May 22, 2017

The Crux Of The Problem Is Oversupply

A report from Fox News. “Top Republican lawmakers have expressed concerns about the cuts President Trump plans to make for the 2018 budget year, which is due out Tuesday. The blueprint is certain to include a wave of cuts to benefit programs such as Medicaid, food stamps, federal employee pensions and farm subsidies. ‘We think it’s wrongheaded,’ Rep. Mike Conaway, R-Texas, chairman of the House Agriculture Committee, said about the looming cuts to farm programs. ‘Production agriculture is in the worst slump since the depression — 50 percent drop in the net income for producers. They need this safety net.’”

From Iowa Public Radio. “Don Batie farms in Dawson County. Batie is 58-years-old and says that makes him one of the younger farmers around. He and his wife farm about 1,500 acres of mostly corn and soybeans. They’re raising more grain than ever before, but it’s not paying off right now. ‘We’ll probably end up losing money for the year,’ Batie says. ‘Unfortunately that’s kind of the way agriculture goes, we have boom and bust.’”

The Des Moines Register in Iowa. “When his 31-row planter broke down while sowing soybeans earlier this month, Michael Fritch and his dad patched it up as best they could, after deciding to put off buying new equipment for a while. It’s one more way to cut costs when commodity prices are dismally low and a farming downturn is now in its fourth year. ‘There’s no question, you stress about it,’ said Fritch, 39, who farms near Mitchellville.”

“This year could be pivotal for many Iowa farmers, battling to turn a profit as they plant 23.4 million corn and soybean acres across the state. Delinquency rates are rising from record lows to around historic averages, said Chad Hart, an Iowa State University agricultural economist. Record corn and soybean production last year helped blunt the financial drag, but farmers are paying for it this year as the glut of grain depresses prices, he said. Iowa farmland values have fallen about 18 percent to $7,183 an acre from a 2013 record high, according to ISU land surveys. ‘There could be a wave of financial issues still coming in the farm sector as we continue to see low prices and the erosion of the farm financial sheet,’ Hart said.”

The Lincoln Journal Star. “Total agricultural land property values across Nebraska dropped for the first time since at least the early 1990s, based on the Department of Revenue preliminary valuation report for 2017. Commodity prices have declined to about half of what they were in 2013-14. We are entering the fourth consecutive year of a downturn in the ag economy since the near record incomes of 2013, said Nathan Kauffman, assistant vice president with the Federal Reserve Bank of Kansas City.”

“Commodity prices have a lot to do it, said Hall of the ag land valuation decrease. ‘Cash rents are down, too. So if someone is buying land to make a living, it is going to be less,’ he said.”

From Kansas Farmer. “If you are hoping for a turnaround in the free fall of the ag economy over the past couple of years, you’ll be disheartened by what USDA Chief Economist Rob Johansson had to say to the North American Ag Journalists when he addressed them in Washington, D.C. If his read on market signals is accurate, farmers will be facing a decade of prices very close to what they are seeing today.”

“The crux of the problem, he said, is oversupply. U.S. farmers produce far more corn, soybeans, wheat, cotton, beef, pork and dairy products than the U.S. can consume. Johansson said commodity prices are already down between 50% and 70% even as production is increasing, creating the likelihood that prices will stay depressed. ‘Right now, it looks like record crops of corn and beans will be coming out of South America, and that will continue the downward pressure,’ he told the journalists.”

The Tennessean. “Members of the Rollins family were looking to diversify their real estate portfolio beyond industrial properties that house their Nashville Wire Products Co. when they stumbled upon the concept of investing in farmland. ‘Unless people are burning down forests to create more arable land, it’s pretty much a fixed thing,’ said Steve Rollins, third-generation president of shelving products maker Nashville Wire Products.”

“Investing in farmland is seeing growth as a vehicle for taking advantage of the long-term need to feed a growing world population. More wealthy individuals, pension funds and other institutions also see that emerging asset class as a way to reduce risk in their portfolios. Randy Dickhut, senior vice president of real estate operations for Omaha, Neb.-based farm and ranch management and real estate company Farmers National Co., sees direction of interest rates and effects of grain and livestock prices impacting land prices and values. He also cites risk factors such as projections of global population growth and food and fiber demand falling short and expectations of slow improvement in farm incomes, which means farmland values might not rise as much in the near term.”

