the Northern Hemisphere, following a poor harvest in 2012. Globally, this recovery means that the world’s overall corn harvest should be high this year, ensuring a level of supply that is currently pushing down prices for forward delivery. One bushel of corn is 56lbs, or 25.4kg. According to the International Grains Council: – With record crops expected in the US, China, and Ukraine, world production is forecast to increase by 10% y/y in 2013/14 – As consumption is seen rising by 5% y/y, world stocks will be rebuilt in 2013/14, with inventories in the four main exporters forecast at a nine-year high – Global trade is forecast at a six-year high, with China a much larger buyer, but is unlikely to match the 2007/08 record as good crop prospects in some countries will cap overall import needs. Reviewing data from FE for products that invest in agriculture, some 281 funds are identified. Stripping out specialist products that invest in hogs, wheat, soybeans, sugar or other non-corn soft commodities, leaves some 219 funds. Reviewing these over a three-year period it is clear that corn has delivered some solid positive returns through products such as UBS CMCI Corn (up about 52%), ETFS Daily Leveraged Corn (50%), Source S&P GSCI Corn Total Return (43%), and ETFS Corn (40%). However, in the short term it is clear that the asset has lost pace: their respective 3-month returns are -15%, -33%, -17% and -17%. Leveraged corn has, in other words, done worst in the past few months, reflecting the downward price trend. Corn versus broader agriculture 1m 3m 6m 1yr 3yr 5yr 10yr UBS CMCI Corn USD in US -6.78 -15.47 -23.00 -28.35 52.60 ETFS Daily Leveraged Corn in EU -18.32 -33.46 -42.80 -58.87 45.90 -76.64 Source S&P GSCI Corn Total Return in US -8.71 -17.25 -23.87 -30.61 43.40 ETFS Corn USD in US -8.62 -17.09 -23.73 -30.35 40.14 -28.40 ETFS Leveraged Corn USD in US -17.20 -32.37 -46.86 -55.55 38.29 -74.93 Robeco SAM Sustainable Agribusiness Equities D EUR in EU 1.29 -1.29 2.36 8.10 28.31 CFS Wholesale Global Soft Commodity Share TR in AU 3.19 9.17 8.14 27.31 28.29 First State Global Agribusiness A GBP Acc in GB 0.75 -2.19 -2.69 10.18 28.25 KBI Inst Agri A EUR in EU -2.49 -8.63 -6.32 -1.70 28.17 34.11 Allianz Global Agricultural Trends AT USD in US 3.93 -0.75 -9.73 1.44 24.62 -3.29 Birla Sun Life Commodities Equities Global Agri Ret Gth in IN 0.23 2.41 -4.05 3.91 23.61 BlackRock Global Funds World Agriculture A2 USD in US 0.25 -1.32 -6.57 4.92 23.07 Skandia USD Allianz Global Agricultural Trends USD in US 2.48 -4.07 -11.39 -1.67 22.77 Source: FE Continue reading
U.S. Farmland Market Cooling Entering Key Auction Season
By Christine Stebbins CHICAGO, Sept 27 | Fri Sep 27, 2013 2:03pm EDT (Reuters) – The red-hot rush for U.S. grain land is cooling after years of record prices, but prime acreage is still attracting top dollar in the heart of the Corn Belt so far this fall, according to land auctioneers. “On higher quality land it’s been pretty strong steady, but on medium and lower quality land we’ve seen some pullback,” said Randy Hertz, CEO of Iowa-based Hertz Farm Management. “There’s a lot of uncertainty out here in terms of what the future holds.” The key season for U.S. farmland sales is October through December, when Midwest and Plains grain farmers are rolling in harvest cash and planning their taxes. Most economists and bankers say it is too early to tell if land values have peaked. “We’ve peaked for right now unless the grain markets rebound sharply, when it might change things and go the other direction. But right now I think is probably a leveling off period,” said Eric Mueller, an auctioneer and broker at Omaha-based Farmers National, the largest farm management company in the country. Recent farmland sales from Ohio to Nebraska have ranged from about $3,000 an acre up to $16,000 for top quality ground. While prices are strong the rate of gain has eased from 2012 when prices jumped 20 percent to 30 percent. “Interest rates are creeping up a little. But, ultimately, I think the biggest factor is grain. There’s still a lot of money out there, but buyers are going to be a little bit less aggressive with the grain markets coming down,” Mueller said. “The sentiment is holding in Nebraska and Iowa.” Corn prices are down 30 percent since last fall on the outlook for a record harvest. But corn revenues this year are still seen strong with higher yields after last year’s drought. “Frankly the last 10 years have been phenomenal. It’s off-the-chart good,” said Brent Gloy, an agricultural economist with Purdue University. “It