Some observations of a farm appraiser from Missouri:
Things are about as wild out in the country as I’ve ever seen them. In addition to being a professional observer of the market, I monitor some ag news sites and the contradictions I’m seeing are huge. Farmers still buying and bidding up prices for land, with no real reason or basis, other than relative to the last sale. $7,000 per acre is too high today, until somebody pays that, then that becomes the benchmark of what land is “worth” (actually, it’s what somebody else just paid – a price). But opinions of value and worth flow from that, so at the next sale, buyers/investors look to that as a relative value of what to bid or pay for the next farm. You would think there would be targets, such as yield on investment, but if so, those never get mentioned. It’s always price per acre. I don’t need to mention yield, but if land values in an area are increasing by double digits every year, relative to other options, it’s a good investment.
And to support these prices, we now have the unheard of price of $6 corn. As near as I can tell, this is an all time historic high. At this level, the price of corn is putting a huge strain on traditional users, not to mention the market mechanism through which the corn must flow for the farmer to get his money. Livestock producers are losing money and at these prices, will start liquidating herds. Ethanol isn’t competitive at these prices and plants will either shut down or lose money. The goose laying the golden egg is not feeling well.
Heard today that an elevator in NE has gone bankrupt. A domino of sorts, as the elevator was also an investor in an ethanol plant that went bust. But also caught up in margin calls they couldn’t meet.
Next problem: it’s now mid April and in recent years, Midwest farmers would be well along with planting the corn crop. Not this year. It’s been a cold wet spring and not much if anything is planted and won’t be for at least another week if it stopped raining today, but it is raining today with more rain forecast for later this week. So for those farmers that have forward contracted corn, there is probably some concern about now, or soon will be if it keeps raining. The first criteria for raising a corn crop is to get it planted. The earlier the better so it beats the summer heat. But to a farmer who contracted his crop, they have to come up with actual corn to deliver to the elevator, who has contracted it, etc. Imagine the consequences of a short crop that goes to $7 or $8 per bushel (this would have been total fantasy a year or so ago, but not today). If ethanol producers and livestock farmers are in a bind now, wait until this hits.
Then there are the farmers who didn’t contract anything; who will get their crops planted, harvested and sold at these prices. To those folks, it’s going to feel like they won the lottery.
Yep, this is going to be an interesting summer!