“Dickhut cautions investors to seek help from people who understand variations in the quality of land, which can determine the rate of appreciation in value and income for the farmland owner. ‘When people invest in farmland and don’t know everything they need to know and engage the right experts for help, it ends up being a poor investment because farmland is a long-term investment,’ he said.”

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Comment by Ben Jones
2017-05-22 15:12:23

‘Commodity prices have a lot to do it, said Hall of the ag land valuation decrease’

FYI I looked through this article and couldn’t find Hall’s full name or position.

New readers might wonder why I am posting this. I have followed the farm boom and now bust from time to time and consider it part of the phenomenon surrounding the housing bubble.

Comment by Taxpayers
2017-05-22 15:14:47

Guess I have my answer in AG

Comment by oxide
2017-05-23 10:16:20

What’s ridiculous is that the farmers are growing corn, wheat, and soy, which are already subsidized. Imagine the losses if they tried to grow broccoli or tomatoes. How are the potato farmers doing?

Comment by Taxpayers
2017-05-22 15:20:30

Guess I have my answer on AG

Comment by Blue Skye
2017-05-22 16:10:19

It is intertwined with the global housing bubble. The more construction, the more energy and commodities are consumed, and in the mania investors bid up the future price of everything. If the Chinese aren’t building so many empty cities, the price of oil and metals goes down. The price of other things seems to follow along in slow motion.

There remains considerable downside just to return to before the greatest expansion of credit in history got a head of steam. Many foolish debtor speculators need to be wrung out.

Comment by PitchforkPurveyor
2017-05-22 21:43:22

Lumber prices are at all time highs here. The loggers are out in full force.

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Comment by Blue Skye
2017-05-23 05:41:54

“all time highs”

That’s interesting. Wholesale douglas fir logs price for export is rather flat. I wonder what the explanation is.

Comment by PitchforkPurveyor
2017-05-23 10:29:24

I should clarify that late April brought the highest prices. The last few weeks, prices have slowly retreated.

Comment by PitchforkPurveyor
2017-05-23 14:21:57
Comment by Blue Skye
2017-05-23 19:27:19

I see. I was looking at a 20 year graph and didn’t notice anything much.

Comment by Prime_Is_Contained
2017-05-23 00:54:44

It is intertwined with the global housing bubble. The more construction, the more energy and commodities are consumed,

Blue, that explanation made sense during the housing boom, but makes no sense for the period that commodities were skyrocketing while building was in the toilet; commodities were also massively impacted by the tsunami of free money unleashed by the central banks—notice that the commodity peak was 6-7yrs AFTER the housing bubble started to decline (taking building with it).

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Comment by Blue Skye
2017-05-23 05:54:51

This is why I am interested in what is going on in China. They did their “miracle” credit based expansion after the US housing bubble peak. The “China used more cement in 3 years than the US did in the previous century” thing came after the housing bust in the US. The Chinese building frenzy may have peaked in 2014. The overall commodity index peaked in ‘08 and again in ‘11 and fell significantly in ‘14. China had another burst of stimulation in ‘16 and commodities started to rise.

Metals, energy, ag raw materials all followed about the same pattern.

Comment by scdave
2017-05-22 15:59:39

Nice posts today on AG Ben.

Comment by palmetto
2017-05-22 16:19:38


Comment by phony scandals
2017-05-23 06:39:00



Although following sc’s post when I looked it up I thought I was gong to find “brown noser”.

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Comment by Ben Jones
2017-05-22 15:30:18

This is from last February:

‘Agricultural land values in the Central Valley, and Kern County, have slipped a bit but most analysts aren’t worried about a major drop. Though water will become a larger question mark in coming years. For now, analysts are looking at the recent dip in values as more of a “breather” from the meteoric rates at which ag land values shot up between 2010 and 2015.’

‘Does that mean high values are a bubble?’

No, said Roland Fumasi, an analyst with Rabobank’s Fresno-based RaboResearch Food & Agribusiness division. “Because prices are supported by economic reasons,” he said.’

