Winter 2011 Blog for Bertsch Realty and Trading Company, LLC

Maybe twice a week I am asked by land investors and farmers, “Why are investors still buying land at these high prices?”  My reply is, “Where do you put your capital or extra cash from your good crops and good prices?”  In the What Bank?

Interest rates on almost all sizable funds that are put in CDs pay barely 1%.  Why would one put money there when inflation is at least 3 or 4 percent per year?   This is the published inflation rate according to the Government Bureau of (You name it).  I call them Liars.   Figures don’t lie but liars figure.   If you believe that the inflation rate is currently that low, I have a bridge in Arizona to sell you.

There is great risk in Government Bonds and the Corporate Bond market is suspect except for a few of the very solid Fortune 500 Companies.  The Equity markets of the world are manipulated by the very wealthy and are for the very nimble and wary that see growth areas and can take advantage of short term pops or for the very young and who can accept risk over the long term.   The commodity markets are not for the weak of heart and even the very astute investors pull their hair out at times.

Most investors that buy farmland are looking for stability and long term rewards without much hassle from the government and pestering tenants and tax assessors.  They are looking for simplicity and a long term tangible asset.  Paper assets have a possibility of total evaporation.  The only drawback of ranch land or farm land is that it is not easily converted to cash without some preparation.

The next question we hear is, “Will land prices continue to go up and what can we expect for a return?”  The easy answer is “They aren’t making any more of it.”  Land values will continue to rise as long as the government continues to print and spend us into oblivion.  Only a few equities that are tied to commodities like the oil or mining business will continue to rise in a full blown inflationary economy as the government continues to expand the “fiat money” supply.    The ever increasing debt of the consumer and the state and local governments that try to keep up with the inflationary spiral soon call a halt to the irrational spending and the whole house of cards falls.   They can’t keep up with the rising cost of goods and services and expanding labor and unfunded pension hole.

Gold and silver and other commodities will continue to follow suit until the poorest among us are priced out of the markets and begin to starve and suffer from the lack of affordability for food, fiber, and energy.  Supply and demand will set the limits and soon it will be cheaper to heat our house with our “fiat paper money” than coal, oil or gas.  Land prices could set back on such a scenario, but those who own land will be able to go back to it and find that it will feed them and provide enough to pay the payments and taxes.  Hopefully common sense will prevail and this debacle can be prevented.

Returns to land are generally commensurate with the value in the current market.   Like water it seeks the highest level.   I have found that over time, land will and should provide a general return of around 5% of the value every year.  If the land that you own is not providing something near that number you need to find out why.  In the current land and commodity market values the return on investment should seek the level of nearly 5% of the current competitive land value.   A landlord should seek a return of 25% to 33% of the gross receipts of the production of the land.  Now this can vary with the quality and climate in the area and other productivity enhancements such as irrigation.   Water rights are another thing that we will pay more for in the future.  Irrigation increases the certainty of return thereby reducing the risk.

Land in Central Illinois is very productive and produces a very high degree of certainty of high yields and returns.  Irrigated land in Illinois provides some of the greatest productivity and returns in the country.  Most of Illinois will produce excellent crops with average rainfall and brings some of the highest prices for farmland in the world.  If you wish to invest in land in the Midwest check with Bertsch Realty & Trading Co. LLC. for some of the best investment grade land in the world.

The Bertsch Grain Trading and Farm Marketing Report

I have put off writing this letter since I don’t wish to be an undue influence on someone’s  marketing plan, not that I am an expert but I do have some age and experience.  During the 80’s and the early 90’s I was President of the Grain Marketing firm called CBH Marketing in Indiana and for the last 20 years I have been heavily involved in the Farm real estate business, Bertsch Realty and Trading Co.  I have seen it all- good times and bad.  If we aren’t going into some tough times I will be the first one to celebrate.

The land market over the past few years has been very exciting and is turning soft as the buyers are getting particular and the sellers, greedy.  An old land investor once told me most of the money is made on the front end or the buy side and the reward is when you sell or trade.  He said,” Buy Hard and Sell Easy”!   You decide what he meant I think I have learned what it means over years of seeing Farmers and investors do just that.

