By Timothy Birdnow ——Bio and Archives--April 1, 2013
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"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 aren't dumb, however, and have figured out that it's a losing game to invest in bonds or CDs at rates less than inflation while we're in tax brackets we never even knew existed. So, farmland prices are booming. Land prices in the heart of the Corn Belt have increased at a double-digit rate in six of the last seven years. According to Federal Reserve studies, farmland prices were up 15 percent last year in the most productive part of the Corn Belt, and 26 percent in the western Corn Belt and high plains. Closer to home, a neighbor planning his estate had an appraisal done in 2010 and again in late 2012. In that two-year period, the value of his farm had doubled. According to Iowa State economist Mike Duffy, Iowa land selling for $2,275 per acre a decade ago is now at $8,700 per acre. A farm recently sold in Iowa for $21,900 per acre. A debt-to-asset ratio of 30 percent can enter dangerous territory with a land price drop of 50 percent, which sounds like a lot, until you remember that is a price level last seen only 24 months ago in much of the Midwest. Although much of the increase in land prices has been driven by well-financed farmers and outside investors (many paying a large portion of the purchase price in cash), there are disturbing trends occurring on farm balance sheets. The Kansas Farm Management Association reports that debt-to-equity ratios are highest in large farms, which have over a million dollars in sales. Although the debt-to-asset ratio is low even in the largest farms in Kansas, it's higher than it was in 1979, shortly before the farmland crash of the eighties. As former home owners in Las Vegas and Southern California can attest, equity can melt away in a hurry. A debt-to-asset ratio of 30 percent can enter dangerous territory with a land price drop of 50 percent, which sounds like a lot, until you remember that is a price level last seen only 24 months ago in much of the Midwest."And as farmland prices rise interest rates remain at record lows, encouraging borrowing to purchase more farmland. What is left unsaid here is that there is another driver of farm value and that is the ethanol mandate for fuel; the price of corn is artificially inflated because government demands the addition of ethanol to gasoline, a practice that is increasingly silly given the revolution in hydraulic fracturing which will turn the United States into one of the world's great oil producers. With oil poised to drop in price dramatically and with global warming theory on the ropes we may eventually see a relaxation of ethanol standards - and that will trigger a collapse in the corn market. Here is a classic bubble. What will happen then? Either government steps in to stabilize the market or land is purchased for pennies on the dollar by people like George Soros, who has used government mismanagement to buy up farmland in the past. Canada Free Press There has been a war waged by this administration on the family farm. See here here and here Oh, and there is a concerted attempt to control water.
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Timothy Birdnow is a conservative writer and blogger and lives in St. Louis Missouri. His work has appeared in many popular conservative publications including but not limited to The American Thinker, Pajamas Media, Intellectual Conservative and Orthodoxy Today. Tim is a featured contributor to American Daily Reviewand has appeared as a Guest Host on the Heading Right Radio Network. Tim’s website is tbirdnow.mee.nu.