World cereal stocks have been estimated at a 15-year high.
Soaring supplies of cereals and an abundant export availability for food products, have led to a drop in food prices to a four-year low.
The UN Food Agency, the food and agricultural organisation, raised its forecast by 14 million tonnes to 2.51 billion tonnes for the world grains harvest this year, including rice, leaving it only 0.5% short of last year’s record.
The upgrades, which left grains production well ahead of consumption, mean an even bigger inventory build than had been thought by 37.1m tonnes over the season.
Record crops for two consecutive years are expected to boost the size of global cereal inventories to their highest level in 15 years.
For wheat, inventories will rise to 188.4m tonnes, some 8.4m tonnes more than previously thought, and the highest in five years.
Large inventories imply lower prices, with buyers facing little need to pay up for supplies with this year being another record year for wheat production.
Prices for the staple grain continued to slide in August, reaching their lowest value since July 2010.
It used to be that the farmland market tracked the commodity market.
In the UK, the farmland market detached itself from the commodity markets some time ago and there is now little correlation between the two.
However, in the US it appears that the farmland market continues to track commodity prices.
There has been a recent fall in US farm prices in line with the decline in commodity prices.
A further difference to the UK market, is the annual returns from investment in agricultural land.
Larger agricultural companies are possibly responsible for the differences in the US.
Large-scale agricultural businesses continue to grow their land portfolio though aggressive acquisitions.
These companies are usually listed and therefore have a responsibility to their shareholders.
Shareholders look for value, so how is this achieved?
One firm recently revealed the purchase of a 3,696 acre farm in Colorado for $8.75m, equivalent to about $2,370 per acre.
The land will be leased back to the seller at an annual rate of 4.63%.
This equates to $109.73 per acre (£67/acre).
Another company agreed to pay $12.5m for 12,500 acres on the Colorado/Kansas border, which it expects to lease to the current tenants for a cash return of about 5%.
This equates to $50/acre (£30/acre).
If the same principles were applied to the UK it makes very interesting reading.
Our firm traded over £55m worth of farm land last year with an average price per acre of £6,217/acre.
Applying a 6.25% lease back rate on the figure of £6,217/acre would equate to a rent of £388/acre.
Quite some difference.
So why doesn’t the UK farmland market follow commodity prices?
The main difference between the two markets is that one is influenced globally while the other is still influenced by domestic activity.
Compared to the US, the land resource in the UK is significantly less creating a tight supply and demand situation, at times bordering on desperation.
Agricultural land in the UK continues to be some of the cheapest land in Europe and while this continues land will be seen as a good investment, not necessarily from its annual yield, rather its ability to enjoy capital growth.
Renewable projects are starting to have an impact on the UK market.
Farmers with self-financed renewable projects, be it hydro or wind, and larger scale windfarm rents are beginning to accumulate capital reserves.
This capital is being reinvested back into farm land.
It seems staggering that the facts and statistics are so radically different between the UK and the US despite both countries operating in the same global markets.
It does, however, point out that there remains some domestic elements influencing the agricultural industry in the UK.
Despite the inferences on the UK land market listed above, there is no doubt that current low commodity prices in the agricultural sector will put pressure on the land market.
Should the poor prices continue it remains to be seen how long current land prices can be sustained.
That said, commodity prices could swing quickly prior to any pressure being placed on the land market.