Bernanke clarity -- there is none

“If we see continued improvement and we have confidence that that is going to be sustained, then we could in -- in the next few meetings -- we could take a step down in our pace of purchases.” - Ben Bernanke

What does this mean? If there is improvement and the Fed believes it can be sustained, then they may reduce the amount purchased. This is as clear as mud. The market reaction was swift. Equities feel so investors do not believe that the economy can run on own at current growth rates. There was more information from the market than from Ben Bernanke.

The power of agri-technology - corn planting

The big fear this spring was the poor corn planting. Planting was not happening fast enough given the cold wet weather. Yet when the weather turned, the corn seeds went into the ground at a rate faster than anyone anticipated. 

On May 3rd only 12 percent was planted. By the 10th, 28 percent was planted and then the report for May 17 came out and the eye-popping number of 71% was reached. The new number this week may be closer to 90%. The farmers got up early and planted like there was no tomorrow. The reason for this strong number is that many farmers are now using better tractor technology and 36 row planters versus the normal 12 and 18 row planters. With GPS and large planter, you can get mor ein the ground if you have dry weather. 

The planting problem has been averted so now the market can move on to other growing risks. The focus will also be on demand and how the old crop will move off the farm.

Farmland - is there value?

The farmland rental rate has slowed over the last 12 months with the decline corn prices. The rental rate is still moving upward but momentum is down so the frenzy of the last two years has fallen. This comes from an Iowa State survey which showed a 7% increase in the last year versus 18% in 2012 and 16% in 2011. 

Still there is talk of a farmland bubble 

The Kansas City Federal Reserve said irrigated cropland in its district rose 30% in 2012, while the Chicago Fed reported a 16% increase. And despite the drought in Iowa last year, farmland prices have nearly doubled since 2009 to an average of $8,296 an acre. Prices in Nebraska have also doubled during the same period.

Robert Shiller, professor at Yale, and the master of bubble research has also commented that farmland may be in or facing a price bubble. The supply is tight and low interest rates have allowed for more speculative behavior.  If there is a strong decline corn prices this year, we could see farmland price fall this year. This is an llliquid asset, so investors should be cautious about purchases at this time. Value could be limited.

Corn planting race against time

A very interesting risk is being faced by corn traders - the race against time to plant. With poor spring weather the planting of this year's corn crop has been delayed. As of the most recent report, only 28% of the crop has been planted. The average for the last five years has been 65% and last year the amount planted by this time was 85%. 

What makes this so critical is that after May 20th, the number of growing days will be potentially curtailed and the yield per acre will decline. The farmer's rule of thumb is that you lose 1 bushel per acre for every day of planting delay after May 20th. Additionally, the key pollination period will move to later in the summer which will also affect the yield if there is a hot period at this critical time.

Hence, there is a race against time to reach for potential maximum yield. Very few markets face this type of risk.