This is what I’m talking about:

‘the meteoric rates at which ag land values shot up between 2010 and 2015′

Comment by azdude
2017-05-22 15:39:17

do u remember when crisp and cole real estate hosed all those folks in bakersfield? I guess they have a bunch of million dollar homes there now.

I guess they like driving over the grapevine to so cal for work.

Comment by Ben Jones
2017-05-22 20:06:22

‘the recent dip in values as more of a “breather” from the meteoric rates at which ag land values shot up between 2010 and 2015′

And what happened in this period? Global QE, the Chinese poured 100 years of concrete in 3, and commodities of all sorts went up like a rocket.

Comment by palmetto
2017-05-22 15:37:04

“Randy Dickhut”

Am I the only one who started howling with laughter upon reading that improbable name? It’s like his parents knew their little bundle of joy would one day be commenting on the housing bubble in the press.

Comment by sod
2017-05-22 17:52:16

No, you weren’t the only one laughing!

Comment by Mugsy
2017-05-23 03:51:30

I wanted to be the adult in the room but yes, I did start snickering.

Comment by Ben Jones
2017-05-22 15:41:08

‘Pork may be hogging menues in Vietnam’s factories and army canteens for some time to come, as the country tries to keep pig farmers stricken by a glut in supply from going under. Millions of farmers are struggling after China began blocking imports from Vietnam in November. Pork prices fell to as low as $1 per kilogram in early May, less than half the price a year earlier. So far, a surplus of 300,000 tons to 400,000 tons has accumulated, according to state media.’

‘Farmers Do Huu Thuyen lost all his savings when pork prices recently crashed to record lows. “The price of pork has never been cheaper,” said Thuyen at his farm in Xuan Son, a village about 55 kilometers (34 miles) northwest of Hanoi.’

‘Thuyen, 42, says his farm was worth tens of billions of dong (hundreds of thousands of dollars), when he mortgaged his home to expand his herd to 170 breeding pigs and 400 pigs for slaughter. He hasn’t sold a single piglet in the last three months because with pork prices so low, nobody wants to raise them.’

‘In six months he lost 2 billion dong ($88,000) or 10 years’ worth of savings, he says. “I could go bankrupt, if the price stays the same,” he said.’

‘Thuyen said he is losing 1.5 million dong ($66) for every pig he sells. “I am waiting for the bank to come to seize my house,” he said. “I may have to work as a construction worker to make ends meet.”

Comment by new attitude
2017-05-22 15:56:30

Losing your dong like that on every sale has to hurt.

Comment by Blue Skye
2017-05-22 16:14:44

He didn’t lose his “savings”. What a lying debt speculator. He lost a gamble, which he backed with his deed.

Grampa used to play the horses. He always said “don’t bet what you are not willing to lose.”

Comment by Mugsy
2017-05-23 03:52:43

Losing that much of your dong has to be painful.

Comment by oxide
2017-05-23 05:17:30

Some “adult in the room” *you* are. :roll: :razz:

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Comment by tango_uniform
2017-05-23 17:12:36

Sounds like a good telegram from a broker:


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Comment by Ben Jones
2017-05-22 15:53:16

‘In recent weeks, on the U.S. side of the border with Canada, much noise has been made about a festering dispute with our Canadian neighbors over ultra-filtered milk in U.S.-Canadian dairy trade.’

‘From 2011 to 2016, U.S. exports of ultra-filtered milk to Canada increased from $33 million, (US) to $98 million; a threefold increase. Industry observers suggest that U.S. milk handlers have been using Canada as a “safety valve” for an ever increasing tidal wave of unrestrained, irresponsible U.S. surplus milk production.’

‘Canada’s contention that U.S. over-production of milk is the real cause of U.S. dairy farmers’ difficulties has a solid basis in fact. For the last three spring seasons vast amounts of U.S. milk have had to be dumped because milk supplies out stripped U.S. processing capacity. More than 400 tractor trailer loads of milk per month were dumped on several occasions in Federal Milk Marketing Order No. 1 alone.’

