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Corn Plummeting Spurs Talk of ’80s U.S. Farmland Bust

December 18, 2013
corn field farm
  

As corn prices decline, bankers and agricultural economists are predicting a slowdown in farmland prices that could turn into a bust.

Din Tai Fung, a restaurant in Shanghai’s Xintiandi district, is famous for its steamed pork dumplings. The pigs that keep those dumplings on the table are fattened with corn—much of it imported from the U.S.

American farmers have prospered during a three-year boom in corn and cropland prices. As values have soared since 2011, farmers bought more acres and upgraded their harvesters to produce a record corn crop of almost 14 billion bushels in 2013.

Nothing better shows the fertile times than investment in farm equipment. Sales of self-propelled combines, including an $850,000 John Deere model with iPod system, navigational equipment and heated seats and an attachment that harvests the corn, jumped 40% in November.

Now, as corn prices start to decline, bankers and agricultural economists are predicting a slowdown in farmland prices that could turn into a bust.

"I can see the fear in farmers’ eyes when they think of all the moving pieces around the world gutting the value of next year’s crop," said David Kohl, an agricultural economist and president of consulting firm AgriVisions, who last week spoke at several farming conferences in northern Nebraska. "Most of them know the boom in corn prices and farmland prices is coming to a screeching halt."

U.S. farmers, whose earnings grew an average 6 percent in 2013, face several challenges: a likely reduction in corn exports to China after a record year; greater competition from other nations; moves in the U.S. and the European Union to limit the use of ethanol, a biofuel made from corn; and a possible record in production of the crop in 2014.

 

1980s Crash

 

Kohl said a plunge in land prices would strip value from farms and put over-leveraged farmers out of business. Farmland prices are up 72% to about $8,000 an acre in the last three years, according to data from USDA. In Iowa, the largest producer of corn, the gain was 90%, according to the Iowa State University in Ames.

The value of the nation’s $2.5 trillion of farmland may tumble by as much as 30% in the next three years as the corn rush ends, according to Gary Ash, chief executive officer for 1st Farm Credit Services in Normal, Illinois.

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