1 for D&G: A Bubble Down On The Farm?

[lektrode]

uh oh... the next bubble? (and interesting to note the location, thot there was only one of them, in MA, as in the river/bridge)

http://online.wsj.com/article/SB1000...283225666.html

• DECEMBER 15, 2011

A Bubble Down on the Farm?


NEPONSET, Ill.—Farmers like Terry Pratt are a big reason Midwest farmland prices seem to be defying gravity—for now.
Inside the tidy red-brick community center here, a hushed crowd of town merchants and growers watched as two of their own bid against each other at an auction for 50 acres of corn and soybean land.
With slight nods and the waggling of a finger, the rivals yanked the price higher and higher as auctioneer Troy Louwagie chanted into his hand-held microphone: "Will you give 61 and 62, and a two and a two? Will you give 6,200 on a good farm ...

the rest behind the paywall, but they got a nifty little video too:

A Bubble Down on the Farm?


dunno if it'll show tho, but we'll give'r a go... at the moment is on the http://online.wsj.com/home-page if no go

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

uh oh... the next bubble? (and interesting to note the location, thot there was only one of them, in MA, as in the river/bridge)

you need to understand pricing of farmland. I have discussed this b4, but let me add it in here again.

If you are a FARMER (as opposed to a hedge fund) and you own say 600 acres, you are set exactly where you are. You are NOt gonna go farm 200 miles away as getting your machinery there and back is prohibitive. But if your sunk cost in land is say $2k/ac, and you get a chance to expand the farm by 50 acres, you may well pay up quite a bit more as that excess you pay "dolla averaged" over the rest of your land may not add up to all that much. And it could well be that if you do not get that 50 acres, your next shot at something similar may be ... never. As in, within 2 miles of your farm you may well know that no one else is probably gonna sell for a very very long time. So you 'pay up' to expand. Maye you get to do a little land swapping along the way to make your land contiguous. Or maybe that parcel IS contiguous, and if you don;t get it now, well, we already know...

Now if you are a hedge fund, you are either looking to make money on land appreciation and flipping, or perhaps you want to work it and get returns, or maybe lease it. All of those scenarios would lead to different offers on the land.

please note the article specifically reference two "locals", and $6200/ac for land that may have a high CSR (corn suitability rating) would not be totally ridiculous.

finally, i personally own my land in Uruguay, where (to quote southernguy here in iTulip) i own some of "the best of the best" and did not pay anywhere near the kind of prices they are discussing in the clip above. In fact, the land I own that is not "the best of the best" is pretty damn good as well, and a friend bought some land that should be as good as some of my "best of the best" too. I know as I have been on all of them personally. I am looking at adding 15 contiguous hectares ot one of my parcels. I will 'pay up' to do it because that is what it will take to get it. But I will not 'pay up' like the US pricing. That is partly why I am in Uruguay, and not the US. Better pricing.

SIDEBAR: There are certain appelations (sp?) in the wine industry where an acre of land, planted or not, will cost you over $100 grand. Chew on that one.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

if you go to google and enter the title of the article, you get a "free pass"...

the next three paragraphs are:

The auction was over in 15 minutes. Mr. Pratt's winning bid of $7,875 an acre
was nearly double the rate he paid for a nearby parcel just four years
ago. "Chances are if another person bought it, it would have never sold
again in my lifetime," Mr. Pratt said.





The big question mark hanging over the farm economy is whether a bubble is
building in Midwest cropland. Prices have doubled over the past five years in
states such as Nebraska and Indiana. Iowa State University reported Wednesday
that the average price of an acre of farmland in Iowa, the nation's biggest
producer of corn and soybeans, reached $6,708 this year, up 32.5% from 2010 for
the biggest annual increase in the history of the 70-year-old survey.





But a look at the buying suggests that, while prices may be running too fast,
there are reasons to think that a price bust can be avoided, absent some
outside shock to the farm economy: Less than 2% of the cropland in Iowa
is sold each year, and 74% of it ends up in the hands of local farmers, who
tend to buy for the long term and often buy with cash instead of
debt.

and there you have your answer.

oh, and then there is the paragraph c1ue will never agree with...

La

nd values are soaring again because prices for crops such as corn and soybeans
are more than double what they were before mid-2006. That is thanks in
large part to a surge in demand for food from China's expanding middle class
and the rapid emergence of a corn-to-ethanol industry, which now gobbles up 40%
of the nation's corn crop and supplies about 10% of the nation's
gasoline. The Department of Agriculture estimates that net farm
income, a widely used measure of profitability, will jump 28% this year from
2010, to $100.9 billion.

