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Common Sense: Expert Predictions for Stocks, Fixed Income and Real Estate in 2012

December 31, 2011 by Leave a Comment

That may be good news, at least for investors.

The last time things looked this bad — even worse — was three years ago, hard on the heels of the bankruptcy of Lehman Brothers, with global markets plunging and the financial crisis still unfolding. The following year the Standard Poor’s 500-stock index gained a robust 23.5 percent.

What explains the paradox? Efficient market theorists would say that all the bad news and pessimism about the future are already reflected in stock, bond, real estate and other asset prices. Market prices are in large part predictions, not snapshots of the present. So-called contrarian and value investors, like Warren Buffett, have argued that pessimism is often overweighted in asset prices, which makes widespread gloom a bullish indicator. Mr. Buffett went on one of his largest stock buying sprees this last year, even as the economic news worsened.

These views have been validated by recent research in the field of behavioral economics, which suggests that investors tend to be unduly influenced by recent trends, both good and bad, and project them into the future. Of course, if pessimism over 2012 turns out to be well founded, or if things turn out even worse than expected, then even depressed asset prices will fall further. The trick is to identify conventional wisdom that’s wrong, or at least unduly pessimistic. So I asked three widely followed experts in their respective fields — United States stocks, fixed income and real estate — who have successfully embraced contrarian views (at least most of the time) for their advice for 2012.

Bill Miller:
‘Buy and hold is not dead’

Last month the well-known mutual fund manager Bill Miller announced his retirement as portfolio manager for the Legg Mason Value Trust, a mutual fund that made history by beating the S. P. 500 for a record 15 consecutive years. He was named fund manager of the decade by Morningstar in 1999. But no one is infallible, and Mr. Miller stumbled in 2008 by betting on a recovery in United States financial stocks that never happened.

His fund has now trailed the S. P. 500 for five of the last six years. His ill-timed bet on financial stocks illustrates the peril of being a contrarian when the conventional wisdom turns out to be correct, but Mr. Miller’s record winning streak still stands (and he’ll continue to manage Legg Mason’s Opportunity Trust mutual fund).

Like many contrarians right now, Mr. Miller is bullish on stocks. “A great deal of pessimism is already built into the U.S. equity market,” Mr. Miller said when I caught up with him. “The market is trading at 12.5 times earnings. Basically, the market is expecting no growth in corporate profits from here indefinitely. The S. P. 500 dividend yield is higher than the 10-year Treasury yield. This only happened at the bottom of the financial crisis, and before that you have to go back 50 years.

“After two years of headlines on Europe, beginning with Greece, my view is, everything about Europe is discounted except the complete collapse and disintegration of the European Union,” Mr. Miller continued. “Everything but the worst-case scenario is baked in. Recession? Yes. Political dysfunction? Yes. Bad austerity policies when they need to promote growth? Yes. Those are in the headlines every day and it’s priced into U.S. stocks. I’m not so sure about European stocks.”

Mr. Miller is enthusiastic about large-capitalization, high-quality United States stocks. “Contrary to what appears to many to be the case, the U.S. economy has been accelerating. We’ve had good growth, and it’s improving.” After a decade in which the S. P. 500 was essentially flat, “people think the only way to make money is to allocate tactically and trade a lot. Now everyone wants to be a global macrotrader. I wouldn’t let anyone do this. I’d rather get some high-quality companies that have never been cheaper. I’d buy and hold. Buy and hold is not dead.”

Bill Gross:
‘A deserted asset class’

Article source: http://www.nytimes.com/2011/12/31/business/three-experts-prognosticate-on-2012.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

India’s Way: For India’s Poor, Private Schools Help Fill a Growing Demand

December 31, 2011 by Leave a Comment

Parents in Holy Town’s low-income, predominantly Muslim neighborhood do not mind the bare-bones conditions. They like the modest tuition (as low as $2 per month), the English-language curriculum and the success rate on standardized tests. Indeed, low-cost schools like Holy Town are part of an ad hoc network that now dominates education in this south Indian city, where an estimated two-thirds of all students attend private institutions.

“The responsibility that the government should shoulder,” Mr. Hakeem said with both pride and contempt, “we are shouldering it.”

