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bkadds
Advisor

Another site has $4.00 corn prediction by fall!

Bear horns getting longer by the day!
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10 Replies
sw363535
Honored Advisor

Re: Another site has $4.00 corn prediction by fall!

Usda report said that also----------------- although they will swear they are not concerned with price.

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BA Deere
Honored Advisor

Re: Another site has $4.00 corn prediction by fall!

It`s like buying machinery at a auction, you don`t start bidding at the auctioneer`s opening cry and if there`s oil leaking, you make sure that the competitor bidders see it.  Actually if it was a bullish report and both old and new corn went up a buck, would buyers get anymore bought?  Yeah at a buck higher they would Smiley Happy alotta new would shake loose at $6.  But why pay 6 when you can get just enough bought at $4.75?

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c-x-1
Veteran Advisor

Re: Another site has $4.00 corn prediction by fall!

Fall dosn't end until December 20th or 7 months 1 week and 3 days from now..........I would call that 1 heck of a precision prediction?............. Did I fail to mention how valuable and helpful, as well.Smiley Happy

 

 

---wait just a minute, Are these people as good as the USDA, uhh....er..., are they employed by them???

 

good one, bkadds -- bear horns!

 

I just bet ya the reason those White house tours ended - they are having to use the grounds for the top secret storage of 2 bil bu of Corn reserves.Smiley Wink

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rswfarms
Senior Contributor

Re: Another site has $4.00 corn prediction by fall!

I ran $4.30 corn on another thread here, let's run $4 corn for the fun of it. 205bu/acre yield to be very safe, times $4 corn= $820/acre in corn revenue. $820/acre- $550/acre (input costs+ fixed/land costs+$150/acre in Custom Fees)= $270/acre for a very rough per acre profit. Well, I should be in business another year at least with a $270/acre rough profit. Of course I still have corn drying costs and trucking to the ethanol plant yet to factor in, that can add a little bit if the corn comes out very wet out of the field. I am required to dry it to 15.5% moisture for ethanol. Yes, 2013 is not going to be like 2012, that's for sure. Also, $5 corn will stabilize Iowa farmland values at about the current level, but $4 corn may drop Iowa land prices by a very rough $1,000/acre or so, at least according to the ROI Ratios. But there is no doubt that the guys who are paying either a $500/acre cash-rent or a $500/acre bank farmland loan are going to have an extremely rough year. But what is new, the guys that have high Fixed/Land costs are always the ones to take it in the shorts first and the guys with just Property Taxes as there only farmland costs will have a much easier time. Nothing new about that, it has always been that way since farming started.

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Faust100F
Advisor

Re: Another site has $4.00 corn prediction by fall!

If production adds to projected inventories greater than what was held in 1960 then you will be seeing $3 corn.  We can see by reviewing the past three reports from Larry, Moe, and Curley that they (like the FED) do anything necessary to drive down farm income in 2014.  

 

I would imagine a few of the bankers who actually believed the past six years was the "new normal" for prices are going to be having a few farm visits come fall.  I would be interesting to see what fall brings because I will guarantee you one thing, and that is input costs will not be coming down.  

 

Of course all the "smart" farmers have already shorted the corn market to lock in the price come fall, but . . . what about 2014?   Lets see with Seed corn costing $92 an acre (unless you elbowed your way to the front of the line to get that new hot number this year . . . then it is probably $100 or more per acre), and of course everyone knows continuous corn is the way to go, so with N costing $140 an acre P&K costing $110 an acre and lets say $30 an acre for fuel & equipment, $20 for crop Insurance, and say $300 an acre for 200 bu. cropland rent we have a total of $692 an acre.  Does not include drying and transportation costs, wages, and the new pickup payment. 

 

So lets say 200 bu x $3.50 = $700 gross revenue less $692 expense = $8 profit 

 

Lets see . . . what is the value of an acre of farm land that will earn $8 cashflow . . . 

using a 2% cap rate that acre is worth about $400. Lets add back the $300 rent plus $8 which equals $308 less taxes and Insurance $35 leaves $273 an acre cashflow making the land rented for $300 an acre worth $13,650 an acre.  