[Verrocchio]

Re: 1 for D&G: A Bubble Down On The Farm?

If you are a FARMER (as opposed to a hedge fund) and you own say 600 acres, you are set exactly where you are. You are NOt gonna go farm 200 miles away as getting your machinery there and back is prohibitive. But if your sunk cost in land is say $2k/ac, and you get a chance to expand the farm by 50 acres, you may well pay up quite a bit more as that excess you pay "dolla averaged" over the rest of your land may not add up to all that much. And it could well be that if you do not get that 50 acres, your next shot at something similar may be ... never. As in, within 2 miles of your farm you may well know that no one else is probably gonna sell for a very very long time. So you 'pay up' to expand. Maye you get to do a little land swapping along the way to make your land contiguous. Or maybe that parcel IS contiguous, and if you don;t get it now, well, we already know...

Good explanation, DoomGloom.

please note the article specifically reference two "locals", and $6200/ac for land that may have a high CSR (corn suitability rating) would not be totally ridiculous.

Not ridiculous at all. Assuming that ground at Neponset will produce 200 bushels to the acre and the price stays at the $6 level, that would be $1200 gross. Take away, say, $400 operating costs, then that would leave $800 net. That would be 10% return on an investment of $8,000 per acre.

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

That is thanks in large part to a surge in demand for food from China's expanding middle class and the rapid emergence of a corn-to-ethanol industry, which now gobbles up 40% of the nation's corn crop and supplies about 10% of the nation's gasoline.

China's demand for corn has increased, but the reality is that the real impact is ethanol.

As usual, you are unable to distinguish between degrees of effect, choosing to focus just on what confirms your own bias.

http://www.agrimoney.com/news/china-...cks--2788.html

The US Grains Council, which in October pegged China's 2011 corn imports at 2m-3m tonnes, said that the figure could reach 3m-9m tonnes, questioning estimates from some other analysts that a bumper autumn harvest had curtailed the country's needs.
"Estimates given to us were that China is short 10m-15m tonnes in stocks and will need to purchase corn this year," Terry Vinduska, the USGC chairman, said, following a council visit to China.

2-3 million tons of corn, 10-15 million tons of corn - sounds like a lot right?

Well, corn usage for ethanol in 2010 was 10x higher than even the breathless "upside" estimate above:

http://en.aviagen.com/assets/Broiler...BE-Feb2011.pdf

US Corn Production
2009-2010 332 million tons
2010-2011 316 million tons

Argentina Corn Exports
2009-2010 16.5 million tons
2010-2011 14.5 million tons

Corn Imports China
2009-2010 1 million tons
2010-2011 3 million tons

Corn for Ethanol US
2009-2010 94 million tons
2010-2011 116 million tons

EDIT: to put the ethanol data in historical perspective, in 2002-2003 1.1 billion bushels of corn was used for ethanol. This equals a shade over 30 million tons.

Source: http://www.ethanolrfa.org/page/-/obj..._use_facts.pdf

So in the last 8 years, corn usage for ethanol has increased over 86 million tons - nearly quadrupled.

This additional amount of corn diverted to ethanol from 2002 to 2010 is more than any other nation in the world except China produces, and is roughly equal to the production of Brazil, Mexico, Argentina, and India combined - or the entire annual corn output of the #3 through #6 largest producers of corn worldwide in 2005.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

This is fun! You keep proving how demand for farm products increases, be it ethanol or people
(while forgetting animals as usual) and all the while you keep telling me I am wrong about farming.

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

This is fun! You keep proving how demand for farm products increases, be it ethanol or people (while forgetting animals as usual) and all the while you keep telling me I am wrong about farming.

You keep ignoring how your own confirmation bias prevents you from understanding anything that is going on.

Ethanol is an artificial program which is going to wind down as the US budget situation worsens - exactly as all the other negative productivity alternative energy subsidies are going down.

That $1/gallon bonus has nothing to do with real demand and it has everything to do with lobbying and politics - and unlike real demand, can and will change.

Oh, and you still won't admit your 'developing world' and 'China India eating meat' folderol was wrong.

The data posted above shows clearly that China's effect on corn demand is nil.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

http://www.scribd.com/doc/75862303/Goldman-100-Charts-2

Billions of Chinese are gonna eat your lunch bub.

and ethanol is going nowhere anytime soon.

