Three weeks ago, the headline story in the Storm Lake Times concerned a land sale that generated a new record for Iowa of $14,500 per acre. That bested the previous mark of $12,400 that occurred one year earlier in Buena Vista County. That previous sale occurred as a result of an estate sale.
Last week, a sale in Sioux County shattered all previous records.
An 80 acre parcel of land near Boyden, Iowa, a small rural Iowa town, recorded a sale of $21,900 per acre. Reportedly, there were four different bidders even after prices hit $20,000 per acre.
Can these prices be maintained? Is Iowa farmland that good of an investment?
The argument for buying farmland has always been and always will be “they aren’t making any more of it.” While this is true, how do you pay for farmland that costs nearly $22,000 per acre?
When Iowa farmland began to increase in value, it was argued that the ethanol industry expansion would improve basis levels enough to pay for land going from an average of $3,000 per acre to $6,000 per acre. Basis levels did improve and farmland became more valuable.
Recently, the lack of confidence in the stock market has left many investors looking for a “safer” return on their investment. Record high corn and soybean prices has contributed to the demand for farmland.
With a good crop next year and using 97 million acres of corn planted, we could be looking at a record crop of 15.520 billion bushels. Demand has been hurt by the high prices and is projected at only 11.15 bb this year.
In other words, we are one crop year away from seeing sharply lower corn prices as our ending stocks are likely to swell.
If ending stocks do swell to over 2 bb, which appears likely, there is no way land values can hold over $12,000 per acre, let alone over $20,000 per acre.
At the apex of any investment bubble, there is always historic news that leaves someone on the wrong side of the investment. We may have seen this occur last week.
Corn closed the week $.23 3/4 lower. Last week, private exporters announced a sale of 270,000 metric tons of non-U.S. corn to Mexico.
In the weekly export sales report, corn sales shows 56 million bushels slated for 2012/13. This is below the 15.9 mb that is
needed to stay on pace with the USDA forecasts of 1.15 bb.
The lack of exportable corn demand looks to cap rallies while the downside should be limited with lack of supply due to the summer drought keeping the basis tight in most regions.
Strategy and outlook: Producers are now 80 percent of 2012/13 crop and producers own the December 740 strike puts on 25 percent of production.
Exit puts at market. Producers are also 40 percent sold of the 2013/14 crop.
Soybeans closed the week $.27 higher from last week. Last week private exporters reported a sale of 225,000 mt of U.S. soybeans to an unknown destination.
In the weekly export sales report, soybean sales were 19.2 mb, this is above the 7.9 mb that is needed to stay on pace with the current USDA forecast of 1.265 bb. So far in the marketing year, the U.S. is 82 percent sold of the USDA projections.
Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and producers own the November 1600 put options on 25 percent of the 2012/13 production. Exit put options. Producers are now 40 percent sold of 2013/14.
LIVE CATTLE ANALYSIS
Live cattle ended the week $2.02 lower while feeder cattle ended $3.05 lower. Last week, cash trade developed in the South at $127, steady compared with a week ago. In Nebraska, trade developed at $197-$198, also steady when compared with last week.
The futures market finished with losses last week despite the steady cash trade as the futures had anticipated better cash business.
The latest COF report indicates supplies will remain tighter compared to a year ago
and placements were down sharply compared to expectations. This indicates there should be limited downside risk for December through April futures and producers should carry risk in the cash market for now.
Strategy and outlook: Producers currently have no hedges in place.
LEAN HOGS ANALYSIS
Lean hogs closed the week $.72 lower. The average Iowa-Minnesota hog weight for last week was estimated at 272.2 pounds versus 271.3 lbs the previous week and 272.3 lbs last year.
Hog futures are enjoying a modest recovery during the month of October.
Strategy and outlook: Producers have sold 50 percent of February at $85.85. Sell 50 percent of December at $84.75; and 50 percent of April at $91.50.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.