is part of the Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

  • American Agriculturist
  • Beef Producer
  • Corn and Soybean Digest
  • Dakota Farmer
  • Delta Farm Press
  • Farm Futures
  • Farm Industry news
  • Indiana Prairie Farmer
  • Kansas Farmer
  • Michigan Farmer
  • Missouri Ruralist
  • Nebraska Farmer
  • Ohio Farmer
  • Prairie Farmer
  • Southeast Farm Press
  • Southwest Farm Press
  • The Farmer
  • Wallaces Farmer
  • Western Farm Press
  • Western Farmer Stockman
  • Wisconsin Agriculturist

The new ‘normal’ isn’t all it’s cracked up to be

Corn futures at $7 per bushel; soybeans at $15. Those higher prices were supposed to be the new ‘normal’ in agriculture.

Obviously, corn isn’t selling at $7 now but some growers seem to be clinging to the idea that they could rebound and approach that area again, according to Dave Kohl, professor emeritus in Agricultural and Applied Economics at Virginia Tech University.

“I know a grower who has 100,000 bushels in the bin,” Dr. Kohl told participants at the USA Rice Outlook Conference in St. Louis. “He could have sold them at $7 a bushel last year. He’s still holding out at $4. And that’s called what? That’s called stubbornness and greed.

“The gentlemen who paid $21,000 an acre for farmland up in Iowa was in one of my sessions not long ago. He said ‘I would have bought another 1,000 acres if it was available’ because he said ‘They’re not making it anymore.’ Greed is alive and well in this Super Cycle, and she’s very, very dangerous.”

Kohl said farmers who attend the 200 or so presentations he makes annually are beginning to ask questions about interest rates and land values. “That anxiety actually is good because it makes you think.

“The other thing is we’re getting extremely complacent, particularly on the grain side. We’ve been in this super cycle for 10 years, and everyone says this is the new normal, the new plateau. No, no, no … it’s not. And one of the things I would tell you is that it’s the good times that get you into trouble.”

The higher prices have created a new sense of optimism in agriculture, a sense that Kohl calls refreshing. But it doesn’t mean farmers can ignore indicators that can help them chart the course for the next several years.

Another example: A young couple who started farming from scratch several years ago has amassed a net worth of $1.3 million. The farm next to them is up for sale.

“It’s interesting. At $7 corn and $15 soybeans, every one of the ratios a banker or Farm Credit looks at is a green light,” Kohl said. “But you go to $4 corn and single-digit beans two-thirds of the ratios are red light. We’re in an extremely fragile environment.”

To see Kohl’s presentation at the Rice Outlook Conference, go to: http://www.usarice.com/doclib/233/7185.pdf

And for more from David Kohl: http://cornandsoybeandigest.com/blog/reflections-2013

And: http://deltafarmpress.com/management/management-principles-can-help-farms-continue-succeed

 

TAGS: Corn
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish