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Agribusiness Report for September 3, 2014

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CEDAR RAPIDS, Iowa — Farmers and landowners are becoming worried about just how much their farms are worth with commodity prices going down.

But the downturn in crop prices doesn’t necessarily mean a big drop in land prices.

Before 2006, a high price on corn would be above three dollars per bushel. Since that time the price of corn has topped eight dollars, and the value of an American farm producing that corn has also grown dramatically.

At last week’s Farm Progress Show in Boone, Iowa State University had experts on hand to field questions. I-S-U Ag Economist Chad Hart was one such expert, and he says the direction land prices are now headed with falling commodity prices was one such question.

“What tends to happen here, if you think about it: land values follow the incomes that are derived from the land. And so, in this case, crop prices are a good mimic for that. But what tends to happen, is that crop prices move about a year or two before the land values move.”

Crop prices began to increase around 2006, but land values didn’t began to respond until around 2008. The last three calendar years have seen record high commodity prices, which were met with record high land values.

“Now ‘14 prices have dropped. The question is: how long does it take before land values start to follow back down, like they followed up? And the question is open, because it does take some time. We’ll see it probably first in land sales; we’ll see it next in cash rents as we go forward,” Hart said.

But should producers and landowners still be worried about the possibility of a yet unseen price cliff looming just out of sight?

“No. My argument would be no. When you worry about a cliff; let’s go back to the 1980s. What created that cliff we fell off that created the ‘80s farm crisis? That was having a lot of debt and having a lot of land that had to be sold to meet that debt,” Hart said.

Hart says farm balance sheets, and incomes, indicate there’s not much debt on the farm at present, meaning land sales to cover debt are unlikely, and so is any kind of collapse in land values.

Private estimates on soybeans are expected to hit the commodity markets this week, but for the time being, analyst Mike Seery with Seery Futures says the corn trade still is stuck in a six-week consolidation range.

“We just can’t seem to break the contract low of $3.58; we can’t seem to get above $3.80. Now, we’re waiting for the USDA report on the 11th of September.

“We’ll probably still stay in this range until that report. I still think lower prices are ahead with the possibility of $9.50 beans come harvest time; I’m hearing record yields across the board in many different states as, again, private estimators are coming out this week so we’ll get a better idea, but the average is about 46.5 bushels per acre.

“Extreme volatility, and I had been recommending a short position for a while and we got stopped out. It was still an OK trade, but boy, this thing came back with a vengeance. I’m still advising farmers who raise cattle to be hedging on days like this, absolutely, because I still think the tops are in. However, that market went down so fast that this is just a kickback, in my opinion.

“Hogs have rallied a thousand points from their low. Same thing; they had sold off about 2800 points in the matter of a month, which is a remarkable move. So I think again, this is a kickback, but I do think the bearish trends will continue,” Seery said.

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