Well Gee, Maybe I Should Have Been a Farmer

Wednesday, February 22, 2012 , , 6 Comments

Gee, I wonder if this rise in farmland prices has anything to do with the fact that we burn food as fuel:

Farmland values in the Corn Belt are rising as fast as anytime in the past 35 years, but may be showing some indication of deceleration. Bankers throughout the five-state region in the Chicago Federal Reserve District report a 22% increase in the value of good farmland over the course of 2011. But in the seven-state Kansas City Fed District, the value of farmland rose 25% in the past year.

What on Earth could be causing such explosive growth in farmland values? While the first suspect might be whorishly loose monetary policy, we'd have to see that kind of "growth" in other areas to make such an uninformed assumption. Though my grocery bills are steadily climbing, I certainly wouldn't say they are up 25% in a year.

There was no surprise what [Chicago Fed economist David] Oppedahl says was fueling the higher land prices. He cited USDA’s reports on higher farm income in 2011 and expectations for 2012.

He said in the Chicago Fed District and across the Corn Belt, corn and soybean operations were key drivers of profitability. But he says along with the profitability is volatility that warrants caution by agricultural decision-makers, “During the past two years, average corn prices ranged between $3.41 per bushel in June 2010 and $6.88 per bushel in August 2011.

Similarly, monthly soybean prices averaged $9.39 per bushel in March 2010 and peaked at $13.40 per bushel in August 2011. These wide swings in prices make risk-management strategies even more vital for agricultural enterprises, whether or not there is a higher level for agricultural prices in the era ahead.”

The obvious culprit here should be clear (and no, it's not Bernanke for once, although he surely has a part in this too):

On the strength of huge gains in its seeds and genomics and agricultural productivity businesses, Monsanto (MON) posted $2.44 billion in revenue in the first quarter of its 2012 fiscal year, a 33% rise over the same period a year earlier. In contrast to Mosaic (MOS), which has forecasted lower phosphate prices and sales for its coming quarter, Monsanto expects sales to pick up stream over the same period.

So... the obvious question here is: are higher farmland values a benefit for the actual farmers or is someone else making off with the "profit"?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


W.C. Varones said...

Farmland, gold, gasoline, it's all about the Dirty Fed's devaluation.

Stuff with finite supply like gold and farmland has more leverage to it than stuff with more elastic supply and demand curves like groceries.

Devaluation is like the weather (or rape): as long as it's inevitable, you might as well lie back and enjoy it.

Anonymous said...

Having actually bought some farmland in the last decade, I can say that the factors you mention definitely matter.

However, I believe the primary driver of price is the same as it ever was: a credit market. My farm loan was not based on an "appraisal". Rather, the quasi-GSE making the loan has an upper limit on the price per acre that they will lend. I assure you, this methodology grossly distorts the price of farmland...and paves the way for a massive reversal when credit tightens.

Anonymous said...

@WCV "Stuff with finite supply like gold and farmland has more leverage to it than stuff with more elastic supply and demand curves like groceries."

Indeed it does but it is well to remember that leverage is a two way street. That old saw about "they ain't makin' no more land" is nothing but a sales tool. A lot of my underwater farmer neighbors would dearly love the earth to shrink by a third or more, thereby reducing supply.


I grew up around farms (Wisconsin) so I sort of get how it is. I'm a city girl but I was close enough to get a sense of how it was.

How many farmers out there get the actual economic drivers behind what they do each morning at 3am on their land?

I went to high school with kids who woke up at 4am to farm that land. I admire that kind of dedication. I hate to see a pure and beneficial resource like that of ours to be burned by unscrupulous speculative and inflationary nonsense.

That's all. I don't get it entirely and sense that you don't either but as long as we all sort of get how important it is to what we all do in this country, the least we can do is figure out how to make it profitable for the parents of those kids who get up at 4am and then go to school. I don't want to see that entire swatch of land fucked by this whole GMO thing.

Anonymous said...

What the hell does persons getting up early to work farmland have to do with the economic value of said land?

If you haven't actually bought any farmland, or investigated the process by which such purchases are made, then you basically are just pissing in the wind with random suppositions.

You sense things? Is this a function of some ESP? Yeah, and I see farm people. Christ, please return to excoriating the postal service. One can't fuck that up.

Anonymous said...

Hoening warned about this a few years ago and was not heard.