Eight months ago, a farmer who signed a contract to sell corn got $3.75 a bushel. Today that same contract would pay $6.43. That’s a difference worth over $400 an acre for the average farm.
Farm incomes are up sharply. Last year they rose 37% after expenses. This year they may rise a similar amount. While the ag business has always had its ups and downs, this boom has been longer and stronger than most of those in the past.
Stock prices reflect this. Monsanto, Potash Corp, John Deere, and other agribusiness stocks have risen to internet-level p/e multiples. Private equity companies are investing in farmland and grain elevators. And former schoolteachers now advise farmers on futures trading.
The futures markets were invented in 1851 to help farmers manage the price they get for their crops. Let’s hope that when prices fall back again, America’s breadbasket won’t be set up for a sucker punch.
Douglas R. Tengdin, CFA
Chief Investment Officer
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