In India, the choice to live outside the faltering grid of government services is usually reserved for the rich or middle class, who can afford private housing compounds, private hospitals and private schools. But as India’s economy has expanded during the past two decades, an increasing number of India’s poor parents are now scraping together money to send their children to low-cost private schools in hopes of helping them escape poverty.

Nationally, a large majority of students still attend government schools, but the expansion of private institutions has created parallel educational systems — systems that are now colliding. Faced with sharp criticism of the woeful state of government schools, Indian policy makers have enacted a sweeping law intended to reverse their decline. But skeptics say the litany of new requirements could also wipe out many of the private schools now educating millions of students.

“It’s impossible to fulfill all these things,” said Mohammed Anwar, who runs a chain of private schools in Hyderabad and is trying to organize a nationwide lobbying campaign to alter the requirements. Referring to the law, he said, “If you follow the Right to Education, nobody can run a school.”

Education is one of India’s most pressing challenges. Half of India’s 1.2 billion people are 25 or younger, and literacy levels, while improving, could cripple the country’s long-term prospects. In many states, government education is in severe disarray, with teachers often failing to show up. Rote drilling still predominates. English, considered a prerequisite for most white-collar employment in India, is usually not the medium of instruction.

When it took effect in April 2010, the Right to Education Act enshrined, for the first time, a constitutional right to schooling, promising that every child from 6 to 14 would be provided with it. For a nation that had never properly financed education for the masses, the law was a major milestone.

“If we nurture our children and young people with the right education,” said Prime Minister Manmohan Singh, commemorating the act with a televised address, “India’s future as a strong and prosperous country is secure.”

Few disagree with the law’s broad, egalitarian goals or that government schools need a fundamental overhaul. But the law also enacted new regulations on teacher-student ratios, classroom size and parental involvement in school administration that are being applied to government and private schools. The result is a clash between an ideal and the reality on the ground, with a deadline: Any school that fails to comply by 2013 could be closed.

Kapil Sibal, the government minister overseeing Indian education, has scoffed at claims that the law will cause mass closings of private schools. Yet in Hyderabad, education officials are preparing for exactly that outcome. They are constructing new buildings and expanding old ones, partly to comply with the new regulations, partly anticipating that students will be forced to return from closing private institutions.

“Fifty percent will be closed down as per the Right to Education Act,” predicted E. Bala Kasaiah, a top education official in Hyderabad.

Sruthi Gottipati contributed reporting.

Article source: http://www.nytimes.com/2011/12/31/world/asia/for-indias-poor-private-schools-help-fill-a-growing-demand.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

As Spain Trims Deficits, Scrutiny Falls on Regional Governments

December 31, 2011 by Leave a Comment

Spain’s new prime minister, Mariano Rajoy, said the austerity package was needed to maintain the confidence of European bond markets after it became clear that the budget deficit was expected to reach 8 percent of gross domestic product this year — two percentage points above the government’s target.

And while Spain’s overall fiscal status is nowhere near as dire as Italy’s, it has another problem all its own, as the new budget minister, Cristóbal Montoro, made clear Friday: serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade.

Evidence of the regional profligacy dots the countryside. On the top of a hill here in the birthplace of Salvador Dalí, in northeastern Spain sits a giant, empty penitentiary.

But even without a single prisoner in residence, the prison is costing Spain’s heavily indebted regional government of Catalonia $1.3 million a month, largely in interest payments. If prisoners were actually moved in, it would cost an additional $2.6 million a month.

So it sits empty, an object of ridicule around here, often referred to as the “spa.”

Analysts say the mistakes are adding up. The Bank of Spain announced this month that regional debt had surged 22 percent, to $176 billion in September from $144 billion the year before. And some experts say that there remain tens of billions of dollars in “hidden” regional debt yet to be discovered.

The financial state of the regional governments is so bad, in fact, that some may be willing — maybe even eager — to shed some of their wide-ranging and costly responsibilities, like health care and education.

Much as the debt crisis is forcing the European Union to refashion its relationship with its member countries, stepping up oversight and control, some experts believe that some of Spain’s autonomous regions may be less so in the future.

