corn Archives - Promised Land

Have you ever watched the 1983 hit Trading Places starring the beloved Eddie Murphy and Dan Akroyd? The movie's climax occurs when the United States Department of Agriculture releases the crop progress report as part of the World Agricultural Supply and Demand Estimates, also known as the WASDE for short. The monthly WASDE report provides annual forecasts for global crop production and use of cotton, oilseeds, rice, wheat, and coarse grains. I won’t spoil this classic film, but the WASDE report released in the film included market moving information on the orange crop in Florida. Traders dressed in specialty jackets in the trading pits immediately reacted, causing the price of orange juice futures to fluctuate. Even in 2024, the WASDE brings potentially significant market movements for agricultural commodity prices and financial impacts to the suppliers and users of those products.

The movie does an excellent job of depicting how important the WASDE and other USDA reports are and how the USDA works to keep it confidential until the report’s release date. In preparation for the WASDE, USDA analysts are locked in one room where they aren’t allowed to leave sometimes for more than 24 hours. USDA analysts complete data collection from domestic and foreign sources to estimate the supply and demand for corn, soybeans, wheat, and other crops. Ultimately, the USDA determines an average price based on supply and demand factors. The supply for crops is based on current plantings and/or harvested acres, the amount exported, and also on the ending stocks from the previous month. The demand or use forecasts are determined discretely by each crop. Corn for example has three main uses: animal feed, industrial uses like ethanol, and food production.

The report is closely watched year-round, however, American farmers pay extra close attention during the growing season as it can have decidedly favorable or unfavorable impacts on their bottom line. 2024 is no different. The United States has largely had a favorable growing season so far. Late June and early July rains in the Midwest have not only kept the grass green but the corn and soybean crops are thriving. Some areas in Texas and the Dakotas haven’t been as lucky but the largest producing corn and soybean states also known as the “I” states, Iowa, Illinois, and Indiana, have experienced mostly positive growing conditions. Strong growing seasons are a double-edged sword, however. On one hand, farmers will always want their crops to do well but if everyone raises a strong crop then that means the prices are likely to decline as crop yields rise across the board. In some competitive respects, Illinois corn farmers hope there will be a drought in Iowa or Nebraska while Kansas wheat farmers hope for excessive rains in North Dakota. The loss for one geography means potentially better income opportunities for another.

The strong growing conditions across the “I” states have bred less-than-ideal commodity prices with the average cash price of corn coming in at $3.95/bushel for 2024. Just for reference, the average price of corn in 2023 and 2022 was $4.88/bushel and $7.43 respectively. This equates to billions of dollars in lost farm revenues. Soybean markets are experiencing a similar story with the average cash price of soybeans so far in 2024 at $11.10/bushel. In 2023 and 2022 the price of soybeans per bushel was $14.16 and $14.50. Even though crop yields are looking to be favorable relative to recent crop years, the low prices have USDA analysts expecting 2024 net farm income to drop to 24.1% from 2023. Thankfully the Federal Crop Insurance program includes Revenue Protection features that largely protects farmers against severe losses but it is unlikely that farmers will achieve close to record-breaking income levels like the past few years.

Markets are often built around USDA reports such as the WASDE and other crop progress reports. The most recent WASDE was released on July 12^th which showed some opportunities on the demand side of the balance sheet. Both corn and soybean ending stocks were lowered based on increases in forecasted demand greater than estimated production increases. Ending stocks represent the estimated production less demand/uses for a particular crop and the USDA is forecasting greater uses for 2023/2024 corn. On the other hand, both corn and soybean production are up from the June report which is based on acreage reporting and yield estimates. As the growing season continues, it is common for forecasted ending stocks to be adjusted as more acreage reports come in and crop yield estimates are tweaked. Some analysts believe the USDA’s production numbers may be overly ambitious however it is difficult to truly tell what average yields will be until we are well into harvest.

The next WASDE will be released on August 12^th and this month will also kick off the Pro Farmer Crop Tour, a highly anticipated event for farmers across the Midwest. Scouts in Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio, and South Dakota report corn and soybean production estimates on 2,000+ different fields. The tour helps analysts refine yield estimates as it occurs after pollination. The USDA watches this tour closely when adjusting its own reports.

