Wither the ag bubble?
Rapidly rising farmland prices and cash rents might be moderated this year as corn and soybean prices are on a steep drop with optimistic yield forecasts. New crop corn has dropped below $5 per bushel and some widely respected market analysts forecast a bottom of $4 per bushel post-harvest. That’s nearly half the price that corn fetched at the peak of its run-up since 2008.
Nobody really knows what will happen if row crop prices tank — how far will land prices drop, when and who takes the biggest blow.
The record reported sale of farmland was about $20,000 per acre in Story County paid by Dale Swanson, formerly of Schaller, who also owns farmland near the Storm Lake Airport. Sales of $15,000 per acre in Northwest Iowa are not unheard of. We have heard reports of cash rents approaching $500 per acre in Calhoun County.
These land purchases went into strong hands. Buyers were financing the bulk of the purchase through cash rather than debt. That is a fundamental difference between the farm debt crisis of the 1980s and today. The buyers also tend to be well-established, older farmers who merge the new acres with existing farms already free and clear of the bank.
Lenders have been cautious compared to the late 1970s when loans were made on a bet of land appreciation instead of penciling out cash flow.
If corn prices drop to $4, one would think a land price adjustment should be just around the corner. It probably will not wreak the havoc that the 1980s crash did — interest rates today are not at 22% as they were 30 years ago. Cash flows have been tremendous over the past five years, so a farmer with a memory should have stored up some nuts for a harsh winter.
Still, there will be pain.
Landlords expecting to fetch those high rents might not get paid in full. They may be forced to renegotiate contracts or explore different arrangements like crop shares. Equipment sales could take a hit. Ag-related businesses could feel the revenue shock.
It is unlikely, however, that a popped agricultural bubble will inflict the hardship on Iowa that it did in the 1920s or the 1980s. The most recent implosion drove a third of Iowa’s farmers off the land. The survivors are the ones who have been buying land of late. Presumably they are smart enough to have a fall-back position.
But the ride down could be rocky.
All that said, analysts predicted last year that corn would reach a baseline of around $4.50 per bushel. It never got close. China stepped in and bought. Seeking a bargain, they could clear out our corn carryover again. The oil industry probably will be stunted in its bid to undo ethanol production. Yield forecasts could be way off the mark.
It would appear from the early signals that the five-year party might be coming to an end.
And Congress has yet to pass a farm bill with a decent safety net for producers.
We went to our neighborhood block party Tuesday evening as part of National Night Out and saw the same friendly faces looking over delicious potluck dishes (smoked pork loin, mmm). They were all white and mainly near retirement age, although several younger families of color have situated around the block. It’s a small illustration of the separate communities that the City of Storm Lake encompasses.
Civic engagement builds strong communities. It starts with potlucks, where neighbors learn about each other and the police, firefighters and paramedics. It leads to an interest in the community. Eventually, engagement inspires people to work for their community by serving in public office or volunteering with a service club.
Staying away from community-building exercises breeds misunderstanding and sometimes resentment. Small towns work best when everyone pitches in.
To our knowledge, Buena Vista County has one elected official of color: Latina City Councilwoman Sara Monroy Huddleston. The city begs people to serve on boards and commissions. Appointments in the latest round included no immigrants because there were no volunteers.
Wouldn’t it be great if a Spanish speaker were on the library board? The Storm Lake School Board election next month will be an affirmation of incumbents, with no newcomers standing up. There are more than 1,000 registered Latino voters in Storm Lake eligible to serve. Maybe it is unfamiliar turf, as it would be to most Anglos. Maybe they are too busy at work. Who isn’t? If they like Rep. Steve King slandering hard-working Latinos with every other utterance, lay low and keep it up. Otherwise, stand up, introduce yourself and stake your claim to Storm Lake by serving the community.