“Whether publicly or not, some of the regional governments are saying: ‘Take this away from me. I didn’t realize how difficult it would be,’ ” said Ángel Berges Lobera, an economist at the Universidad Autónoma de Madrid and an expert on regional debt.

In recent years, the regions and municipalities have racked up debts, offering generous public services and investing in a wide range of projects, some of them bordering on the ridiculous, critics say.

Castilla-La Mancha, for instance, an agricultural region bordering Madrid, built itself an airport complete with a runway big enough for jumbo jets. But it may close soon, as no airline — even with smaller planes — is interested in flying there.

Municipalities have not done much better. They have also been accumulating debt, a total now of about $48 billion.

One town, Alcorcón, about 10 miles southwest of Madrid, spent $150 million on a cultural center, complete with a permanent circus and free birthday parties for its children.

“It’s been chaos out there,” said Lorenzo Bernaldo de Quirós, an economist who has been critical of Spain’s system of autonomous regions, a structure developed after Gen. Francisco Franco’s dictatorial rule ended in 1975.

And there is that “hidden debt,” most of it in unpaid bills, which is not included in Spain’s total national indebtedness of $915 billion. That could easily amount to $25 billion to $40 billion more, experts say.

And the bad news probably is not over. Some experts believe that as newly elected members of Mr. Rajoy’s Popular Party take control of some regional administrations, they are sure to unearth even more financial excesses. That is what happened in Catalonia, where the “hidden debt” problem first popped up this year. When elections were held there in 2010, the ratio of debt to regional G.D.P. was believed to be less than 2 percent. But after the vote, the departing government disclosed that its full year deficit could be 3.3 percent. The new government later revised that figure again, to 3.8 percent.

Rachel Chaundler contributed reporting.

Article source: http://www.nytimes.com/2011/12/31/world/europe/as-spain-trims-deficits-scrutiny-falls-on-regional-governments.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Bucks Blog: Friday Reading: Municipal Cutbacks Leave Residents in the Dark

December 31, 2011 by Leave a Comment

December 30

Friday Reading: Municipal Cutbacks Leave Residents in the Dark

A discount retail chain shuts down, manufacturing jobs return with lower wages, municipalities try to balance their budgets by shutting off streetlights and other consumer-focused news from The New York Times.

Article source: http://feeds.nytimes.com/click.phdo?i=8f2769669e4f7222ef3e4d91583e295e

Filed Under: Your Money Tagged With: , ,

Bucks Blog: Your Financial Resolutions for 2012

December 31, 2011 by Leave a Comment

In this weekend’s Your Money column, I rounded up some of my favorite characters from my reporting this year and asked them what they planned to do differently in their financial lives in 2012.

What’s on your hit list for 2012, and how do your priorities differ from the ones that people expressed in the column? We here at Bucks world headquarters will post our own resolutions next week.

Article source: http://feeds.nytimes.com/click.phdo?i=eeb829551065d30747b33812be0f21f8

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Panama Journal: In Panama City, Red Devil Buses Yield to Paler, Safer Kind

December 31, 2011 by Leave a Comment

“They are crazy,” said Ms. Betancourt, 33, a housekeeper at a downtown hotel, boarding on a main boulevard. “We all know that. All they care about is getting the fare. So many times we have almost hit somebody.”

“Almost” may make her bus one of the lucky ones, as they are known to have taken more than a few souls for the sake of a pickup.

Her bus on a recent morning is like hundreds of others, a converted, cast-off American school bus ablaze with color, usually heavy on the red.

As if painted by a graffiti artist addicted to action movies and sports, they often boast fanciful, dreamy scenes, including, improbably, a looming Dumbledore from the Harry Potter movies glaring at Ms. Betancourt as she climbs aboard.

Reggaetón, salsa and other bass-heavy music concuss the air, to attract riders to the privately owned buses. Growling mufflers contribute to the soundtrack of the streets. And no self-respecting grille lacks a wild string of Christmas lights.

Typical fare: 25 cents.

“They evolved into the most visually dominant aspect of Panama City,” said Peter Szok, a professor at Texas Christian University in Fort Worth who has studied the buses and the folk art of Panama.