‘According to data from the American Farm Bureau Federation, year over year U.S. milk production is up 1.8 percent nationwide, but production on the U.S. side of the Great Lakes Basin is running rampant: Wisconsin is up 3.8 percent, New York up 4.7 percent and Michigan an astounding 6.1 percent on what was an already glutted market. Based on recently analyzed data, Michigan is the major culprit, with a gob smacking 21 percent increase in milk production since 2013, with no corresponding increase of in-state milk processing facilities.’

‘Also, certain U.S. politicians deserve censure for their culpability in creating this mess. Back in 2011, those of long memory will recall New York Gov. Cuomo and senior U.S. Sen. Charles Schumer standing shoulder to shoulder enthusing that New York dairy farmers needed to ramp-up New York milk production by 25 percent to fill the anticipated Greek yogurt plants they fantasized were going to lift Upstate New York’s economy out of perpetual malaise. The yogurt boom went bust, but Cuomo and Schumer have never acknowledged responsibility for the overproduction they encouraged and fostered with their foolish, unfounded optimism.’

‘An old axiom wisely states: “When one finds oneself in a hole, the best first option is to stop digging!” U.S. dairy farmers, dairy industry executives and feckless politicians would do well to reflect on this thought before sophomorically demanding a Canadian solution to what is clearly a homegrown American problem: gross overproduction of milk on U.S. farms.’

‘This is not rocket science; currently U.S. dairy farmers have dug themselves into an enormous hole filled with surplus, homeless and ultimately worthless milk; it is long past time they quit digging, take honest stock of their situation, stop blaming Canada and heal this self-inflicted wound by bringing the U.S. milk supply into some semblance of balance with market demand.’

Comment by Blue Skye
2017-05-22 16:36:58

I don’t know about yogurt, but cheese in Canada is ridiculous expensive. If there is no demand for cheaper milk in Canada, I wonder why they have to block and mock the import of it.

Comment by AbsoluteBeginner
2017-05-22 21:04:00

Man, I love Greek yogurt. If they could get the price lower to compete with regular yogurt I could see more people buying it.

Comment by oxide
2017-05-23 06:51:51

Surplus and homeless milk? I guess that explains the explosion of whey powder in the stores. Maybe they ought to ramp up the government cheese too.

Comment by junior_kai
2017-05-22 17:03:21

These gluts never result in dramatically lowered prices for the consumer, do they? At least the big producers never sacrifice on price, the mom and pop places will sell things for a song. Just a few weeks ago I scored fresh marlin for $2.99/lb. My eyes almost popped out of my head, I bought it and got out of there before they might have acknowledged some error and was happily knee deep in ceviche for days.

Comment by Raymond K Hessel
2017-05-22 19:32:38

Oh dear. I await ABQ Dan’s mental gymnastics as he explains how this is actually bullish for China.

Comment by Ben Jones
2017-05-22 19:41:33

‘Unless people are burning down forests to create more arable land, it’s pretty much a fixed thing’

That’s exactly what’s been happening. I posted a Bloomberg report saying since the commodity boom, 83 million acres of production were created in places like Brazil. An amazing amount of fish farming was built in Asia. And a lot of land everywhere that ordinarily wouldn’t have been put into food production was converted from other uses.

Comment by Rental Watch
2017-05-23 17:29:55

I don’t think the economics are there yet, but vertical farming in warehouses is being attempted (

Just like building condos effectively creates residential land, vertical farming effectively creates arable land.

We shall see if it actually takes hold.

Comment by DirtyLawyer
2017-05-22 20:21:54

Found this nice exchange on FB re: real estate supply/demand/price in Ada County, Idaho…I am seeing more and more “chatter” re: real estate prices, and reading comments is priceless…

Person 1: The bubble is growing too fast… and guess what’s going to happen? Just like in 08, the real estate bubble bursts and people will be stuck with mortgages 30-40% more than their homes are worth.

Person 2: This is nothing like 08. You don’t have banks giving loans with no income or asset documentation to sub prime borrowers with no money down, the overwhelming majority of loans originated in the last 8 years have been 30 year fixed loans so we won’t have the wave of rate adjustments that triggered the foreclosures, and this is being fueled by real population growth and low inventory, not inflated appraisals with unrealistic abilities of qualifying.

