1. Weekend Reading: Just published in the AEPP (free access) with farmdoc colleagues "Coronavirus Impacts on Midwestern Row‐Crop Agriculture" onlinelibrary.wiley.com/doi/full/10.10…
2. Our main purpose in writing this paper was to show that the coronavirus pandemic simply added to the downward financial pressures on Corn Belt ag that have been building since 2014, when the long price boom ended.
3. This downward trend in returns is nicely summarized in this chart. The big soybean return in 2018 was MFP1. So any truly good news for crop farmers after 2013 was from gov't payments. Don't be put off by the x axis scale. Need to get that fixed.
4. The size of federal aid needed to keep Midwest row crop ag afloat has become massive. Over $30 billion this year.
5. Despite the massive federal aid there has been a growing cash flow crunch for Midwest crop farmers since 2014. This has caused farmers to run down their current assets and refinance debts.
6. Lots of people want to jump from the cash flow crunch to a 1980s style financial crisis. And it seems logical to make this leap given how low grain prices have been (until the last couple of months). Wasn't there a cash flow crunch in the early 80s?
7. That logic misses the other key driver of the 1980s farm financial crisis---interest rates. If there is one chart everyone interested in US farm finance should really pay attention to, it is this one. Treasury rates in 80s were 8-14%. Now just 1%!!!
8. The implication of the incredible decline in interest rates is that even with the cash flow crunch there is no evidence that farmland is over-priced. Cash rent ratio and interest rates are roughly in line. Compare that to the 80s. A clear bubble in hindsight.
9. If anything, farmland prices in the Midwest have been undervalued relative to income at the level of interest rates since 2014. This of course is only a rough valuation metric, but I think you get the picture.
10. Until interest rate increase a lot, don't expect much softness in Midwest farmland prices. And drum roll please...this means a 1980s style financial solvency crisis in Midwest ag won't happen because farm asset values are so well supported at current interest rates.
11. Classic example of cash flow poor-asset rich. And finally, the cash flow outlook has improved a lot since we finished this article in July and new crop 2020 corn futures were sitting at $3.20 and soybeans at $8.50. Now closer to $4 and $10.75. Happy days for awhile.

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More from @ScottIrwinUI

14 Oct
1. Very useful graphic @BrightonCap. Closest thing to hard data on COVID death rates. This measures the risk of getting COVID X risk of dying from COVID. The worst rate is 0.18% for NJ. Vast majority of states less than 0.1%, or less than 1 out of every 1,000 people.
@BrightonCap 2. I am not making this point to say anything one way or the other regarding COVID policy responses supported by people. Just interesting to me how different people react to this kind of risk but not others. So far, death risk for population as a whole is not very large.
@BrightonCap 3. Of course, this does not account for long-term health impacts to getting COVID, which are still very poorly understood. I know I don't want to take that risk if I can avoid it!
Read 4 tweets
2 Oct
1. Weekend Reading. With the USDA Oct Crop Production report coming up next week, thought it would be a good time to revisit this 2013 article: "Do Big Crops Get Bigger and Small Crops Get Smaller? Further Evidence on Smoothing in U.S. Department of Agriculture Forecasts"
2. The article was published in 2013 in the Journal of Agricultural and Applied Economics (the southern ag econ journal for you old timers out there). Free access here: ageconsearch.umn.edu/record/143639/
3. First want to say what a great experience it has been over the years publishing in the JAAE . I appreciate all the work the editors have done over the years. And Olga, one of my co-authors on the 2013 paper, is one of the new co-editors!
Read 16 tweets
30 Sep
1. Still thinking about the 255 million bushel corn stock surprise this morning. While we will never know for sure, I find it believable that the 2019 corn crop was over-estimated by that much. Some ways of thinking about it.
2. Let's start by assuming that the true size of 2019 corn crop was 13,360 mil bu, instead of the 13,620 revised number USDA released this morning. What combination of harvested acreage and yield gets us to 13,360 and does this seem sensible?
3. If we put all the adjustment down to 13,360 on harvested acreage at a yield of 167.4, then the true harvested acreage in 2019 was 79.8 mil acres not 81.3 million acres. That would be a drop of 1.5 million acres from official number.
Read 6 tweets
30 Sep
1. USDA really dropped a bullish stocks bomb on the corn market this morning. The 255 million bushel bullish stocks/usage surprise was the second largest in my records going back to 1983. Only rivalled by last year's 314 million bushel bullish surprise. Image
2. The bushel surprise number going back to the 1980s is not really a fair comparison since the size of usage has increases so much since then. Here are the stocks/usage surprises in % terms Image
3. Even in % terms the stocks/usage surprise was extremely bullish by historical standards. The surprise was 7.9%. Still second largest and on record and comparable only to last year and 2011. Dwarfs everything else. Image
Read 9 tweets
30 Sep
1. This allows me the opportunity to implore my friends at NASS to avoid the mistake they made last year by revising Sep 1 stocks later on without any new data. They did this last January, which is what Karen mentions here.
2. To recap: last January, USDA revised 2018/19 production, feed and residual use, AND ENDING STOCKS. This was a violation of what I previously thought was an unbreakable principle for a statistical agency in constructing crop balance sheets.
3. What is the unbreakable principle? Never, ever, ever change the quarterly stocks estimates after the fact without having Census data (and who really cares about that 5 years down the road?) This is supposed to be the number measured with the least error. Leave. It. Alone.
Read 7 tweets
25 Sep
1. Recommended Reading for the Day: Ran across this amazing review of a new book on wheat in the London Review of Books. The book "Amber Waves" looks interesting, but the review itself is not to be missed. lrb.co.uk/the-paper/v42/…
2. The review provides the best overview of the evolution of wheat breeding and processing technology I have ever seen. Plus interesting thoughts on our current "wheat industry" and consumption patterns. Very thought provoking.
3. Also made me ask why I am so fascinated with wheat being from Iowa. I think it reflects my regret at not going on the wheat harvest in the summer of 1976 after I graduated from high school. My Dad had it all set up.
Read 4 tweets

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