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Are farmers Too Optimistic?

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Brent Gloy
Brent Gloy

According to Purdue research, a year ago farmers felt there was only a 1 in 10 chance corn prices would drop to $4.    With corn now at $4, they may have to adjust their expectations. Purdue economist Brent Gloy conducted the survey in 2012 and 2013 and says most growers were expecting corn prices to stay a lot higher a lot longer than they have, “Most thought corn prices would remain above $6, while only a few thought corn prices would fall to $4. It will be interesting to see how their outlook has changed when we do the 2014 survey.”

 

In a presentation to the American Bankers Association, Gloy made the case that paying high prices for farmland – say $15,000 an acre – requires a very optimistic view of the future of the farm economy, “In our example, we showed how corn prices would need to stay above $6 for many years to make this kind of land purchase work; that or interest rates would have to stay at very low levels.”  He feels that in both cases farmers may be too optimistic about the future of the ag economy.

 

Gloy believes that tighter times are coming for agriculture in 2014 and 2015 and urges farmers to avoid debt, “Liquidity is very important when things get tight. Those who have the cash can take advantage of opportunities.” He encouraged farmers to be planning to have some liquid assets in the 2014 and 2015 time period.  The ABA meeting is continuing this week in Minneapolis.