You'd think $4 or even $3.50/bu. corn would allow you to sit back, kick your feet up and enjoy the ride. Hardly.
The more responsible reaction, experts say, is to do the opposite. Continue to control costs and stay out of that quagmire where the bottom third of farmers get stuck.
Just because crop prices are high doesn't at all mean that you'll be making more money. According to Michael Boehlje, Purdue ag economist, “You must rely on more diligent risk management tools now than ever before.”
Boehlje anticipates that profit margins of 50-75¢/bu. are likely over the next few years. The problem, though, is that higher corn prices are offset by higher land prices and higher input costs.
“In Indiana we've seen average land values increase by 17% this year,” he says. “The outlook for next year is an additional increase of at least 10-15%, with rents increasing a likely 20% over this year. Over the past five years, land values have increased a whopping 55%, and rents are up 20% or more.”
Rick Brock from Brock Associates sees the same trend. In Illinois, for example, he's seen land prices hit as much as $6,000/acre and rents as much as $300/acre.
“Much of the positive cash flows from high-priced grain are currently discounted into farmland values,” Brock says. “Already, investors and farmers in most areas have bid land to where the return is little or no more than 3% — historically a leveling off point.”
For more insight on high-priced land and rent, be sure to check out Brock's column this month on page 62 titled “Farmland — Worth Its Weight in Gold.”
To stay profitable, the message is clear. Stay on top of your costs and manage risk at every turn. And stay out of the muck at the bottom of the pond.
MEET NEW STAFFER
Please welcome the newest addition to The Corn And Soybean Digest staff, Jennifer Bennett. As associate editor, you'll be seeing her name regularly in the pages of this magazine.
Jennifer comes from St. Peter, MN, and is a communications graduate of Minnesota State University, Mankato. She even did a stint at the Minnesota Soybean Growers Association. Welcome, Jennifer.
WE SAY GOODBYE AND THANKS
After 13 years of contributing top-notch, insightful marketing commentary to the pages of this magazine, Alan Kluis will wind up his tenure here with this month's column, “Global Financial Meltdown,” on page 60. We want to thank Al for all his contributions in providing guidance for the editors and in helping you be better marketers. He's a swell guy and will be missed. Good luck, Al.