As we head into August and September, supply and demand estimates will continue to shore up and farmers will be gearing up for harvest time. Farmers in the South will likely be heading into corn and soybean harvest in August while the Midwest regions typically kick off harvest in early to mid-September. The sky above Champaign, IL is now full of crop dusters spraying fungicides as corn and soybeans begin pollination and Illinois farmers are itching to see how their crop compares to the rest of the country. Farmers are watching markets closely hoping for a reversal of the downward price trend that has been the story for much of 2024. Many farmers have chosen to pre-sell their crops before harvest; however, the less-than-ideal crop prices so far may have some farmers playing a bit of the waiting game. It’s too bad farmers don’t have the likes Billy Ray Valentine (Eddie Murphy) and Louis Winthorpe III (Dan Aykroyd) to do their hedging.

“Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That’s the other guy’s problem. Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness. Super Bowl, World Series – they don’t know what pressure is. In this building, it’s either kill or be killed. You make no friends in the pits, and you take no prisoners. One minute you’re up half a million in soybeans and the next, boom, your kids don’t go to college and they’ve repossessed your Bentley. Are you with me?” – Louis Winthorpe, Trading Places

Farmer’s Daughter’s Harvest Update

The rumble of the combine going through the field, the flutter of dust and debris through the air, and long hours spent working the same land that my family has farmed for 5 generations are all signs of my favorite time of year, Harvest. Fall is such a special time of year for me as students return to my classroom at the University of Illinois at Urbana-Champaign and the promise of another harvest season comes to fruition. I spent my childhood on the floor of a combine or tractor playing with my miniature versions of equipment and taking the best cab naps while my father, grandfather, and great uncle worked tirelessly to provide for our family. At fifteen, my brother went off to college at the University of Illinois giving me my first opportunity to truly be an active part of the farming operation. That year I learned to drive the combine and have spent every fall since behind the wheel of a John Deere Combine or a grain cart. While my grandfather and great-uncle have since passed, it is incredibly special to me to get to continue my family’s farming legacy while also educating the next generation on the importance of food and agriculture and sustainable farming practices.

United States Harvest Progress and Supply and Demand Estimates

Elmore farms finished up harvest in the middle of October while several farm operations in Illinois are still wrapping harvest up this month. We were blessed with adequate rain and growing conditions correlated to strong yields however not every farmer in the U.S. has been quite as lucky. Unfortunately, parts of Iowa, Kansas, Nebraska, and the Southern part of the U.S. have been facing an intense drought affecting crop yields in these areas. These areas have been plagued with extreme drought the past few years meaning crop yields in these areas have been unsatisfactory for multiple years. As of November 6th, the USDA reports that the top 18 corn producing states are 81% complete while soybean harvest in those states is 91% complete. Most farmers in the Midwest should be finished by the time the turkey is cut on Thanksgiving Day.

The United States Department of Agriculture (USDA) released its November World Agricultural Supply and Demand Estimates on November 9th showing slightly improved yields from last year with an average yield of 174.9 bushels/acre compared to 173.0 bushels/acre last year. On the soybean side, yields remain similar with a projected U.S. average of 49.9 bushels/acre compared to 49.6 bushels/acre last year. On the demand side of the equation, supply is currently rising more than demand as foreign corn production is forecasted higher in Ukraine, Russia, Burma, and Paraguay. The ongoing conflict in Russia and Ukraine had an initial strong impact on global corn markets as Ukraine has historically been a large supplier of commodities for the rest of Europe. However, as the conflict persists, markets have adjusted shifting to strong dependence on South America’s growing production. USDA concluded in August of 2023 that Brazil overtook the United States as the world’s leading corn exporter. Brazil is already on the podium as the largest soy exporter with much of its demand meeting China’s growing commodity needs. The United States is allocating more of its share of corn production towards growing domestic biofuels and vegetable oils while exports are lower. The world’s shift toward more biofuels and larger food production continues to reflect a strong future for U.S. agriculture.