 

But what happens if interest rates rise to 7% then that  net $273 that acre will be worth only about $3,760 an acre.  If and when interest rates hit 7% like they were before the "new normal", then you will witness $10,000 an acre melting from landowner balance sheets.  Remember . . . all the smart people tell us land is only worth what it will produce.  

 

I wonder how that fits into the great investment advice given by the two nimrods from the University of Illinois last week.  The bubble in land will be deflated, I watched it happen in the 80's, and regardless of what those who "know Jack" profess this whole land bubble will come down as fast or faster then it went up over the past five years.

 

Right now we are headed into a situation, with all the money being printed by the FED to inflate the stock market, soon that turkey will come home to roost.  It is clear too me that the decision has already been made to deflate farm income and farm assets, as evidenced by the biased reports being issued by USDA each month. 

 

Of course . . . my expense in the previous example are very conservative, assuming the farmer owned his land and had no interest expense.  But . . . when interest rates rise, so will borrowing costs, and with inflation returning (we have all been witnesses to it over the past six years) we will witness, what I witnessed in the 80's and early 90's when land collapsed and big insurance companies and banks were dumping land in the Delta and the Midwest just like they are dumping residential properties right now.

 

Many, Many people purchased land in recent years, because it was not going to be any cheaper (I heard the same thing in the 80's) when that house of cards was collapsing.  Many of those people (like they did in the 70's & 80"s pledged other property to secure the loan if they borrowed money.  

 

So when interest rates rise, and land values start collapsing (following commodity prices into the abyss) the high rents that bankers believed were the "new normal" will not cover the payments on the loan outstanding, and the banks will become the proud owners of land they helped finance.

 

Even with 30% to 50% down payments on $14,000 an acre land (if borrowed money is used) will not be enough, when interest rates increase, because of the inverse relationship rising interest rates have to asset values.  

 

The major indicator right now of higher interest rates and the culprit for pushing down grain and other commodity prices is the strong dollar.  You know, the least worst fiat currency to hold.  Because the attempts to drive the dollar to zero has not been successful, even with money printing running rampant, the dollar has continued to strengthen.

 

Soooooo . . . I wrote this little rant, regarding why farmland at these prices may in fact result in what happened in the 80's when I got "Volkerized" when interest rates were raised to over 16% and land prices collapsed.  Glad I am sitting this one out. lol.   Adios Amigos. John

 

 

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Hobbyfarmer
Honored Advisor

Re: Another site has $4.00 corn prediction by fall!

Faust: I'm going to call you on one of your points.

 

The dollar is not rising. Nope, Not happening.

 

What is happening is that the other countries that are compaired to it are doing a better job of racing us to the bottom.

 

The dollar is falling but since we are tied to it and are seeing some other currencies passing us on the way down, people ASSuME the dollar is rising. WRONG it is just falling LESS fast.

 

Been to a parts counter and tried to buy something real lately? are they cheaper? NOPE

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Jim Meade / Iowa City
Senior Advisor

How About Under $3 in 2017?

Iowa State's Center for Agriculture and Rural Development (CARD) put out a corn and soybean price projection into 2017 that says the prices will be a little under $5 for corn and about $11 for soybeans.

 

BUT - there is a 10% chance corn could be under $3 in Dec 2017 and beans could be about $6.55.

 

Don't worry about getting any corn in the ground - it won't be worth anything anyway.  Smiley Happy

 

http://www.card.iastate.edu/publications/dbs/pdffiles/13pb10.pdf

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rswfarms
Senior Contributor

Re: How About Under $3 in 2017?

OK, here it goes for $3 corn. 205bu yield* $3=  $615/acre- $550/acre in inputs, land, and Custom Farming Costs= $65/acre in rough profits. Well, at $65/acre in rough per acre profits, I will still be in business, but the wife can not spend anymore money remodeling our MN House. No, thank God after they finish the $50,000+ new Kitchen Remodel there isn't anything left to remodel on the house. I still can't believe that the huge Bay Window she had them put in the new kitchen cost over $2,000. And that's just for 1 window. A total waste of farm profit money. Well, $3 corn will shape her up.

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bkadds
Advisor

Re: Another site has $4.00 corn prediction by fall!

Nice analysis Faust, but agree with Hobby on the devaluation of currencies leading the dollar higher. Keep the pithy comments coming guys.
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