GUEBERT: Land prices reach nutty levels
The neighborhood farmer grapevine, fiber optic for years now, was set abuzz recently with news that a 237-acre piece of the township for sale at $12,500 per acre.
Well, the land sports five-year averages of 199 bushels for corn and 60 bushels for soybeans and is home to a 16,500-bushel grain bin and modern machine shed.
But it also comes with some "character." A small creek, the scars from a 30-year-removed railroad bed and a state highway slice it into five parcels.
All that character, according to the U.S. Department of Agriculture's Farm Service Agency, gives (quite uncharacteristically for central Illinois) 20 acres to the birds, frogs and pheasants. That means, figures the grapevine gang, the sale price is more like $13,700 a "tillable" acre, not $12,500.
Tillable or not, the total nut for this piece of America's farming future nudges an utterly nutty $3 million.
Nutty or not, it's the new norm in Illinois. In early March, a Champaign County, Ill., farm sale topped $15,000 an acre and, late last November, 156 acres in nearby McLean County went at auction for $15,200 an acre.
The story is similar elsewhere. Since 2010, according to the Seventh Federal Reserve District's quarterly farmland survey, land prices are up 70 percent in Iowa, 50 percent in Indiana and 37 percent in Wisconsin.
Go back three more years and the rise is even more spectacular. From 2007, the percent increases are 78 for Illinois, 102 for Iowa, 66 for Indiana and 67 for Wisconsin.
This latest farmland rush has been fueled by the usual suspects: high grain prices, cheap money and flush farmers. If history holds, the first two won't last; the third might not either.
Four consecutive years of historically high grain prices -- largely propelled by a corn/soybean-centric American farm policy that includes generous subsidies for revenue insurance -- have served as dynamite to land prices.
The boon, however, has exploded that age-old farmer admonition to "Buy land because they ain't making it anymore." American farm policy is making grain-growing land almost everywhere.
For example, according to recent South Dakota State University research, from 2006 to 2011, 1.3 million acres of grassland in South and North Dakota, Iowa, Minnesota and Nebraska were converted to corn and soybean ground at a pace "not seen in the Corn Belt since the 1920s and 1930s."
Farther south, the pace is even greater. Brazilian feedgrain production, according to March 2013 USDA estimates, has climbed from 53.5 million metric tons in 2008 to 86 mmt this year on land that, five years ago, was growing more birds than bushels.
Similarly, the only thing running out of land in Argentina is cattle. From 2008 through 2013, Argentine corn production is up 92 percent and corn exports are up 86 percent, from 10.2 mmt to 19 mmt.
By the way, 2012/13 U.S. corn exports, at 22.5 mmt, will be "the lowest in over 40 years," noted USDA in a March 2013 Supply & Demand Report, and only 138 million bu. more than Argentina's.
The reason for the drop puts another American farming myth in the spotlight: This marketing year the U.S. will put five-and-a-half times more corn in its cars than it will put in cargo ships "to feed the world" -- 4.5 billion bushels to ethanol, 825 million bushels for exports.
Cheap money -- $1 million loans under 4 percent are common -- and pent-up farmer demand are the two other key price movers.
How long will both last? About 10 minutes longer than the end of mandated ethanol use, $7 corn and $13 beans.
Think it's nuts to any or all of those drivers who will run out of gas?
Maybe. Then again, not long ago it was nuts to think Argentina would ever challenge the U.S. in corn exports or that American farmland would sell for $15,200 an acre.