One certainty in a cloudy ag future: Auctions will bring the best farmland prices

As I write this, China has just rejected two cargoes of DDGs from the United States after detecting MIR 162 – a GMO species not yet approved for import into China. According to various reports, the world’s largest corn importer has turned away 665,000 metric tons of corn since November because of the issue.

To say the least, this rejection of a cargo creates an awkward situation, as the loaded ship sits in the water on the other side of the world from where it was grown. So it gets diverted to other nations such as Japan and South Korea, which agree to take it at lower prices.

By itself, this may not amount to a major disruption in world grain markets, but it does point to the reality that we live, farm and do business in a vast world of interconnected parts, and it’s impossible to anticipate how those parts may produce a given result. One thing is certain: We can’t simply project the present or recent past into the future.

At any given time, we tend to focus on one “data point.” During 2013, our focus shifted about quite a few times. A wet spring that delayed planting in many areas. A hot, dry summer that created more uncertainty about the crop. Farmers came out OK – thanks in some cases to big insurance payments based on high commodity prices from the 2012 drought. But corn prices have dropped considerably, and crop insurance for 2014 will reflect that. In other words, crop insurance won’t bail us out of a lousy crop in 2014 – at least, not to nearly the same extent. Farmers will feel the pain.

Meanwhile, on Capitol Hill, support for ethanol appears to be weakening. And oh, by the way, we still don’t have a farm bill. And what of interest rates? They’ve been so low for so long, we’re tempted to believe they’ll last forever. But of course, they won’t. And when they finally begin to rise, people will be able to get CD rates that rival the return of farmland, which will undoubtedly dampen demand for land. Farmers will face higher interest costs, which will hurt profits.

I have no idea whether interest rates will go up enough to impact farmland prices this year, or next. But as the Federal Reserve tapers its quantitative easing, the risk of that goes up.

Note that I haven’t even touched on a multitude of other factors that could affect farm profitability (and hence, farmland prices). Growing anti-GMO sentiment. Drought. A trade war. A Mideast crisis that disrupts world oil markets. A shooting war.

Farmers will adapt in the long run, of course. They always do. Many will probably plant more soybeans this year, because soybean prices have held up better, and China has an insatiable appetite for our soybeans, without the GMO issues that cloud the picture for corn. Imbalances in the market will get corrected. For example, rental rates on a lot of property are probably too high now, and they’ll have to come down for farmers to continue operating leased land profitably.

But in all of this, there is one thing of which I’m certain: Farmland will remain an excellent investment, and when it is time to sell, the auction method will provide the most efficient way of achieving the best possible sale price.

Special thanks to Susan Mortensen of Advantage Agricultural Strategies LTD, of Fort Dodge, IA, for her invaluable assistance with this post. Individuals seeking to know more may visit