It is a tradition elsewhere in the region as well, in other Panama cities as well as in countries like Suriname, where the buses are adorned with politically-tinged portraits of heroes and outlaws. But here, at least, the ride is coming to an end.

The buses, many of them retired from Florida schools, have been the backbone of public transit here for more than four decades, with the tradition of decorating vehicles used for public transportation going back even further. Mr. Szok traces the art form to a desire to reflect Latin music styles and an idealized life.

Panama City, however, is rapidly modernizing, with a towering skyline and sprawling shopping malls that promoters hope will put it on the map as another Singapore.

With that has come a push for order. A subway is being dug. Roadways are being built or planned. The Red Devils, owned and operated by their drivers with no real set schedule, are being phased out in favor of something decidedly more vanilla and benign, a Metro Bus system with generic boxy white vehicles familiar in any cities. The only dash of a color is an orange slash.

“Safe, comfortable, reliable,” is the slogan. There is even a route map.

President Ricardo Martinelli, whose administration has championed the new system, has pointed to the new buses as a sign of progress, blaming the Red Devils for accidents and accusing them of unreliable service.

“They will race from one end of the city to the other, killing people, killing themselves,” he said in a speech in Washington in April. “Yeah, a lot of people were killed.”

But the Metro Buses, too, are drawing complaints, mainly for slow service. The 25-cent fare on most routes is expected to rise to 45 cents next year, and is already drawing grimaces. Some have taken to calling them the Diablos Blancos, the White Devils.

“Hey! The line starts back there,” several people shouted at one crowded downtown Metro Bus stop as their ride finally arrived in a downpour.

“Look at this long line and little bus shelter,” said David Polo, 33, who had been waiting for more than 20 minutes. “The new buses may be safer, but they need more of them.”

Panama’s transportation officials said the Red Devils, numbering about 1,200 in recent years, would be gone by the end of this year, but the plan has been delayed more than once as the new system seeks to hire and train drivers.

As the Red Devils disappear — some of them, in the ultimate twist of fate, converted back to school buses, and others dismantled for scrap or sitting in bus boneyards — something a bit unexpected has emerged.

Sympathy for the Red Devils.

The nostalgia ranges from the tongue in cheek — a “Save the Diablo Rojo” YouTube video purports to mourn the end of tourists’ losing their wallets, among other things, on them — to genuine regrets.

“It is a loss of part of our culture,” said Analida Galindo, a co-director of the Diablo Rosso art gallery in the historic Casco Viejo neighborhood. Yes, the gallery name is a play on the Red Devils’ name.

The gallery sells bus doors painted by one of the more prolific Red Devil artists, Oscar Melgar, for $2,500 (no takers yet).

Mr. Szok said the painters were largely self-taught, many of them the sons of West Indian immigrants, though some in later years had gone to art school. They typically charged $2,000 and up to paint the buses, meaning some are a kaleidoscope of images while, in others, the yellow has been barely painted over, depending on the wherewithal of the driver.

“It was a great tradition that people are going to miss,” said one of the painters, Ramón Enrique Hormi, known as Monchi. “Here it is Christmastime, and what am I going to do? I have nothing.”

Some owners, too, have complained that the $25,000 that the government is offering them in compensation for giving up their buses may sound generous but will not carry them very far.

Several drivers said they could not get jobs with Metro Bus because of their poor driving records, though the new system has hired many Red Devil drivers.

Other drivers said they had long held second jobs and would find other work.

“Everything has to come to an end someday,” one driver, Juan Estanciola, said on a recent day outside his modestly painted bus, which is mostly white with purple trim and bears sayings like “Don’t let my presence mess with your mind.”

He spoke at the door of his bus, which had just collided with a taxi on a rainy afternoon.

“It was his fault,” he said. “He cut in front of me. They don’t know how to drive.”

Article source: http://feeds.nytimes.com/click.phdo?i=a01ea98517a39da82703ed16fdfc5bc0

Filed Under: Economy News Tagged With: , ,

Stocks & Bonds: American Stock Markets End 2011 Where They Started

December 31, 2011 by Leave a Comment

The Standard Poor’s 500-stock index, the main gauge of broad market performance, closed on Friday at 1,257.60, finishing the year nearly dead even with its 2010 close of 1,257.64, which is technically down 0.003 percent. The Dow Jones industrial average of 30 blue-chip American stocks fared better, closing the year with a 5.5 percent gain at 12,217.56.

