It’s good to be a farmer once again according to a story at Bloomberg about farm incomes – the key measure of profitability for those who work the land…
The best second-half for commodities in a generation is pushing U.S. farm incomes and agricultural land prices toward record highs.
While the 17 percent rise in the Thomson Reuters/Jefferies CRB Index of 19 raw materials since the end of June reflects higher prices for all commodities, agriculture led the biggest rally since 1972. Cotton prices surged 76 percent to a record, wheat jumped 48 percent and corn reached a two-year high.
At a time when the U.S. jobless rate is 9.6 percent and home prices are weakening, this year’s farm income may top the $87.3 billion reached in 2004, while cropland values will rise as much as 10 percent, said Neil Harl, an agricultural economist at Iowa State University and former adviser to the governments of Ukraine and the Czech Republic. The jump in commodities means more sales of Deere & Co. tractors and Mosaic Co. fertilizer.
From my perspective, the three biggest factors behind this trend of higher farm incomes continuing are:
- Deflation-fighting tactics by the Fed and Treasury pushing dollar-denominated ag commodity prices higher
- Continued demand for more and better food from the gentrifying third world and emerging nations
- Improvement in technology (seeds, equipment, fertilizers) that increase yields per acre and decrease adverse environmental/weather-related damage
High times for producers of ag commodities; we’ll see if that translates into success for my thesis holdings in ag stocks.