Person 1: It’s not like that??? Look at our fha loans dude. Look at the programs to assist people who can’t even make a down payment.

Person 2: FHA loans are self insuring unlike conventional loans, so their default rate is irrelevant. The crazy loans from pre recession were all conventional loans which rely on funding from outside investors and over leveraged mortgage insurance companies. Can’t have the same effect on the economy. Trust me, from someone in the business, this is NOTHING like what it was before. Real growth factors vs artificial. New home construction is still nowhere near where it was nor where it needs to be to be able to keep up with this demand.

Comment by sod
2017-05-23 04:11:01

“this is being fueled by real population growth and low inventory”

When I worked fast food in my teens, a “normal” business day was fairly well defined: customer rushes within a couple hour window around breakfast, lunch, and dinner times - and if the store was open late enough, after the bars closed, and then onesie twosies to fill in the gaps between rushes.

Occasionally, you’d get a bus which caused panic and upheaval. Grills would be loaded with patties, baskets of fries and nuggets went down etc. The bus would either be some kind of school team or tourists.

Who exactly is it that’s getting off the housing bus that seems to be pulling into every city and town in the nation?

Comment by Young Deezy
2017-05-23 07:48:01

the Chinese.

Comment by Maldonash
2017-05-23 19:05:42


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Comment by Prime_Is_Contained
2017-05-23 22:34:36


Comment by Neuromance
2017-05-23 04:30:31

It’s helpful to break out the demand into “speculative demand” and “consumption demand”.

Aggregate demand for houses is a function of multiple factors: “Aggregate demand for houses = f(a,b,c,d,…n)”, not “Aggregate demand for houses = f(a)”.

Part of that is population. Part of that is speculation. The speculative component leads to volatility in the market. Demand based on population growth and wage growth is more stable.

Comment by Neuromance
2017-05-23 04:26:03

When supply and demand finally reach an equilibrium in a speculative bubble, it’s then the bubble bursts:

Comment by Mr. Banker
2017-05-23 05:31:35

From 2014 …

“Ethanol, gasoline, crude oil and corn prices: Are the relationships changing?”

Comment by Mr. Banker
2017-05-23 05:40:14

An excerpt …

“Figure 6 shows the relationship between corn and ethanol prices. Ethanol and distillers grain and solubles (DGS) have become the second-largest source of demand for U.S. corn. In the current marketing year, this demand is projected to use 36% of last year’s U.S. corn crop. (3) Because of this, corn prices have moved in a close relationship with ethanol prices since mid-2007, except for 2012 and the first two-thirds of 2013 when corn prices were driven by very tight drought-reduced supplies. Before mid-2007, corn faced a chronic surplus supply-demand situation except in years of major weather problems. With the rapid expansion of ethanol production capacity, corn, from mid-2007 through 2013, became the limiting factor in the ethanol supply chain. That caused corn prices to be bid up until they reached the breakeven level for ethanol producers and the capacity expansion stopped.”

Comment by Mr. Banker
2017-05-23 05:44:41

If corn prices track oil prices and land prices for growing corn track corn prices then it follows that land prices for growing corn track oil prices.

Comment by Mr. Banker
2017-05-23 06:22:22

Carrying this thought to the next step …

If current and rising land prices are the reflection of an anticipated - ANTICIPATED - future rise in oil prices and this anticipated rise in the price of oil does not occur then the justification for the price of land vanishes if this anticipation for rising oil prices vanishes.

Comment by aNYCdj
Comment by Apartment 401
2017-05-23 05:44:16

I hope HBB poster frankie wasn’t attending a concert in Manchester last night :(

Comment by taxpayer
2017-05-23 06:11:07

with the rising sea levels I’m guessing coastal re is crashing

in 22151 re turning over fast even w the RIF threat

Comment by phony scandals
2017-05-23 09:15:53

A good hardy carbon tax along with a few more laps around the world on their jets and Leonardo Dicaprio, Al Gore and Barrack Obama will have those sea levels receding.


Comment by phony scandals
2017-05-23 06:46:32

Oversupply of Water Parks

This abandoned Disney water park has been rotting for over 15 years

Leanna Garfield
May 15, 2017, 11:05 AM

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