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Are cash crops, land values at critical highs?

By Staff | Sep 30, 2011

Dale Johnson works into the sunset Sept. 16 to bring in his soybean harvest in a field just south of Burnside along Paragon Avenue. Wet weather earlier this week slowed early harvest efforts.

Market bubble:?Trade in high volumes at prices that are considerable at variance with intrinsic values.

-Darin Newsom, senior analyst for DTN.

Commodity traders have been looking at whether there is a bubble in grain cash prices, as well as another in rising land values and, if so, if and when will they burst?

According to Darin Newson, senior analyst for DTN, when looking at corn prices over $6 per bushel, which have flirted as high as $8 earlier this summer, there is no bubble.

“It’s for real,”?he said.

Brian Hoops, president of Midwest Marketing Inc., in Yankton, S.D., and a columnist for Farm News, said that compared to the old supply and demand levels, corn is overpriced.

However, he added, “prices won’t return to the old $2 level any time soon.”

Both analyists agree that the three-way demand of livestock feed, ethanol and exports are keeping corn and corn prices supported.

Looking at the national price, Newsom said, the basis is steadily 26 to 28 cents under the futures prices, which he said shows the market is strong.

The high prices throughout the summer have slowed demand, Newsom said, but has not destroyed it.

“Global economics and the DOW sell off added to the corn market’s fall,” he said, “but we needed the sell off, otherwise it would have chased demand away.”

As it is, he said, there are indications that end users and commercial investors are coming back to the amrket.

Hoops agreed, saying that demand will not allow $2 corn “anytime soon,” but raised questions on what will happen to the market is ethanol subsidies are lost at the end of the year.

If that happens, he said, “things could change.”

Land values bubbling?

That support will aid buyers who have been pushing farm land values up – 8.5 percent in the past year and 5.7 percent since March, according to a Sept. 23 report issued by the Iowa Farm and Land Insitute.

As long as grain prices remain high, said Newsom, buyers of ag land should be relatively OK, “but land prices have the chracteristics of being in a bubble.”

The rapid rise in farm land is due to non-farm investors looking for a non-volatile place to store their money, said Hoops.

He said these investors are looking for a solid returns other than CDs and the unstable stock market.

“You can’t make more (ag) land,”?Hoops said, making farm acres an attractive place to park money.

Even so, said Newsom, these outside investors have no background in farming history.

“If the corn market keeps up,” he said, “they can be profitable, but (the land) may not be saleable in five years.”

Sell off is healthy

Even with the slip in corn and soybean prices during the past two weeks, both grains should see increases again, said Newsom.

He added this month’s sell off of grain, especially corn and soybeans, “was necessary. Otherwise it would have chased demand away.”

Contact Larry Kershner at (515) 573-2141, Ext. 453, or kersh@farm-news.com.

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