It means that to do something that will make you money you have to have a good plan.  Those that “Fail to Plan, Plan to Fail”!   The grain Market will make a fool out of you if you don’t have a plan.

My plan is always started about two years ahead of my crop production whether it is Wheat, Corn or Soybeans.  Currently I have half my Wheat Production sold for next year, 2011.  I have sold that crop for what I figure will be a reasonable profit at current production costs.  My soybean crop this year was priced last fall and over the winter months when the prices rallied over high expectations.  Two thirds of my Current soybean crop is sold at very profitable levels.  Currently I am also examining some opportunities to sell some corn and soybeans for next year.

By planning ahead for the coming crop year you give yourself over eighteen months of pricing time.  Nine months before the crop is planted and nine months before you have to pay taxes on the profits after harvesting of the crop.  Never let something like paying taxes force you to make a bad decision.  Being forced to sell grain to make a tractor, land payment or meet an operating note payment is never a good time to sell.

Having made the plan and working it out requires some budgeting and forethought and reduces stress and bad decisions.  One is often better at making those sales decisions when you don’t have to than when you are forced too.  I have never found that using futures or options made a lot of sense unless one could not get the grain company to make the contract that you want.  Using futures and options give you a bargaining chip when basis levels are lousy or the grain company won’t price the crop as far in advance as you would like.   Remember when the grain companies are charging a wide basis they don’t want your grain and when they are using a narrow or positive basis they are telling you that they really need your crop.  Sell it, (“Hedge to Arrive”) and bring it in when they really are screaming for it.

Now some thoughts for this current crop year and the current run up in prices.  The crops in Canada have been delayed if not prevented from planting.  Asia (Russia and China) is dry and look as if they will be in our market to pick up the slack.  World carryover stocks have been adequate but look as if they will be seriously drawn down to fill in the void.  Just making Russia an importer of wheat rather than an exporter changes the game in Wheat.   As wheat goes so goes the other grains.

Opportunities make some decent profitable sales look very probable.  One should also price some Wheat for next year now.  If you haven’t got much corn sold for fall delivery get ready to pull the trigger on at least 30 to 40 % of you corn at near $4.00/ Bu. for fall delivery.  Then price another 20 to 30 % when the fall price at or near $4.40 – $4.50/ Bu and keep the rest for January.  If you already have 30 to 60% sold, be very slow to sell until near $4.50.  Soybeans (40%) should be sold near $10.00/ Bu. delivered to the terminal.  Look to sell the rest as the harvest approaches.  Of course, if you have nearly 50% sold already be very patient as I think the bean carryout numbers have been overestimated all year and we could get into an explosive situation as the harvest nears.

Buyers seem to be very eager to buy up old soybeans.  Also remember last year’s Soy crop was marketed fairly early to make room for the wet corn harvest.  Many grain elevators still have some old crop (damaged) corn left that they want to blend off with new corn as the harvest starts.  So there could be some aggressive bids for the first new corn out of the fields.   This is a strong possibility that you may get some cheap drying deals and good early delivery bids so keep your powder dry for some corn right out of the field in early Sept.

Your comments are very much appreciated and maybe we can help each other if you wish to share some ideas with others.  Later this summer I will add some thoughts about land sales and the future thereof with respect to the coming tax debacle that we face next year.  Remember to take more income this year because taxes are surely going to go up next year and the next year.  Tax changes are going to be serious and will affect your future in farming over the next few years.  Get some advice from a realistic accountant..

Have a safe Harvest.

Rod Bertsch.

Champaign , IL.

Maybe Farming Isn’t Supposed To Make Money

by Gene Logsdon

 

Talk about heresy. What if food production should not be part of either a capitalistic or a socialistic economy. The first commandment of agriculture states that you must put back into the soil the fertility you take out of it. That being so, the only real profit from food production is how good the food tastes and how well it sustains health and well-being. Any actual money profit beyond that might simply be a sign that the farming is flawed. Failed civilization on top of failed civilization suggests that idea, but every new civilization that flourishes for awhile believes it can beat the system.

