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Central Missouri | Interest rates don't have to be a part of the formula of falling land prices. I got to thinking about this based on the threads below ....... The biggest difference this time imo that affects risk management is crop insurance and it is possibly the catalyst that will be the cause of the most financial pain and here is why if I can explain my thoughts ....... Crop insurance provides a minimum dollar of revenue guarantee ....... this has allowed for many many marginal acres to come into production ..... in my mind it will also allow for these acres to stay in production beyond their normal economic productive ability and this could be the straw that breaks the camels (price per bushel) back. It could allow for producers to produce on those acres 1 year too many and if we have a series of excellent production years (we just had a series of challenging years) cash prices could be driven lower than any of us suspect possible. Just in basis alone next year, taking Eddyville iowa as an example, corn price could be .50 a bushel cheaper than this year with basis going from +.23Z this year to minus .27Z. If you add a big crop to that it can get ugly fast. Then stack another year of that on top, it is possible but I'm not predicting it, and walla the pain sinks in. This is all absent high interest rates. Just some thoughts. I might add this ..... it may affect land rents more as opposed to price as investors may have to accept lower returns to land. All the liquidity the fed is injecting has to chase yield ...... those with the cash will invest and it is possible that land stays high and rents get cheaper if other yields (stocks, bonds, gold) are perceived to be too risky.
Edited by ehoff 11/21/2013 08:20
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It IS Different this Time.