looks like to me this is the first time we’ve seen some substantial headwinds in the market for a while.” Chicago Board of Trade December corn on March 1 was $5.57, but closed at $4.57 on Thursday. A year ago, the price was $6.20. “If it becomes obvious that corn prices are going to shake out below $4 in the $3 range, we’re at a peak,” Gloy said. “The lower commodity prices are hard to justify the really high land prices we’ve been seeing. If you take high quality farmland in Indiana, if you get much over $10,000 an acre, you’ve got to have cash rents over $300 an acre, in some cases $400 or $500. If corn prices are below $5, it’s going to be hard to pay those rents.” Bankers and economists watch farm land prices closely. Land represents 85 percent of farmer assets – and loan collateral. Federal Reserve banker surveys for the quarter ended in June cited lower rates of gain in land prices. At the same time, bankers cautioned farmers against chasing price dips with borrowed money, dreading another 1980s farm debt crash. “The difference with the 1980s is that 75 percent of land then had mortgages. Today, 25 percent does,” said Jeff Obrecht, an Iowa-based real estate broker with Farmers National. “That makes a big difference. We just don’t have the debt out there that we had. Part of that is lenders are requiring more. If you buy at $10,000 acre, you’re going to have to put $5,000 down.” Auctioneers said that, in recent weeks, more ‘no sales’ have been reported at Midwest auctions as buyers think through revenue, cash and borrowing fundamentals. “When I sold a piece a property two years ago for $14,600 we got there in less than 5 minutes,” said Bruce Huber of Hickory Point Bank in Decatur, Illinois. “Some of these auctions are taking longer, fewer bidders. You can just tell the enthusiasm for the higher prices seems to be wanting yet the prices are still there.” So as land auctions pick up starting in October, auctioneers are expecting some price resilience. “Farmers buy about 70 percent of the farms in the Midwest,” said Hertz. “They’ve got cash, there are record amounts of cash. That cash at a bank or short-term deposits doesn’t pay much – essentially, less than 1 percent. Compare that to a farm that can earn 3-4-5 percent.” (Reporting by Christine Stebbins.; Editing by Andre Grenon) Continue reading
Chinese Property Investors Widen Footprint in U.S.
Photo from Grand China Fund Grand China Fund owns a stake in this Atlanta residential complex. SHANGHAI—The upswing in the U.S. property market is attracting Chinese developers and investment firms, and they are dipping their toes into new cities. While Chinese institutional investors are still drawn to their traditional favorites of New York, Los Angeles and San Francisco, many are now also headed to cities such as Houston, Boston and Seattle as they seek geographic diversity as well as bigger lot sizes. These other cities—lesser known to some Chinese firms—now appear to offer fresh opportunities as energy or technology drives their economies and local Chinese communities expand. In the second quarter of this year, Beijing-based real-estate investment firm Grand China Fund took an 80% stake in a 286-unit residential rental complex in Houston. That followed a 2012 investment in a 170-unit residential project in Atlanta, with another local partner. The firm put a total of about $15 million into the two projects, which are valued at more than $50 million. For both projects, it said it was attracted by the prospect of higher yields amid the lower prices compared with property in California and New York. Gaw Capital Partners, a Hong Kong-based private-equity firm, is planning to raise $500 million for a real-estate fund that will invest in U.S. commercial property in the fourth quarter, targeting investors from Asia and North America. The fund manager said it will look at assets in “innovation centers” such as Portland, Ore., and Austin, Texas. China Vanke Co., 000002.SZ -2.23% the country’s largest property developer by market capitalization, is interested in investing in Boston, partly because of its sizable Chinese community, said the firm’s president, Yu Liang, at a news briefing in Hong Kong last month, without providing further details. Vanke had already jointly invested in a 655-unit high-end condominium in San Francisco with U.S. developer Tishman Speyer earlier this year. Chinese investors still are eyeing assets in New York and San Francisco, “but we are also witnessing increased interest in cities like Washington, D.C., Boston, Houston, Seattle and Chicago,” said