By SUSAN BLOWER
Indiana Correspondent

ALEXANDRIA, Ind. — Corn, wheat and land values are all up, reported Chris Hurt, Purdue ag economist, in his outlook for 2011. His report produced smiles of relief at the meeting of the Purdue Extension of Madison County last week.

“The ag sector turned up roses in the last 60 days,” Hurt said, referring to the remarkable change in outlook since early July.

“We thought we were going to have record yields, and the corn was $3 or $2.75 per bushel. It’s $1 more now, which is a world of difference in revenues,” Hurt said.

Contrary to concerns early this year, corn has not peaked yet and may hit new highs, thanks to worldwide income growth, the Russian drought and Canadian wetness, he said.

While the U.S. dollar is weak, the rest of the world’s economy is growing. This creates greater demand for U.S. exports. China surprised the corn market last spring by purchasing U.S. corn for the first time in 15 years. Hurt said China will be a major player in the market.

The Russian drought will reduce world wheat supply, thereby creating sharp increases in U.S. exports of both wheat and corn. Though it is slowing, the ethanol industry continues to increase demand for corn. Together, these factors will result in greater demand for corn than supply, he said.

Hurt expects Indiana harvest prices to begin at $4.40-$4.50 and to edge up to $5 by next spring. He even discussed the possibility of $6 per bushel.

“You can run the probabilities based on option prices and there’s a 35-40 percent chance that it will move up to $6. For businesses (that can’t pay $6 corn), it’s like Russian roulette with a three-chamber gun. Most of them are not going to play that game,” Hurt said.

While this news is positive for grain producers, livestock farmers need to adjust their production accordingly, Hurt said. “I don’t think they’ll have trouble paying $5 per bushel of corn, but they should not expand their production. The crop is a year away from determining whether there will be moderation in corn prices or it will stay at $5.”

Land values
Land values doubled between 1988 and 2000, and land doubled again from 2000 to 2010, Hurt said. The lack of land for sale has helped to create this market.

Hurt said that despite these large gains, he doesn’t think that the land is “terribly overpriced.”

With the small returns on Certificates of Deposit and the unpredictable stock market, Hurt said that farmland was a much better investment. “I wish we had bought more farmland 10 years ago,” he said.

The cost of financing is down, also, as the Federal Reserve holds interest rates down to encourage the economy, he said. On the other side, by the time owners pay taxes on land sales, they have not made as much. Cash rents should be strong, due to the good prices that crops are bringing, he said.

Hurt added that China is not buying farmland in America. China is buying real estate and businesses in America and land in Africa, he said.

“The big bidders are your neighbors, family farms,” Hurt said.
However, smaller plots of land, such as 5-10 acres, have declined in sales as residential building has slowed.

Most of the attendees said their biggest concern is the low moisture content of their crops. Sandy river bottom lands were doing better than usual, though.