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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
If A Tree Falls In The Forest, Can You Make A Little Money?
By John Wasik CHICAGO | Mon Jun 3, 2013 4:42pm EDT (Reuters) – If a tree falls in the forest, can you make a little money? As the U.S. housing rebound continues, you can watch the value of your real estate rise. In addition you can reap gains from resource companies that own and process timber. Since most U.S. homes are still framed with wood, timber becomes a more valuable commodity as new construction booms. Home prices gained the most in seven years in March, according to a recent S&P Case-Shiller housing index report. Housing starts in April rose 16 percent over the previous month with new building permits up 14 percent, according to the U.S. Census Bureau. North American sawmills are running at the fastest pace in six years, up nearly 7 percent over last year, according to CIBC World Markets , a Canada-based investment bank. Growth in China is also contributing to the rebound. More than 60 percent of log exports from the Pacific Northwest head to the People’s Republic. Timber is also becoming more scarce as forests shrink. As a commodity, it provides an inflation hedge, too; the S&P Global Timber & Forestry index has produced an annualized return of nearly 7 percent over the past three years through April 30. The current Consumer Price Index is running at an average 1 percent. Why invest in timber and related resource companies instead of the obvious play in homebuilder stocks ? Those companies have been rallying for more than a year and are pricey. The SPDR S&P Homebuilders ETF, for example, a fund that holds most of the major home-construction companies, is up more than 50 percent over the past year through Friday, almost double the price of a consumer cyclical index. That portfolio’s price- earnings ratio – what investors are willing to pay for a dollar of expected earnings – is 20, compared to 14.4, for the SP 500. The underlying S&P index for the timber sector has climbed more than 31 percent over the past year through May 31 compared to a nearly 50-percent gain for the S&P Homebuilders Index. The iShares Global Timber and Forestry Index ETF (WOOD), has p/e of 18; that’s not a bargain price either, but timber stocks are a better value now relative to homebuilding stocks and may have more upside. REGIONAL VIEW Most timber companies specialize in specific regions where they own or lease properties. But to obtain global diversification, it’s best to consider one of two exchange-traded funds on the market that hold timber, packaging and real estate investment trusts (REITs) that own lumber resources. The Guggenheim Timber ETF, holds major producers like Weyerhaeuser Co and International Paper Co. It tracks the Beacon Global Timber Index, which holds companies that own or lease forested land or produce wood-based products. More than 40 percent of the companies are based in greater Europe or Asia. It’s up 8 percent year to date through May 31 and gained 25 percent last year. As an alternative, the iShares timber ETF mentioned above has more than 60 percent of its holdings in the Americas, including Plum Creek Timber Company Inc and Potlatch Corp . The iShares fund is a better deal on expenses than the Guggenheim product, charging 0.48 percent annually for management, compared to 0.70 percent for the Guggenheim fund. It’s gained 4 percent year to date and 23 percent last year. Of the two ETFs, the iShares fund offers more total international exposure, including 13 percent stakes in Brazilian companies and 11 percent in Japan , says Eric Dutram, ETF analyst at Zacks Investment Research in Chicago. Either way, the two funds are reasonably priced, he said. Many timber companies give you a bonus if they’re vertically integrated. They could mean they are producing value-added products like rayon, packaging or paper, which also would benefit from a broad economic recovery. These companies may also own or lease land that may result in other mineral plays such as petroleum or natural gas . Keep in mind that timber trends can cut the other way. As funds specializing in a handful of commodities that rise and fall directly with economic demand, these ETFs are not for nervous investors. Guggenenheim Timber lost nearly half its value in 2008 and has a 32-percent five-year standard deviation, a volatility gauge. That compares to 20 percent for a world natural resources stock index. If the housing market goes south again, then these ETFs will suffer. Consider them only as small parts of a larger portfolio and not large holdings. (The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see link.reuters.com/syk97s ) (Follow us @ReutersMoney or here Editing by Linda Stern and Andrew Hay) Continue reading
China Property Digest: Home Prices Keep Rising Despite New Curbs
BEIJING | Wed May 22, 2013 4:19am EDT May 22 (Reuters) – China’s home prices are still on the rise despite stricter measures by the central government and major cities in the past few weeks to calm frothy real estate market. The rise fuelled expectations that China could adopt further cooling steps, particularly the widening out of property tax on home owners. Property investment accounted for 11 percent of China’s gross domestic product in the first quarter of 2013. Here is a look at the latest news, numbers and more from China’s real estate market. REUTERS NEWS MAY 18 – China’s housing inflation accelerated to its fastest pace in April in two years, driven by a jump in prices in Beijing and Shanghai, complicating the task of policymakers trying to cool the property sector while supporting economic expansion. MAY 13 – Growth in real estate investment in China quickened in the first four months as developers saw improved liquidity conditions, though property sales slowed slightly due to continuing government curbs. MAY 10 – As central banks print cash to boost moribund economies, investors in Asia wanting to hedge against rising prices are dumping gold and doubling down on property. MAY 6 – China Vanke, the country’s largest real estate developer, said it sold 12.4 billion yuan ($2 billion) of property in April, up 67.6 percent from a year earlier. MAY 2 – Average home prices in China’s 100 biggest cities rose in April from the previous month, the eleventh straight month-on-month rise, a private survey showed, raising the risk of further tightening steps despite recent government measures to crack down on speculation. APR 25 – China should expand property ownership taxes to more cities instead of imposing a 20 percent capital gains tax on transactions if it wants to prevent a steep rebound in home prices this year, the Chinese Academy of Social Sciences, a top state think-tank said. DATA Beijing’s property sales reached 5.6 million square meters in the first four months of 2013, up 71 percent from the same period last year, according to data from Beijing Bureau of Statistics. China’s central government will allocate 66 billion yuan to local governments to help build public housing for rent this year, the Ministry of Finance said. Existing home sales in Beijing plunged to 5,212 units in April, slumping 88 percent from the previous month and dropping 48 percent from a year ago, according to data from local property brokerage Home Link. Land sales in China’s 53 major cities rose 3 percent in April from a year ago and were down 11 percent from March, data from a private consultancy CRIC showed. CHINESE PRESS MAY 22 – About 30 Chinese developers have raised almost 80 billion yuan so far this year from overseas to support expansion. (Securities Daily) MAY 13 – China should gradually rely on market forces to control the housing market as the current administrative curbing measures could not change market sentiments on rising home prices, the newspaper said in a commentary.(People’s Daily) MAY 12 – China’s government is studying a long-term policy system to control the housing market , which is expected by analysts to improve its way of regulating the market and replace current home purchases restrictions. (Xinhua) THEY SAID — “Considering the special position of property industry in the economy , the policymakers will treat the market more reasonably and cautiously.”(Li Daokui, former academic adviser of the People’s Bank of China). — “Expectations on home price rises have not waned yet. China’s property tightening campaign is still at its critical moment and the country needs to reinforce implementations of cooling measures.” (Liu Jianwei, senior statistician at the National Bureau of Statistics, said in a statement accompanying the release of April home price data) (Reporting By Xiaoyi Shao and Kevin Yao; Editing by Subhranshu Sahu) Continue reading