Farming has to be subsidized in modern economies because nature can’t compete with money interest. An ear of corn, even the record-shattering 15-inch ear I found in my field yesterday, has never heard of six percent interest. An ear of corn grows at its own sweet pace, come recession or inflation, which is the modern version of hell or high water. Every attempt to make it grow at a pace that matches the way we can manipulate paper money growth, results in some downside. (Eventually it happens with money too.) GMO scientists crow about their new seeds but there is little significant increase in yield from them, in fact in some cases, documented decreases. When an increase does occur it usually comes from lack of weed competition not an actual genetic increase in yield. Most above average increases in crop yields come from good weather. Monsanto and Dupont are trying to take the credit for the big corn crop this year when their very same seeds that produce a good crop on one farm result in only half a crop two miles down the road where timely rains did not fall.

Every time a new variety of corn is hailed as producing higher yields, it takes a higher amount of inputs to get it. Increased yields invariably mean decreased food nutrients in the crop too. Increases in food nutrient value in a new variety, especially protein, invariably result in yield decreases. That’s why high protein corn varieties haven’t yet been largely accepted. They mean less yield. The increases in total crop production that we have gotten over the past fifty years come more from getting all farmers to follow the good management practices of the best farmers. There is irony in that too. The “good” practices of the “best” farmers are often the worst practices in terms of extracting wealth from the soil and not returning enough of it. Some of those “poor” farmers, by their very ineptness, could be rated as the best farmers environmentally because they are mining the soil the least. True story: One of my neighbors, gone now, made a living working in a factory and farming on the side. His crops were so poor that he could rarely be accused of mining the soil. One year his tractor quit on him while he was cultivating corn. He just left it set there and walked away. In the fall, the farmer who harvested the scraggly crop for him was surprised to find the abandoned tractor rusting away among the giant ragweeds.

Last week I wrote about how I made, by my own goofy way of calculating, $550 an acre on the measly little bit of corn I grew while the big producers were in danger of barely breaking even on their thousands of acres. Obviously, if there were a hundred million people raising gardens of corn the way I do, there would be plenty of corn for everyone but no one would make any cash profit on it to speak of. So? How’s that any different from what’s happening right now. And if cash profit is made today, how much of that is canceled out by the social costs of a hundred million people unable to grow their own food?

When I brag about my 15-inch ear of record-breaking yellow dent corn, I am no different than Monsanto bragging about how it will feed the world with GMO crops. Nature rules not Monsanto nor I. The only reason a stalk of my corn grew such a gigantic ear is that there was not another stalk closer than 20 inches on either side of it. Had there been stalks closer, that ear would have been more like eight to ten inches long. Decreasing plant population to get fewer but bigger ears does not increase total yield any more than increasing plant population with resultant shorter ears.

That’s a reflection of the second law of the land: There is a limit on how much food an acre will produce. No civilization has learned how to get around that law so far. Trying to do so leads to a constant round of environmental collapse and starting over again.

Let us contemplate an awesomely scary thought. Humans seem to be genetically incapable of limiting their desires to fit the laws of nature. So can farming ever be truly sustainable? I have been studying the rise and fall of civilizations on the American continent over the past 12,000 years or so, (an awesome book, “1491” by Charles C. Mann) and what archaeologists have learned so far is that the answer is no.

Half Century of Progress Show

The Half Century of Progress Show is just around the corner…

Among the attractions is the world’s biggest tractor “Big Bud”.

Come see the world’s largest tractor with displays on his strength and abilities.

The Half Century Of Progress IV will be held at Rantoul, Illinois August 27, 28, 29 and 30. The show will take place at the site of the former Chanute Air Force Base.

