The USDA recently released a commodity report detailing the current inventory of grains along with their plantings estimate for 2010. To say it was a shock, especially for corn, would be an understatement. Many traders and nearly all farmers were pleasantly surprised when the government cut their estimate of corn stocks on hand and the number of acres that actually got planted this year. In fact, Rabobank believes the cut in current inventory will leave the U.S. at 9.1 % of consumption, or the lowest ratio in 15 years. Yes, even lower than when the corn market began its rally in 2006. As this article in Agrimoney points out (US corn supplies ‘to prove tightest for 15 years’), many now believe that the summer lows for corn have already been established and that price volatility will be more extreme until this year’s crop is better known.
As we saw beginning in 2006, higher grain prices typically transcend into higher land prices. Not that I’m ready to predict another big jump in land values, but if farmers are making money they typically take their extra earnings and invest in farmland. This potential rally may actually help support prices for “B” and “C” quality tracts which have languished the past year while “A” tracts have sold well.
As an aside, I’ve always been skeptical and somewhat cynical regarding government reports. Most farmers I talked with last fall across the Midwest had worse yields in 2009 than they did in 2008, yet the government reported larger stocks (even taking into account the acreage differences). And now, they seem surprised that the bushels aren’t there. Some might call it a conspiracy to keep grain prices low. I tend to think that the blame may be a result of faulty reporting or incompetence. Regardless, since so many people depend on the accuracy of these reports for their livelihood, you would hope that the bureaucrats would find a way to make their information a little more accurate.
Tags: agriculture, farmers, farmland, government, land market, land value, midwest
