#1 The Next Real Estate Bubble: Farmland03-31-2013, 07:14 AM
By Blake Hurst Friday, March 29, 2013
Farmers have been taking on mounting debt, creating an unsustainable increase in land prices and risking a crash that would ripple through our economy.
Eeyore should have been a farmer. Itís almost impossible to find a farmer happy about his situation. The weatherís too hot, cold, wet, or dry, and prices are too low or too high, depending on whether weíre buying or selling. We canít, at least in front of our peers, admit to prosperity or even the chance of prosperity. Although weíd never admit it at the local coffee shop, the last few years have been good, at least for Midwestern grain farmers. Prices have been strong ó strong enough to make up for much of the production lost to last yearís drought. Thatís terrible news for livestock producers, whoíve been faced with drought-damaged pastures and high feed costs, but for farmers producing corn and soybeans, it has been a profitable few years.
Farmers have cash, and nowhere to invest it but farmland. Farmers largely ignore equities, as they tend to balance the inherent risk in farming by investing in what they perceive as less risky places. We arenít dumb, however, and have figured out that it's a losing game to invest in bonds or CDs at rates less than inflation while weíre in tax brackets we never even knew existed.
When a farm in Iowa sells for $21,900 per acre either the dollar is terribly inflated or land prices are, I guess both.The difference between pigs and people is that when they tell you you're cured it isn't a good thing.
03-31-2013, 12:02 PM
As long as we continue to promote and incentivize use of our petrochemicals to grow food just to burn that food for fuel, and at about a zero net-net energy-wise, and pretend it's wondrous 'Green energy,' the crop farmers will still be doing well. They'll be screwed if that gravy train ever pulls into the station for maintenance, though.
eta - The writer is certainly correct about that 22K per acre. Here in the rocky, hilly southern MO Ozarks where all we can really farm on any large scale is livestock, that would be an astronomical price, and a farm complete with house and outbuildings a hundred times that size would cost only ten times as much as that single acre. Of course, you wouldn't be able to grow corn or soybeans on it, just cattle, goats, hay, etc.
Last edited by DumbAss Tanker; 03-31-2013 at 12:20 PM.
03-31-2013, 12:17 PM
03-31-2013, 12:29 PM
03-31-2013, 01:11 PM
.......The cost and energy consumption required to actually produce a crop (diesel/gasoline, lubricants, equipment depreciation, fertilizer, herbicides, pesticides), all of which require huge amounts of petrochemicals and production energy to manufacture. They assume that these would be used in normal food-crop production anyway.......however, they are part of the cost structure.
........The fact that typically ethanol production facilities require HUGE amounts of electricity, and are normally small (eliminating "economies of scale"), and located in rural areas where the relative costs of electricity are high.
.........Ethanol is not usually produced in areas (or in quantities) where economical rail transportation is available, leaving transportation costs significantly higher.
.........The additional cost and energy requirement at the gasoline refinery level to produce a "special blend" of gasoline that will accomodate up to 85% ethanol (and maintain the needed "octane" rating for use). And since the demand is so small, the relative cost of refining is considerably higher.
Usually data of this type only considers the price of grain going into the ethanol plant compared with the total production cost of what comes out of the pipe and goes into the truck.........
On Edit: I forgot to mention that Brazil has only approximately 25,000 total motor vehicles, compared to 10,505,000 in the US...........it would require a HELL of a lot of sugar cane to replace gasoline here. Simply not practical.
Last edited by TVDOC; 03-31-2013 at 01:44 PM.
03-31-2013, 04:03 PM
03-31-2013, 03:30 PM
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