Here is the schedule…

Thursday – August 27

7:00 A.M. Gates Open
8:00 A.M. Half Century Tractor Ride Departs— Rantoul National Aviation Center Airport
9:00 – 11:00 A.M. Field Demonstrations
11:00 A.M. Construction Equipment Demonstrations
1:00 – 4:00 P.M. Field Demonstrations
3:00 – 4:00 P.M. BIG BUD leads the Return of Max’s 50 Mile Tractor Ride
6:00 – 8:00 P.M. Horse Pull

Friday – August 28

7:00 A.M. Gates Open
8:00 – 11:00 A.M. Field Demonstrations
11:00 A.M. Construction Equipment Demonstrations
1:00 P.M. Parade of Power
1:00 – 4:00 P.M. Field Demonstrations
2:00 P.M. BIG BUD Demonstrations
2:00 – 4:00 P.M. Wes Wheeler & Battlecreek Band
6:00 P.M. Tractor Pull–ITPA (Antique, Classic, 9500 FS, 5800 MOD, 4 Cyl NITTA , Mini Rod)
(two local class exhibitors)

Saturday – August 29

7:00 A.M. Gates Open
8:00 – 11:00 A.M. Field Demonstrations
10:00 A.M. Hand Corn Husking Demonstrations
11:00 A.M. Construction Equipment Demonstrations
12:00 Noon Kids Pedal Tractor Pulling
1:00 P.M. Parade of Power – Class of ’59
1:00 – 4:00 P.M. Field Demonstrations
2:00 P.M. Hand Corn Husking Demonstrations
2:00 P.M. BIG BUD Demonstration
2:00 – 4:00 P.M. Wes Wheeler & Battlecreek Band
4:00 – 5:00 P.M. Orion Samuelson & Max Armstrong Stage Show
5:00 P.M. IPA Pulls (NA, Pro Farm, Alt Stock, Mini Rd, Light S.S.)
(three local class exhibitors)

Sunday – August 30

7:00 A.M. Gates Open
8:00 – 11:00 A.M. Field Demonstrations
9:00 A.M. Half Century Gospel Hour
10:00 A.M. Hand Corn Husking Demonstrations
12:00 Noon Kids Pedal Tractor Pulling
1:00 P.M. Parade of Power – Tractors of FFA
1:00 – 3:00 P.M. Field Demonstrations
2:00 P.M. Hand Corn Husking Demonstrations
2:00 P.M. BIG BUD Demonstration
3:00 P.M. BIG BUD Toy Drawing (Three Piece Collectors Set)

FARMERS EVALUATE ALTERNATIVES FOR LATE PLANTING

Taken from http://www.aces.uiuc.edu/news/stories/news4809.html

Published: Jun. 5, 2009

Source: Gary Schnitkey, 217-244-9595, schnitke@illinois.edu

Urbana — Adverse planting conditions this spring have resulted in late plantings across much of Illinois. While a great deal of progress has been made in the past week, there are still fields that have not been planted, making future cropping decisions critical.

“Farmers who have not planted on fields scheduled for corn have three options — Plant corn whenever it becomes possible, plant soybeans, or take a ‘prevented planting payment,’” said Gary Schnitkey, University of Illinois agricultural economist.

Under the plant corn anyway option, Schnitkey says farmers should expect corn yields to be lower than corn planted in a timely fashion.

“In addition, insurance guarantees will be lower if an APH, CRC, or RA insurance policy has been purchased and the final planting date has been reached June 5 for most of Illinois and May 31 for the seven southern most counties in Illinois,” he said.

If a farmer decides to plant soybeans, expected yields have not been reduced as much as for corn.

“Also, insurance guarantees for APH, CRC, and RA insurance policies will not be reduced until the final planting date has reached June 15 for northern Illinois and June 20 for southern Illinois,” said Schnitkey.

If farmers choose to take “a prevented planting payment” under a APH, CRC, and RA insurance policy, the prevented planting payment is 60 percent of the guarantee offered by the insurance policy.

“Farmers should consult with their insurance agents, as there are rules to follow to insure prevented planting payments,” said Schnitkey.

These important cropping decisions are discussed in a recent www.farmdoc posting (www.farmdoc.uiuc.edu/manage/newsletters/fefo09_10/fefo09_10.html ). This website includes a “FAST tool” — a spreadsheet developed to aid in evaluating the three alternatives.

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News writer: Gary Beaumont
phone: 217-333-9440; email: beaumont@uiuc.edu