So the stock market tanked yet again today. I thought it was going to hold at around -150, but boy was I surprised when it took the nose dive in the last hour. Wow... 678 points in the hole? Amazing. That's over a trillion dollars moving out of the market, if I'm not mistaken. But if you think that's big, just you wait. There's another mega-flop coming, in my opinion...
Remember when corn was $1.50 a bushel, and farm land was around $1,500 an acre? Well, as we all now know, thanks to ethanol fuel, the demand for corn has gone way up. It's at $7 a bushel. The big spike in demand for corn has caused the value of farm land to go on a meteoric rise to around $10,000 an acre as a result. Here's what most of you missed...
When the land value jumped like it did, the farmers saw an opportunity to refinance their land and hedge their income against taxation. We all know that the best tax shelter is real estate. So they refinanced their $1,500 an acre land with mega-loans at $10,000 an acre. Well guess what? The demand on fuel is dropping like a rock. Travel demand is down globally. The proof? The price of oil per barrel dropped from the record-breaking peak of $145 to $86.80 today (Thursday, October 9th, 2008).
Mark my words, the price of corn will go down along with the decrease in travel demand. Biofuel demand must go down as travel demand goes down. With the demand on the decline, the price per bushel for corn is going to take a vacation.
Now here's the $10,000 question: What do you think the value of the farm land will be once the corn market softens up and returns to normal levels?
If you guessed NOT $10,000 to the $10,000 question, you guessed right! So let's say farmer Bob has a $10,000,000 loan on his super duper corn kingdom, and the price of corn drops through the bucket. How is he going to make his loan payment? He can't, because his revenue stream will be hacked back down to the ground. And who is going to bail him out? Yes, the government. Just like we always do. Traditionally, this country has bailed out farmers throughout history because we can't live without them.
So if you think the defaults on the $200,000 to $400,000 home loans was bad, wait and see what happens when our farmers get caught in the trick bag of the falling markets.
Then you can say you heard it here... on the Carlton Zone!
I hope I'm wrong!
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