Alistair Meadows, who oversees cross-border Asian-Pacific real-estate transactions at consultancy Jones Lang LaSalle JLL -1.20% . “Cities like Seattle and Houston are enjoying strong job growth driven by the technology and energy sectors. As a consequence, core office investments in these cities offering higher yields are proving attractive.” Slower domestic economic growth in China as well as rising risks in the country’s financial sector are prompting investors to look abroad. The U.S. has become the most popular real-estate market to invest in so far this year for Chinese firms, followed by Hong Kong, the U.K., Macau and Singapore, according to data tracker Dealogic. Chinese property investors—from big players like sovereign-wealth funds and insurers to smaller ones such as local fund managers—are attracted to the U.S. market in general because of the economic recovery, ample market liquidity, and the stability of returns, real-estate consultants say. Rental properties in the U.S. typically have longer leases compared with China’s, and hence are less prone to disruptions or volatility. Tishman Speyer China Vanke invested in a condo project in San Francisco earlier this year. Acknowledging that Houston and Atlanta aren’t usually the first places Chinese investors think of when investing in the U.S., Zhang Mingeng, board chairman at Beijing’s Grand China Fund, cites costs as a key attraction. He said prices of some projects in these areas are still down around 20% from their peaks, and that growth prospects in these cities are positive. “Our investors, which include lawyers, exporters, merchants, accountants, have U.S. incomes and want us to branch into the U.S. for diversification,” Mr. Zhang said. “They are looking for safe assets that they can see and touch.” Grand China Fund manages yuan-denominated funds totaling four billion yuan ($653 million) investing in Chinese real estate, and a $60 million dollar-denominated fund investing in the U.S. Houston, in particular, has become more familiar to Chinese investors. China Petrochemical Corp., known as Sinopec, has operations there, and the city gained recognition with Chinese investors with the help of former Chinese basketball star Yao Ming, who played for the Houston Rockets. Mr. Zhang said he is looking for more real-estate projects in Miami, Orlando, Dallas and San Diego, in addition to New York and Chicago. “While the returns from the U.S. are not as high as what we get in our mainland China projects, they are good enough,” he said, declining to reveal the investment yield of his U.S. projects. “We like residential projects near universities, hospitals and military bases.” Asset managers said investors who aren’t eager to place all their eggs in one basket are looking for diversity, not just in asset classes, but also in their geographic footprint. “The large Asian institutional investors, including Chinese investors, are looking for safety, more stability and exposure to diversified currencies and returns,” said Goodwin Gaw, chairman of Gaw Capital Partners, which also provides outbound-investment advisory services to Asian institutional investors. To be sure, foreign investment in the U.S. still makes up a small portion of the market. Around 15% of the $25 billion invested in New York’s real-estate market in 2012 was from foreign investors, for instance, compared with 75% of the $24 billion invested in London in 2012, according to data from Jones Lang LaSalle. Not all Chinese investors are branching out. The coastal cities in the U.S. still attract plenty of Chinese investors, with deals this year such as Greenland Holdings Group’s $1 billion investment in a mixed-use project in downtown Los Angeles, and Soho China Ltd. Chief Executive Zhang Xin ‘s personal investment in a stake in the General Motors Building in New York, which attracted considerable media attention in China. Beijing-based property developer and investor Feng Lun, chairman of Vantone Holdings Co., said he is sticking to investing in New York City. Vantone has leased 20,000 square meters of space in One World Trade Center, and has invested in joint ventures in two residential projects in the city. “We’ll focus on New York City, preferably Manhattan, to ensure our current operations are successful before branching to other cities,” Mr. Feng said. Write to Esther Fung at esther.fung@dowjones.com A version of this article appeared September 25, 2013, on page C8 in the U.S. edition of The Wall Street Journal, with the headline: China Casts a Wider Net Over U.S. Market. Continue reading
