With the high prices of corn, wheat and other commodities, low interest rates and bullish predictions of demand for food in Asia and elsewhere, farm income has been record setting. Cash is flowing into the land about as fast as the corn, wheat and other commondities are leaving it. Not only that but the changing diets across the globes to a more meat oriented diet have helped drive the market. With the greater inflow of cash, farmers are opting to not borrow more money and lenders aren't pushing money at them either.
The past however lingers on. The agricultural crash of the '80's is still remember by most farmers as now they resist debt. Not only that but with the housing disaster of the past decade people are saying the same could happen to farmland. Maybe not to as great of proportions as the housing disaster but farmlands price could level or drop a little. This shows a negative externality on these two crashes. The falling prices spilled over into doubt for the farmlands. Not only that, but it shows how closely related markets can be and how they use models from other markets to try to predict the future for their own.
Very true. Especially with the increase of demand for these supplies for things like ethanol, prices of these commodities have increased a lot over the past couple years.
ReplyDeleteA very interesting perspective on farm income and its effects on farmland. What I found most intersting was your comparison to the housing disaster. It is a very solid comparison, which if it comes true could lead to a nasty result for farmers. The main differencce I see between these two instances, is debt. Many people buying homes went into sever debt, whereas these farmes seem to resist debt. I believe this is a good thing, and will hopefully protect them from a crash.
ReplyDeleteWhile the past doesn't directly impact the future, I agree that it is important to take it into consideration when determining present market behavior. For example, if you take the Stock Market crash and Great Depression into account, it can serve as a more extreme model to remember for our current economy.
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