2013-02-24economist.com

In recent years strong global demand for food and biofuels has been pushing crop prices higher. The drought has helped, not hindered, profits. For farmers able to produce corn (maize), it raised prices dramatically. The average price of corn was about 20% higher last year than in 2010, and reached $8.49 a bushel (25kg) in August. For everyone else crop-insurance payments have stepped in, reaching a record $14.2 billion in payments in mid-February, a figure that is expected to go on growing a bit as insurers finalise the claims. This year, according to a report from the USDA on February 11th, farm profits may rise by 14% to $128 billion, the highest in real terms since 1973.

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Such frothy numbers are drawing many comparisons with the farmland boom of the 1970s, which was followed by a bust in which land prices fell by 40% from their peak. In July last year Brent Gloy of Purdue University in Indiana told a symposium on farmland prices that increases were on a par with the most dramatic seen in the past 50 years. The rapid growth has already worried regulators, and as early as 2010 the Federal Deposit Insurance Corporation, which insures bank deposits and monitors the industry's finances, sent a letter to lenders warning them to not let high farmland values lull them into lax lending practices.


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