Market strategists predict the S. P. will stay in a range of 1,100 to 1,500 by the end of 2012, depending on how investors balance economic growth, fiscal policy, corporate earnings and the European debt crisis, as well as the potential for change after the November election.

Yet, looking back at 2011, it was a flat finale that told little of the volatility preceding it, when political turmoil, financial upheaval and even natural disasters left almost no corner of the markets untouched.

On 35 trading days in the year, the broader market closed with a gain or loss of 2 percent or more — the most number of days of that magnitude since the financial crisis of 2008-9 and making 2011 among the most volatile on record for stocks.

“It has been such a difficult year,” said Rick Bensignor, the chief market strategist for Merlin Securities. “Things changed on a dime.”

Oil prices shot up to $114 a barrel before plunging to $76 and rising again to $100 in reaction to revolutions in the Middle East and North Africa. Investors piled into the perceived haven of United States Treasury bonds even after the nation’s credit rating suffered its first-ever downgrade. The earthquake and tsunami in Japan exacted a devastating human and economic toll.

And the debt crisis in Europe upended governments, stirred fears of sovereign defaults and imposed severe financing strains on banks. Possibilities that were once remote became questions for debate in 2011: Will the euro zone break up? Is this a replay of the 2008 financial crisis?

Sentiment was also hobbled by a deadlock in Washington over fiscal policy and by the potential for slowing growth in emerging markets.

“Investors are scared to death,” said Philip J. Orlando, a chief market strategist for Federated Investors. “You have a massive flight to safety.”

Despite the bruising it took in 2011, Wall Street managed to score one of the better global performances. Major European and Asian indexes lost anywhere from 6 percent (Britain) to 26 percent (Italy) for 2011.

Looking ahead, some analysts see the United States faring even better in 2012. Binky Chadha, the chief strategist for Deutsche Bank, who forecast that the S. P. 500 would end closer to 1,500 in 2012, wrote in a market commentary that “very healthy” corporate fundamentals and cheap valuations would help equities eventually win out over the euro crisis and American fiscal issues.

Some analysts said investors would most likely be better braced to handle policy changes in the nations that use the euro.

“Investor reaction should continue to get better,” said Jack A. Ablin, chief investment officer of Harris Private Bank. “For as lousy as Europe’s news is, it has got to be the slowest moving train wreck in the history of the financial world. It’s the stuff that comes over the transom that kills us.”

Among the best 2011 performers in the S. P. 500 were utilities, up 14.8 percent; health care, up 10.2 percent; and consumer staples, 10.5 percent. The financial sector fared the worst, finishing down 18.4 percent.

Macroeconomics ganged up on market sentiment this year to such an extent that investors backed off stocks even as American companies set records for profits, mostly via cost-cutting.

In the third quarter, for example, earnings per share for companies in the S. P. 500 were $25.29, their highest ever for a quarter, according to statistics compiled by Standard Poor’s. But in an “enormous disconnect,” said Howard Silverblatt, senior index analyst for S. P., the index was still down 14 percent in that period.

“The fundamental underpinnings of investing didn’t matter” in 2011, Mr. Ablin said. “All it took was one headline and just like a tidal wave, it was lapping across the market.”

Article source: http://feeds.nytimes.com/click.phdo?i=b91dbd1c7951a4a78d86c52c63940db1

Filed Under: Economy News Tagged With: , ,

Economix Blog: More on How Stock Options Are Valued

December 31, 2011 by Leave a Comment

Several readers wrote with additional questions about the tax treatment of stock options. Given the complexity of the issue, it’s not surprising that there might be confusion. So here is a more detailed explanation, using the example cited in the article, involving Sirius XM radio:

Mel Karmazin, the chief executive of Sirius XM Radio, was granted options to buy 120 million shares at 43 cents each. If he could have exercised them at the grant date, at that price, the shares would have been worth $51 million. He would have paid that amount and had no profit.

But options cannot be exercised until they are vested and some are never exercised at all  —  sometimes people leave the company before the options vest or the stock price drops and doesn’t recover before the options expire. So companies use various models (like Black-Scholes) to estimate the fair market value of the options that they report as an expense on their financial statements.