Farmland Markets Update

In August, our farmland values update showed that farmland values in the United States remained strong with US farmland appreciating 8.1% on average from 2022 to 2023. Transactions have started to slow recently, and prices are starting to level off in some areas of the U.S. Some economists believe we may be in for a correction in farmland values. Farmland values are determined by a variety of factors with one of the main drivers being farm incomes and cost of capital considerations. 2021 and 2022 were record years for farm income as strong commodity prices boosted farmer returns which in turn put upward pressure on farmland values. However, 2023 incomes are not looking quite as strong. Growing input prices made planting commodities more expensive while commodity prices have declined from peaks in 2021 and 2022. While net farm income is projected to back off from a peak in 2022, it is still projected to remain modestly above the 20 year averages for net farm income and net cash farm income.

The other factor impacting farmland values are changes in interest rates. Interest rates have remained relatively low since the mid-1980s making financing options in farmland relatively cheap and putting upward pressure on farmland markets. The figure below shows how the current return to farmland typically tracks with the ten-year contact maturity treasury rate. However, times of extreme interest rate hikes tend to have an adverse impact on farmland values. As the Federal Reserve fights to control inflation through interest rate hikes, it has become more expensive to finance farmland purchases for farmers and investors alike. If the FED continues to raise rates, it will likely put downward pressure on farmland values. However, recent inflation numbers suggest price pressure for consumers is starting to abate suggesting the FED’s interest rate hikes may have come to an end.

Opportunity Zone Legislation Update

Since the inception of the Opportunity Zone (OZ) legislation from the Tax Cuts and Jobs Act of 2017, low-income communities designated as OZ’s have seen an influx of capital moving in to help boost local economies and revitalize life for people living in these areas. On September 27^th, legislation titled the Opportunity Zones Transparency, Extension, and Improvement Act was introduced to the house by Representatives Mike Kelly and Dan Kildee along with Representatives Carol Miller and Terri Sewell. The legislation is aimed at strengthening the Opportunity Zones policy with more reporting and measuring requirements while expanding incentives to invest in these areas. The legislation aims to reinstate the program and establish a State and Community Dynamism Fund to support public and private investment in qualified opportunity zones. The Economic Innovation Group released a full report with a summary of the legislation here. The legislation has yet to move forward as the House is still backlogged from weeks of trying to find a new Speaker of the House. However, we are hopeful that legislation will be passed within the next year given its broad, bipartisan support.

Final Thoughts

Harvest time for me is always a time of reflection of where we have been and where we are going. At the start of each year there is uncertainty about the prospects of the new year’s harvest and what the future of agriculture looks like. Every person involved in agriculture has their perspective of what the future looks like for the food and agriculture industry. For me, the future of agriculture is visible in my own classroom among the faces staring back at me each day. I am constantly reminded of the bright future agriculture has, seeing young minds so energized to take on issues like food insecurity, environmental concerns, and continued profitability and innovation within the industry. In my mind, agriculture remains one of the safest asset classes as traditional food and fiber will be an essential part of our needs as long as humans roam the Earth. Some see alternative food sources such as insects and worms as the future however I do not foresee providing much competition to traditional large-scale farm production as the consumer’s mindset towards these protein sources is largely still dismissive.

In high school, I spent much of my time participating in my school’s FFA (formally known as the Future Farmers of America) chapter where at each meeting we would recite the organization’s creed. I still look at it from time to time to remind me why I do what I do and why there are many, many like-minded farming families across rural America working to ensure the success of the U.S. Agricultural Industry.

The FFA Creed

I believe in the future of agriculture, with a faith born not of words but of deeds – achievements won by the present and past generations of agriculturists; in the promise of better days through better ways, even as the better things we now enjoy have come to us from the struggles of former years.

I believe that to live and work on a good farm, or to be engaged in other agricultural pursuits, is pleasant as well as challenging; for I know the joys and discomforts of agricultural life and hold an inborn fondness for those associations which, even in hours of discouragement, I cannot deny.

I believe in leadership from ourselves and respect from others. I believe in my own ability to work efficiently and think clearly, with such knowledge and skill as I can secure, and in the ability of progressive agriculturists to serve our own and the public interest in producing and marketing the product of our toil.

I believe in less dependence on begging and more power in bargaining; in the life abundant and enough honest wealth to help make it so–for others as well as myself; in less need for charity and more of it when needed; in being happy myself and playing square with those whose happiness depends upon me.

I believe that American agriculture can and will hold true to the best traditions of our national life and that I can exert an influence in my home and community which will stand solid for my part in that inspiring task.