[bill]

Re: 1 for D&G: A Bubble Down On The Farm?

http://www.iowafarmbureau.com/articl...rticleID=49220

12/15/2011 2:04:58 PM
ISU Extension
Average Iowa farmland value is estimated to be $6,708 per acre, an increase of 32.5 percent from 2010, according to results of the Iowa Land Value Survey conducted in November.

This is the highest percentage increase ever recorded by the Iowa State University annual survey. The increase matches results of other recent surveys of Iowa farmland value -- the Chicago Federal Reserve Bank’s estimated 31 percent increase in Iowa land values and the Iowa Chapter of the Realtors Land Institute’s 12.9 percent increase estimated for six months of 2011. The 2011 values are historical peaks.

“The 2011 land value survey covers one of the most remarkable years in Iowa land value history,” said Mike Duffy, Iowa State University economics professor and extension farm management economist who conducts the survey. “This is the highest percentage increase recorded by the survey, and the average land value of $6,708 per acre, when adjusted for inflation, is at an all-time high.”

The previous inflation adjusted high was in 1979. Scott County, with an estimated $9,223 average value for all farmland, saw the highest percentage increase and highest increase in value, 37.7 percent and $2,524 respectively, of the 99 Iowa counties. However, O’Brien County farmland estimates of $9,513 were the highest average county values recorded by the Iowa Land Value Survey. The Northwest Crop Reporting District, which includes O’Brien County, reported the highest land values at $8,338, an increase of $1,983 (31.2 percent) from 2010.

“This rate of increase in 2011 has led to concerns that farmland may be the next speculative bubble,” said Duffy. “Some people feel farmers are setting themselves up for a fall similar to the 1980s. Without a doubt, it’s an interesting time and something to watch, but it isn’t a time to panic.”

Why Iowa farmland values are increasing Duffy said that examining some of the causes for the current increase in farmland values and the reactions is helpful in assessing the situation. Farmland values are highly correlated with gross farm income. As gross farm income increases, so will land values. In 2005, corn prices averaged $1.94 per bushel in Iowa. The preliminary estimated price for November 2011 is $6.05. Soybean prices changed from $5.54 to $11.40 over the same period.

There has been considerable variation in commodity prices over the past few years, but net farm income has increased substantially and is projected to increase even more for 2011.

The Iowa State economist goes on to say, this increase in income has been the primary cause for the increase in farmland values, but not the only one. “There are other causes for the increase,” Duffy said. “Interest rates are at the lowest level in recent memory. Farmland purchased by investors went from 18 percent in 1989 to 39 percent of purchases in 2005, but investor purchases decreased this year to 22 percent.”

Duffy pointed out another factor that should be considered, the relatively dismal performance of the stock market – people want to buy farmland or are not selling it because they don’t know where else to put their money. The increase in farm income, the changes in investor demand and the changes in investment alternatives have all led to a volatile market.

One area where the volatility is revealed is in the number of sales. Land value survey respondents have shown considerable variation over the past few years when queried about the number of sales. Sales decreased considerably in 2009. They improved somewhat in 2010 and based on the results reported in 2011, most people are seeing more sales or at least similar sales in 2011 relative to 2010.

One of the differences is in the use of auctions; respondents noted what appears to be a rapid increase in the use of this method of sale. Preliminary analysis of 2011 sales data shows an increase in price by using an auction. As one respondent said, economics may get the person to the auction but emotion often leads to the purchase.

Duffy believes farmland values should remain strong for the next several months at least. Beyond that there is a fair degree of uncertainty with respect to whether land values can maintain their current levels.


The economist said there are several key components to watch:

• The amount of debt incurred with land acquisition Government policies – especially policies related to energy What happens to input costs – land being the residual claimant to any excess profits in agriculture
• The performance of the overall economy, especially with respect to income Government monetary policies as they relate to inflation and interest rates
• The performance of the U.S. economy and economies throughout the world – which impact commodity prices, which in turn impact land values
• Weather related problems – both here and around the world Overview of 2011 Iowa land values

While the highest county land values were reported in O’Brien County, Decatur County had the distinction for the second year in a row as having the lowest reported land value, $2,721 per acre, and the lowest dollar increase, $636. Washington County had the lowest percentage increase, 28.2 percent, with a reported $7,166 average value. Low grade land in the state averaged $4,257 per acre and showed a 26.8 percent increase or $900 per acre, while medium grade land averaged $6,256 per acre; high grade land averaged $8,198 per acre. The lowest land value and smallest percentage increase were estimated in the south central crop reporting district, $3,407 and 26.7 percent respectively.