In this case, Sirius XM calculated a fair market value of $35 million and took that as an expense on its financial books. But on its tax return, the company is not entitled to deduct anything for options until they are actually exercised. And when the company does deduct the cost of those exercised options, the amount of the deduction is the appreciation in the value of the stock.

If the 120 million options were to be exercised at the current stock price of about $1.80 a share, they would generate $216 million in stock. Mr. Karmazin would realize a gain of $165 million (the $216 million value of the stock minus the $51 million he would spend to exercise the options) which would be taxed as ordinary income, presumably at the top rate of 35 percent. Sirius XM would be eligible to take “a mirror deduction” of $165 million. At the top corporate rate of 35 percent, that would provide Sirius XM a $57 million reduction in taxes.

The fact that the individual who exercises the option is taxed on income equal to the “mirror deduction” taken by the company also led some readers to write that the policy is revenue neutral and therefore not a tax break at all. But the bipartisan Joint Committee on Taxation has estimated that limiting companies’ deduction to the amount they declare as an expense would increase federal revenue by $25 billion over the next decade.

Article source: http://feeds.nytimes.com/click.phdo?i=7afb739864bb1907e97e13d8213e21ee

Filed Under: Economy News Tagged With: , ,

Drilling Down: South African Farmers See Threat From Fracking

December 31, 2011 by Leave a Comment

Covering much of the roughly 800 miles between Johannesburg and Cape Town, this arid expanse — its name means “thirsty land” — sees less rain in some parts than the Mojave Desert.

Even so, Shell and several other large energy companies hope to drill thousands of natural gas wells in the region, using a new drilling technology that can require a million gallons of water or more for each well. Companies will also have to find a way to dispose of all the toxic wastewater or sludge that each well produces, since the closest landfill or industrial-waste facility that can handle the waste is hundreds of miles away.

“Around here, the rain comes on legs,” said Chris Hayward, 51, a brawny, dust-covered farmer in Beaufort West, quoting a Karoo saying about how rare and fleeting precipitation is in the area.

With his three skinny border collies crouching dutifully at his side, Mr. Hayward explained that he had to slaughter more than 600 of his 2,000 sheep last year because there was not enough water to go around.

“If our government lets these companies touch even a drop of our water,” he said, “we’re ruined.”

South Africa is among the growing number of countries that want to unlock previously inaccessible natural gas reserves trapped in shale deep underground. The drilling technology — hydraulic fracturing, or “fracking,” for short — holds the promise of generating new revenue through taxes on the gas, creating thousands of jobs for one of the country’s poorest regions, and fueling power plants to provide electricity to roughly 10 million South Africans who live without it.

But many of the sites here and on other continents that are being considered for drilling by oil and gas companies and by governments short of cash are in fragile areas where local officials have limited resources, political leverage or experience to ensure that the drilling is done safely.

A Surge in Interest

The interest from big energy companies in South Africa and elsewhere means that shale gas may redraw the global energy map, according to many energy experts.

Michael Klare, a professor of world security studies at Hampshire College, said that the new sources of natural gas from shale may lessen the geopolitical importance of countries that historically have been the biggest producers of natural gas, including Iran, Qatar and Russia. The new drilling, which draws strong support from the United States government, represents a boon for American companies like Halliburton, Chesapeake Energy and Exxon Mobil that have greater experience with shale gas, and therefore are likely to win many lucrative contracts abroad.

More than 30 countries, including China, India and Pakistan, are now considering fracking for natural gas or oil, and the surge in gas production has spurred interest in building pipelines and terminals that liquefy the fuel so it can be shipped to far-flung markets. In the United States, shale gas has increased supply, driving prices down and benefiting industrial plants that use the gas for manufacturing and consumers who depend on it for electricity, heating or cooking.

But the enthusiasm abroad, especially in less-developed regions, does carry risks, according to many energy experts.

“The big problem is that all the excitement around shale gas, most of it fostered by the U.S., has also led some countries, especially in the developing world, to take a drill-first, figure-out-regulations-later attitude,” said Professor Klare, who has written extensively about the way that energy policies affect global security. “There is simply too much being taken on faith when it comes to company reassurances about the safety and costs of this drilling.”

