Welcome toANR at Noon

February 22, 2013

What Will Happen to Land Values with $4.50 Corn

and Will We Get There?

ISUEO EconomistsMike DuffyChad Hart

Recent Corn Prices vs. Costs

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Season-average Price Cost per Bushel

Corn Prices vs. Costs

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Season-average Price Cost per Bushel

Average Return on a Bushel of Iowa Corn, 1972-20115 cents per bushel

Corn Prices vs. Costs

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Season-average Price Cost per Bushel

Projected Corn Supply & Use2013 2014 2015 2016 2017

Area Planted (mil. acres) 96.0 90.0 86.0 88.0 89.0

Yield (bu./acre) 163.5 165.4 167.4 169.3 171.3

Production (mil. bu.) 14,435 13,610 13,595 13,925 14,255

Beg. Stocks (mil. bu.) 647 2,067 2,232 1,817 1,672

Imports (mil. bu.) 25 25 25 25 25

Total Supply (mil. bu.) 15,107 15,702 15,362 15,437 15,622

Feed & Residual (mil. bu.) 5,250 5,300 5,250 5,375 5,475

Ethanol (mil. bu.) 4,675 4,825 4,825 4,850 4,900

Food, Seed, & Other (mil. bu.) 1,415 1,445 1,470 1,490 1,505

Exports (mil. bu.) 1,700 1,900 2,000 2,050 2,125

Total Use (mil. bu.) 13,040 13,470 13,545 13,765 14,005

Ending Stocks (mil. bu.) 2,067 2,232 1,817 1,672 1,617

Season-Average Price ($/bu.) 5.40 4.10 4.30 4.40 4.50

Source: USDA

Projected Corn Prices vs. Costs

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Season-average Price Cost per Bushel

Based on those USDA projections

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Recession Corn

How Did We Get Below $4.50 Last Time?

Land Prices at $4.50

• There is a strong correlation between land sales prices and price but it is not less than 70%

• There are other factors that influence price; one of the major ones is the prevailing attitude. A major drop in corn prices may have a greater impact than just the percentage drop would indicate.

Land Prices at $4.50

• The correlation coefficient between land sales price and profit has averaged 60% between 2005 and 2012.

• If these relations hold and a 25% decrease in price led to a 25% decrease in profits then land values should drop 15% or $1,260 an acre

• But,

Land Prices at $4.50

• Drop in commodity prices not exactly proportional to drop in profits

• Drop in commodity prices will have psychological impacts that could exasperate the decreases

• Land values will drop but it will be more like a tire with a nail than a bubble bursting

• Predicting how much they will drop is an inexact art

Thank you for joining us todayWe invite your feedback and suggestions for future ANR @ Noon webinars:

John Lawrence – jdlaw@iastate.edu

Chris Mondak- cmondak@iastate.edu

Next date: March 29, 2013