The southwest crop reporting district reported a 36.5 percent increase, the highest district percentage reported. Maps showing 2011 values, percentage change and comparisons to 2010 data and additional information from Duffy are available at www.extension.iastate.edu/topic/landvalue.

The Iowa Land Value Survey was initiated in 1941 and is sponsored by the Iowa Agriculture and Home Economics Experiment Station, Iowa State University. Only the state average and the district averages are based directly on the ISU survey data. The county estimates are derived using a procedure that combines survey results with data from the U.S. Census of Agriculture.

The survey is based on reports by licensed real estate brokers and selected individuals considered knowledgeable of land market conditions. The 2011 survey is based on 487 usable responses providing 642 county land value estimates. The survey is intended to provide information on general land value trends, geographical land price relationships and factors influencing the Iowa land market. It is not intended to provide an estimate for any particular piece of property

http://www.iowafarmbureau.com/articl...rticleID=46337

11/16/2011 3:03:42 PM
Dirck Steimel
Looking forward a decade or so, Babcock sees the ethanol industry about the same size as it is today. Despite the industry’s efforts, he doesn’t envision the demand gains that will significantly grow the market beyond the current 10 percent of the gasoline supply.

“The plants will be more efficient, but they will be largely supplying a stagnant market for E10,” Babcock said.

And that, he said, will likely put downward pressure on corn prices. “As crop yields continue to grow, there will be less upward pressure on corn prices than we’ve seen in the past few years,” Babcock said.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

Bill,

I have no idea about investors, but most farmland purchased by farmers nowadays is cash purchase, not financed. they remember the bustout of the past and how the banksters stuck it to them. They are not gonna let thathappen again.

As to ethanol industry growth, well, frankly no one really knows, but with Peak (cheap) Oil staring us in the face, and a strong farm lobby, as energy prices rise I would not be surprised to see MORE of a push into the ridiculous ethanol. OTOH, I believe eventually the federal budget will be so large, that ethanol subsidies will be cut -- but that will be many years out still. By that time we could be looking at more bio-deisel production taking up soy crop. Neither corn ethanol or soy biodiesel is as energy packed as fossil petroleum, but you gotta take what you get.

No one really knows the future, I make my best guestimates as to public policy. So long as the US CONgress remains the bought and paid for institution it is, and so long as we experience at least one oil shock precipitated by MENA events (as EJ surmises is coming), then emphasis to keep wasteful ag-to-oil programs going will continue.

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

Billions of Chinese are gonna eat your lunch bub.

According to this link, your billions of Chinese will never occur since the population size is not growing at all.

http://www.indexmundi.com/g/g.aspx?c=ch&v=21

Country	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
China	1,261,832,000	1,273,111,000	1,284,304,000	1,286,975,000	1,298,848,000	1,306,314,000	1,313,974,000	1,321,852,000	1,330,045,000	1,338,613,000	1,330,141,000	1,336,718,000

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

but their wealth factor is, and so is their uptake in protein consumption. The greater your prosperity, the more meat you eat. The more meat you eat, the more grains consumed to feed that meat.

I gotta hand it to you c1ue, you will strike outin any direction to support your bias. never right, but you sure keep trying...

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

but their wealth factor is, and so is their uptake in protein consumption. The greater your prosperity, the more meat you eat. The more meat you eat, the more grains consumed to feed that meat.

I gotta hand it to you c1ue, you will strike outin any direction to support your bias. never right, but you sure keep trying...

You keep saying that, yet the data show clearly your assumption is wrong.

China demand for meat is irrelevant in the face of subsidy driven demand for ethanol.

You keep screaming the same tune, but you keep failing to show that the 'meat demand' assertion is in any way either real or relevant.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

and you keep telling me ethanol is th ebig growth area, but then you don't agree that ag is a growth market...

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

and you keep telling me ethanol is th ebig growth area, but then you don't agree that ag is a growth market...

No, what I said was that ethanol was a big growth area. When budgets were good during the housing bubble - solar, wind, ethanol, and various other "alternative energy" sources were drowned in money under the clearly mistaken policy of 'green jobs'.

Now that the federal deficit is $1 trillion+ per year with persistent unemployment, the likelihood of these programs expanding is nil. Equally so state level equivalent programs are dropping even faster as state budgets are under even more pressure.