The creed was written by E.M. Tiffany and adopted at the Third National FFA Convention. It was revised at the 38th and 63rd Conventions.

August 2023 Agriculture Industry Update

The sun is beginning to set on summertime, meaning farmers nationwide are gearing up for Harvest. Harvest has already begun for some southern states and growers in the middle part of the country are preparing machinery for another fall reaping. 2023 has brought unique challenges and opportunities to farm producers from an ongoing Russian-Ukrainian conflict to varying drought conditions in parts of the United States. Long-term estimates for agricultural commodity demand remain strong as the world population grows demanding more food and new energy sources. Technology advancements in soybean’s potential as a biofuel and jet fuel have unlocked new potential demand for one of the United States’ largest cash crops. As a result, farmland values have remained strong in much of the United States, particularly the Midwest. The 2023 USDA Land Values Summary showed slowing growth rates compared to 2022 however cropland values continued to rise 8.1% from 2022 to 2023 to an average of $5,460 per acre. This United States Department of Agriculture (USDA) report suggests a promising future for the Promised Land Opportunity Zone Fund I (PLOZ Fund I) as we execute on our rural development mission to revitalize rural communities while providing investors with a tax-advantaged investment vehicle.

Crop Progress Update

Agriculture is unique because it is one of the few sectors whose output is largely dependent on weather conditions. Not only do weather conditions affect the size of the crop, but they also can affect the prices received as futures markets react to incoming news of rain, drought, wind, or other weather changes. 2022 brought about drought concerns throughout the United States as California, Kansas, and several western states suffered from exceptional drought conditions. The drought decimated water supplies and yields of a variety of crops such as vegetables, fruits, bulk commodities, and nut trees. The American Farm Bureau estimated more than $20 billion in crop losses due to drought or wildfires, pressing farm incomes and profit in certain geographies. On the flip side, the Corn Belt saw strong net incomes and yields as more favorable weather conditions left many states in that region unaffected.

The drought that affected much of the West in 2022 has started to work its way east toward key bulk commodity states, bringing concerns of a diminished harvest in 2023. While parts of Texas are still suffering from last year’s drought, California, Nevada, and Utah have largely emerged from their concerning situations. Farmers in these areas were beginning to feel pressure from communities and local officials as they debated whether to use water for irrigation of crops or human consumption. One region that has remained mostly unscathed is the eastern United States which is good news for Promised Land as our largest farm in the PLOZ Fund I, the McCotter farm sits on the east coast of North Carolina in Pamlico County. PLOZ Fund I also has three farms in South Carolina and two farms in Mississippi. Geographic diversification was an important consideration in the construction of the Promised Land farm portfolio.

The varying drought patterns have impacted the upcoming harvest expectations as many of the operators farming the properties in PLOZ Fund I portfolio will begin harvesting within the next month. In the most recent World Agricultural Supply and Demand Estimates (WASDE) report, the USDA estimated that the average corn and soybean yield (the primary crops in the PLOZ Fund I portfolio) would be 175.1 bushels per acre and 50.9 bushels per acre, respectively. These yield values are lower than the previous report in July which reported corn and soybean yields of 177.5 bushels per acre and 52.0 bushels per acre, respectively. These adjustments came as no surprise to many producers in the Midwest as crucial commodity states such as Iowa, Kansas, and Nebraska are still suffering from drought. Thankfully, for the farms in the PLOZ Fund I portfolio rains came at crucial times and harvest expectations are looking promising.

Financial Update

As a result of the varying drought patterns and other global factors, agricultural commodity prices have fluctuated throughout 2023. Corn and soybeans prices have been trending downward making it unlikely that farmers will reach peak net incomes like they did in 2021 and 2022. Farming is a unique industry in that farm incomes are entirely determined by an uncertain production amount for an uncertain price, meaning farm incomes are not consistent from year to year. However current prices and yield expectations remain favorable for positive farm incomes in the United States. The USDA has estimated national farm incomes to drop off from 2022 however will still remain above the 20-year average net cash farm income. Note that Promised Land tenant's generally pay fixed cash rents. These tenant’s primarily bear the risk and rewards of their labors and the fluctuations in yield and crop prices.

