2020 Year End Review
David Thien
President, AFM, ALC, Broker
The 2020 growing season provided many challenges for agriculture, some we are familiar with, such as tight margins and variable weather, and some we were not familiar with, being the Derecho wind event and COVID-19. Overall, the agricultural sector has proven to be very resilient and flexible and withstood the challenges put in front of it.
I will not spend a lot of time on COVID-19 as everyone is aware of the impact to their personal lives, work lives, family lives, local economies, national economies, and global economy. The agricultural sector really performed well and showed how resilient the nation’s food, fuel, and feed sources are. We are very proud to be a part of the agricultural sector and are grateful to be able to work and enjoy this part of the economy.
Coming out of 2019 many were concerned with potential flooding along the Missouri River in the Spring/Summer of 2020. This concern never came to fruition and a majority of Iowa and Nebraska ended the year in varying degrees of drought. SW Iowa and Eastern Nebraska were very fortunate to start the 2020 growing season with a full water soil profile and both corn and soybean crops looked great heading into late Spring and early Summer. However, the rains just did not materialize from June to September. The Council Bluffs area ended up being short of historical rainfall amounts by over 13 inches. Areas to the north of Council Bluffs were worse off and areas south of Council Bluffs were slightly better off. Overall, yields were better than I expected but varied greatly based upon on location. The drought conditions provided for an early harvest and great conditions for getting fertilizer, field work, and improvements completed. The biggest factor concerning 2021 crop prospects and yields is the lack of Fall moisture and the expansion of the drought area coupled with the increasing intensity of the drought.
The widespread Derecho wind event on August 10th caused significant damages and losses to corn yields across a wide swath of Iowa. This coupled with the expanding drought caused losses to both corn and soybean production across the state. During the summer and fall the national yield estimates were lowered to reflect this and at the same time corn and soybean exports were increasing rapidly. In an unusual move both corn and soybean prices increased during harvest and continue to grind higher moving into the new year. Both corn and soybean prices for Fall 2021 are significantly higher than what has been seen over the past 4-5 years. At the writing of the report Fall 2021 corn prices into Council Bluffs are near $4.00/bushel and Fall 2021 soybean prices are near $10.30/bushel. Old crop 2020 corn and soybean prices are $4.40/bushel and $12.50/bushel respectively. With this in mind we have started selling both old crop 2020 and new crop 2021 corn and soybean bushels in order to take advantage of this higher price level. Our 2021 budgets are showing better profits than the past several years due to good yields, higher prices, and lower input costs.
A major concern of ours and of our clients is the impact of COVID-19 on land prices. We really had no idea how this may play out during 2020. Initially many agricultural properties were taken off the market and many potential sellers choose to sit on the sidelines and wait and see what would happen. This created very short supply of available farmland for sale and we did not see much selling from March through September. During this time, the pool of potential buyers consisting of 1031 buyers, investors, and farmers built up. When farms started coming up for sale they were aggressively pursued and purchased at strong levels. At the writing of this report there are still very few farms for sale and values have held up well. Compared to 2019 values, 2020 values are up slightly between 1-3% depending on location and quality. Some of the most recent sales are showing even better appreciation and I expect steady to increasing land values in 2021. The prospect for increasing land values in 2021 is very good based upon increasing exports, increasing commodity prices, better cash-flow, very low interest rates, government income support in 2020 and 2021, and scarcity of available land for sale.
Cash rental rates have been under pressure for the past several years and it has been difficult to increase rental rates leading up to 2021. Rental rates have been steady from 2017 to 2020. Although there were some production challenges in 2020, for the most part yields were good. Most cash rent operators carry higher levels of crop insurance, so even if production was lower in certain areas, a good portion of potential income was protected. With prospects of higher income in 2021 due to better commodity prices and lower input costs, we were able to start adjusting rental rates higher in 2021. We are hopeful that this is a start of a trend of higher rental rates going forward. We review our rental contracts every year and adjust them according to current market conditions. Competition for cash rent acres is very strong in most areas and I anticipate higher rental rates in 2021 and 2022.
Thien Farm Management, Inc. is optimistic for the future, and every year will have its own challenges. We continue to take pride in the farms we manage and will work to make every operation as profitable as possible while achieving each client’s ownership goals.