That is actually a topic that I have been wondering about lately (especially sense I purchased land towards the top ... although ours isn't good row crop ground). Yesterday I was checking out Allan Nation's blog and ran across his thoughts on the farmland price run up and the possible run down. Take the link above and scroll down to the post titled, "Is Farmland the Next Asset to Collapse?" from October, 13th.Basically Mr. Nation writes that the cash rent will actually be the first to go because of the falling grain prices (he mentions $3.50 and $8.00 for corn and beans respectively at the moment, which is about or slightly less than the farmers would get for selling right now). If those lower prices hold (really no telling what it will do, but if the markets stay down than they might also) then it is going to make it a little difficult at times to pay the current cash rent prices with the income you make from an acre of corn/beans.
Mr. Nation theorizes that then we could see a drop in land prices in around 2010 or 2011... I'm not sure where I land on all of this, but I know that I have talked with quite a few people about it from time to time trying to get a handle on the subject. On one hand many of the farmers that I talk with don't think there will be quite the bubble burst as there was in the 80's farm crisis because there is a bit more capital behind some of the purchases today. But, on the other hand there is beginning to be a sense that $8,000 an acre and up for crop land might be a little too high in the long run.
I know what I would like to see happen ... I wouldn't mind seeing things just kind of hold steady and then bottom out in about ten years. That would give us some time to gain a little equity and savings and then swipe up a little more land when the price is right! But, I'm not holding my breath on that one :)
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From the number of Farm Land auctions in this Sundays Des Moines Register, I think many people of worried of land prices coming back to reality.
"...on the other hand there is beginning to be a sense that $8,000 an acre and up for crop land might be a little too high in the long run..."
Locally, a quarter section of land sold at auction last spring for around $1500/acre and I thought that was an outlandish price, I can't imagine paying $8000/acre (even if it was fertile Iowa cropland).
Even if farmland has doubled in price in the last 8-10 years, how could anybody actually think it would continue to increase at that rate? Did investors actually think that that $8000/acre farmland would be selling for $16000/acre in 2016, or $32000/acre in 2024?
Here is the Thumb of Michigan we're hoping prices will go down before too long. When we bought our 74 acre farm we planned to gradually buy up more property around the farm. Now that some farmers are paying $5000/acre and up we aren't buying. I just hope it is still available when this craziness is over.
Funny, earlier in the year we were kicking ourselves for contracting a small amount of soybeans at $9/bushel. Now we wish it was all contracted as prices zoom in on $7.
I wish we were doing things more like you and most of this wouldn't matter. :(
Rich, I'm not sure what investors thought. But, I'm guessing they weren't figuring on the land increasing as much as they were the commodity prices continuing to climb. Of course that isn't the case right now during the harvest season, but we will have to see what is in store after the crops are in.
If the 2008 recession is to be compared to the 70's recession, we could see land drop to a third of it's value. If you don't believe me, just research the historic prices of farm/ranch land on the internet. Just before any bubble the price runs up and up...guess we saw that in the housing bubble too. Well land is the same way. Commodity prices went through the roof in the last few years...people borrow to put more land in production...commodity prices fall and they can't make the payments on land and machinery. Next thing is you see more auctions and "FOR SALE" signs popping up. Just one last thing since you made it this far...we are heading for the "perfect storm" in agriculture real estate. Do you have any idea how old the average farmer/rancher in the U.S. is this year? Let me give you a hint. In Texas the average age of the farmer/rancher with 200+ acres is 75 years old. Can you imagine what is going to happen in the next couple of years when these folks decide they are too old to handle the chores or if they are lucky enough they died doing the chores. That's not meant to be cruel...but wouldn't you like to die doing something you love and with your boots on? Needless to say their heirs are more than likely going to need to sell the property fast to cover expenses and settle the estates. This will provde the greater supply of land than demand for land and will drive the price down. So in summary what is going to happen in the next few years? More and More land on the market. Why? Flippers are stuck with what they can't sell from 06, 07, and 08. Banks won't loan...Commodity prices are going to stay low....Recession....nobody will be spending...and the aging farmer/rancher. Has this happened before? Yes. Let me give you a quick example which can be verified via internet data. In Texas, during the 70's recession land avg prices went from 1000/acre to 300/acre over a 5 year period. Has it already started? yes it has. Since 2006 the number of properties listed with MLS has amost tripled across the US. Good luck all but the time will come that farmers and ranchers will be able to pay fair ag values for land. It always comes back to fair ag values...something the realtors don't know and and sure don't want you buyers to know. Don't take my word...do your homework on historical prices for ag land you find we tend to repeat history.
It's all funny money.
At the height of the real estate bubble we were told our farm was worth $50 million. Two decades ago when we bought it we had paid about 1% of that. So now even if it is worth 10% of ridiculously high number we haven't lost anything. Heck, we've gained value by 1000% from when we bought - __if__ we wanted to sell. We never lost anything and we don't want to sell.
During the height of the bubble I asked our kids if we should sell off some of our land to get a lot of money - it was tempting, admittedly, it would make life a bit easier. They gave a unanimous "NO!" so we didn't. They stuck with the long term right decision.
The only thing I find annoying about the whole affair is that the towns reassessed at the higher values and tax at the new reassessed value. Fortunately for us we rebuilt a much, much smaller house so our taxes stayed about the same.
The reality is they're not making more land and I can't live on stock certificates. On land I can harvest wood to cook & heat with, I can grow food, I can raise animals, I can raise a family. Land is real and will carry us through the deepest depression.
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