Swimming against the stream this morning on Trumps big trade announcement.. but bear with me.
NOBODY has benefited more from Globalization than US Agriculture. When I was in college after the 1980’s bust.. we seriously talked about.
A Policy of Massive Land Set Asides.. which ultimately funneled into the CRP. Repeating policy from the 1950s
Keep in mind that upwards of a third of a farm was “set aside” or fallowed.. in order to qualify for support payments from the government. 32% Wheat “set-aside” requirements in the 1980s..
Conclusion
History demonstrates that difficult economic times in farming can drive demand for policies that seek to reduce or control supplies. Policies seeking to reduce acres and control supplies have been a consistent response to tough times. Acreage allotments were created in the Great Depression, the Soil Bank was created during a time of extraordinary surplus after World War II and the Korean War, in the midst of the technological revolution; set aside acres, PIK and CRP were all used in response to the economic crisis of the 1980s. The general goal through has been an effort to reduce acres in hope of helping to improve crop prices and farm income. A return to troubled times is currently revitalizing interest in set aside acreage policies and that interest is likely to grow if the challenges continue as expected for the foreseeable future. This article briefly reviews the history for set aside and acreage reduction policies to provide a starting point for further analysis. The goal of the discussion is to glean lessons from the past in order to apply them in the increasingly difficult discussions unfolding across the country.
We talked about why spending on Agricultural research should be funded at current levels with an almost 67% carryover in Corn in 1986.
Land values fell for six straight years.
I believe we navigated the ship through that storm but.. “it took awhile” and I believe the current generation doesn’t fully appreciate the landscape as it exists.
I came across This piece from CNBC from 22 about how Exxon Mobile was going to decarbonize.. making Biofuels out of Wood chips. Also injecting Carbon into storage. During the Biden administration.. much talk about EVs and SAF which has kind of quieted down.
https://youtu.be/Zz88goIgOVM?si=Y0tKk3npBVSTvRrp
In a post below I talked about tillage and planting costs going parabolic. KSU’s planting rental rates.. are “behind the curve” (although the trend is clear) because legacy equipment remains.. but as new planters, sprayers and Combines enter the fleet with higher costs.. These costs are going to accelerate.
With a Seed Chemical Company winning in court on a dumping allegation (names with held on purpose.. google it) chemical costs were headed higher BEFORE the tariff rift.
As we are learning today.. Trumps scorched earth tariff strategy may bare positive fruits. Will we find out Monday that things are all chummy and China is going to buy a couple mmts of everything we produce.. or.. “not so much.”
Either way Brazil will probably continue to grow production.. and already stretched US Crop margins appear set to be squeezed some more.
How does this resolve itself?
Land rents.. and prices must come down.
My neighbor already posted that valuations are down 25% here.. with probably.. more coming as commodity prices ease as this years wheat crop has been receiving decent moisture.
Sorghum cash prices have collapsed with some bids as low as $1.25 under with DOGE canceling USAID which bought as much as $2 Billion worth of commodities. That’s A lot.
You can buy Sorghum today in Kansas for $3.35 a bushel. Our local ethanol plant is grinding 40% of the mix as sorghum today. If it rains this summer.. we will probably see similar Corn values in the belt this fall.. pushing the $3.00 level potentially.
When the bubble popped in the 1980s.. Land values fell by a third.. over 6 years.. then flat lining for about a decade. Once the ball starts rolling.. it’ll be hard to fight it.
http://www.ers.usda.gov/topics/farm-economy/land-use-land-value-tenure/farmland-value
Yes there are many reasons why it could be “Different this time” debasing of the currency etc.
Flip side, There’s ALOT of estates which will get settled. With near record land values.. as they say.. “where there’s a will.. there’s an in law” who usually wants to “show me the $$$.” That’s going to take A lot of $$$ at these price levels.
Color me skeptical that land doesn’t continue to retreat from the boom we just witnessed. However, “I could be wrong.”
With EVs steadily chipping away at ICE market share.. and hence Gasoline and thus Ethanol demand. If SAF is dead.. what will take its place?
Cheers.
If the age of Globalization is over? Are Land values over priced?