Agricultural commodity markets are influenced by a variety of factors that impact the prices of corn and soybeans. As with any product, it’s all about supply and demand. We have already discussed the supply side, but what about demand? One of the major factors impacting markets since February 2022 is the Russian invasion of Ukraine. Ukraine is known as the breadbasket of Europe as it is one of the top producers for major agricultural commodities such as wheat, sunflowers, and corn. As the conflict persists, commodity markets have adjusted prices and introduced market risk premiums over concerns of whether Ukraine will be able to export its typical substantial amount. Thus far, Ukrainian farmers have remained resilient and are expected to produce a strong harvest in 2023 however it is still unclear whether or not Ukrainian farmers will be able to export their crops. In July 2023, the Kremlin terminated the Black Sea grain deal which previously made it possible for Ukraine to export its grain by sea even while the war ensued. The Black Sea ports are crucial to the export of these large bulk commodities and without access to these ports, parts of the world may go hungry without Ukraine’s crops.

Another major factor that will continue to impact commodity markets in the future is the increased demand for biofuels. As the United States and other developed nations look to reduce their dependence on traditional energy sources such as coal and oil, advancements in biodiesel and aviation biofuel have markets looking toward one staple crop in the Midwest, soybeans. In the past, soybeans have been looked at as “the crop you plant when you don’t plant corn” as it provides the soil with essential nitrogen needed to produce corn and other crops. Many farmers adopt a standard corn and soybean crop rotation as a result. Yet, new demand for soybeans has created price incentives for farmers to consider planting more soybean acres rather than corn in upcoming years.

These demand factors will continue to impact global commodity market pricing; however, the biggest driver remains domestic supply and yield expectations as we have already discussed. 2023 corn and soybean yield numbers will begin to become more concrete in the coming months as the harvest progresses and USDA updates WASDE figures.

Nov ’23 Soybean Futures as of August 14th, 2023

Dec ’23 Corn Futures as of August 14th, 2023

Source: Barchart

Farmland Values Update

For Promised Land OZ investor, a significant determinant of investment performance is expectations surrounding changes in farmland values, driven by farmland cash yield and appreciation potential. 2020-2022 brought about some of the most significant gains in land appreciation and farmland returns as world uncertainty surrounding COVID-19 reminded people that regardless of the world’s status, people still need to eat. Real estate investors became increasingly interested in evaluating farmland as an investment alternative, spurring increased demand for an asset class with a limited supply. Food inflation caused commodity prices to rise which in turn created a positive benefit for farm cash rents and land appreciation. As a majority of the properties in the PLOZ Fund I portfolio were acquired in 2021 and 2022, Promised Land’s portfolio has appreciated nicely.

Early 2023 projections concluded that cropland values would continue to remain strong, but gains would begin to moderate due increasing costs of capital from the Federal Reserve’s interest rate hiking campaign. The USDA confirmed these early estimates in its 2023 Land Values Summary which was released in early August. Much of the United States saw strong increases in values with US farmland appreciating 8.1% in 2023 from 2022 with large gains occurring in Midwest and Eastern states where PLOZ Fund I has a strong presence. While this is still a strong appreciation value, it shows slowed growth from the previous report which reported a 14.3% appreciation nationally from 2021 to 2022.

The estimated fair value of Promised Land’s ten farms purchased in 2021 has appreciated $5.5 million, or 8.5%, above historical cost through June 30, 2023. The two most recent Illinois farms purchased in October and December of 2022 remain at cost.

The USDA reported the following year over year cropland values and per acre average values for each of the states represented in the Promised Land portfolio: Illinois (+7.0%, $9,580), North Carolina (+6.4%, $5,000), South Carolina (+4.8%, $3,300) and Mississippi (2.1%, $3,410). Promised Land OZ will incorporate the latest 2023 USDA Land Values Summary and other valuation inputs into its valuation analysis for the quarter ended September 30, 2023 and anticipates further overall net appreciation in its farm portfolio.

While appreciation has slowed, the data indicates there is still strong demand and interest in U.S. agriculture as an industry and an asset class. Farmland appreciation may continue to moderate towards the end of 2023 and into 2024; however, farmland continues to be an attractive inflation-protected asset class over the long-term hold period for PLOZ Fund I.

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