The Indonesian government, for example, is considering allowing drilling for shale gas in a part of Java where, in 2006, drilling led to the eruption of a mud volcano that killed at least 13 people, and displaced more than 30,000 residents from 12 villages, according to a team of international scientists. Indonesia is a major exporter of liquefied natural gas, but it struggles to meet domestic demand, and supporters of the shale drilling project say it will help solve that problem.

Article source: http://feeds.nytimes.com/click.phdo?i=0ed1e5b5cd6dc35135ae97b6440d17a0

Filed Under: Business News Tagged With: , ,

In Iowa, Farmland Expands as Crop Prices Soar

December 31, 2011 by Leave a Comment

“The rottenest piece of land there is,” said Mick Elbert, a local car dealer who served on the golf association board. “All it is good for is a golf course. That’s why we built it there.”

But this year, over a chorus of objections, the greens and fairways were plowed under. The course had been losing money, and crop prices had been breaking records, so the new owner did the type of quick calculation that is quietly reshaping the region and determined that it was more valuable as farmland. The first harvest took place this fall.

Across much of the Midwest the sharp increase in farm earnings has driven the price of farmland to previously unimaginable — and, some say, unsustainable — levels. But in the process, to much less fanfare, the financial rewards have also encouraged farmers to put ever more land into production, including parcels that until recently were too small or too poor in quality to warrant a second glance.

As Iowa marches toward the Republican caucuses, much of the politicking has been set against the timeless backdrop of open farmland. These agricultural vistas are expanding across the Corn Belt, where the fertile and increasingly profitable soil has helped this state weather the nation’s economic storms.

Farmers are taking down the old barn or the grove of trees that shaded a corner of the family farm to squeeze in a few more rows of crops. They are plowing up areas previously used for grazing cattle or set aside for conservation because they had been deemed too wet, too sandy or too hilly for farming.

And they are returning crops to places that had been reserved for ostensibly more lucrative purposes like strip malls, housing developments or, in several cases, struggling small-town golf courses.

“One day it’s grassland, and the next day it’s black dirt,” said Jim Ringelman, the North Dakota-based director of conservation programs for Ducks Unlimited, a hunting and conservation group worried about the trend. “It’s that quick.”

There are no encompassing statistics about how much land is being cleared, but farmers and environmentalists around the region agree that the available figures and anecdotal evidence suggest a significant increase in the amount of dormant land going back into production. There is debate over whether this should be a source of concern.

Craig Cox, the head of the Midwest office of the Environmental Working Group, which has released a report warning about farmland erosion, stressed that the more aggressive farming tactics, like removing trees that act as windbreaks or buffer areas that surround streams, put both land and water at risk.

“It’s really disturbing,” Mr. Cox said. “Farmers are pushing as hard as possible to get every last bushel out of every last acre.”

In Iowa, the nation’s biggest producer of corn and soybeans, farmers insist that they are simply getting more value from their land. Darrell Coddington, a farmer who runs an excavation business, has spent much of the past year clearing additional land in the hilly and wooded southern part of the state, including places that used to be left alone and derided as a “cocklebur farm,” referring to the thorny weed.

While working one overgrown parcel for a neighbor, Mr. Coddington discovered a rusting horse-drawn plow buried beneath a foot of earth, a find that suggested the land had not been farmed in a century. And while expanding his own cropland he decided to tear down the empty family homestead, an action that he described as sad but economically justified.

“Hey,” he said, “it was farm ground before they built it.”

The force pushing more land into production is the rise in crop prices: in the past five years corn prices tripled and those for soybeans doubled because of swelling worldwide demand, including demand for ethanol production. At the same time yields have spiked because of genetically engineered crops and improvements in farming technology, which are also allowing farmers to grow in previously inhospitable areas.

In turn farmers, flush from the most profitable years in decades and looking for better places to store money than low-interest savings accounts or a turbulent stock market, are putting their money in land.

Article source: http://feeds.nytimes.com/click.phdo?i=16094492e86afe50e5f2016072f2ce62

Filed Under: Business News Tagged With: , ,
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