01-20-2012 11:51 AM
Had a chance to sit in on part of the Land Investment Expo this morning -- they had a gentleman with a New York-based investment firm talk about farm land values and where he sees them headed. There are a lot of moving targets to his argument, but the main point is that if all the pieces come together and we see a surge in the stock market, that could drag farm land values lower as more investment money that's been in the land market heads back to the equities. He didn't really speak to some of the ag fundamentals keeping land higher, though, aside from saying he expects corn to dip to below $5/bushel at some point during the year.
It was a pretty interesting discussion, I thought. Certainly a lot going on in this economic picture to keep an eye on as it pertains to the ag sector. What do you think? Think there's merit to his arguments?
01-20-2012 03:26 PM
012 could be the only time we ever see maybe some $4.50 cash corn and a bunch of $20k to 30k p acre land in the Midwest.
Take the DOW level as an index @ the current 12,500 level and multiply by 1.5 for reasonable per acre price of Good dirt in good areas.
The USA is likely finally moving the land market to levels the Europeons achieved 25 years ago. ( 40 to 50k p acre dirt there ).
Keep in mind CASH land earnings per unit of vested capital are 20X better than the earnings multiple of most usa stocks.
There is NO true business diametric that exists in the usa to adjust stock earnings multiples.
The Whole deal is totally consolidated.
It's supposedly "trickle down" with the consuming end locked into a govt driven Debt and not equity living arrangement for those consumers.
AND the same consuming public pays the bulk of all usa taxes while most corps / business live off no tax but plenty of supposed depreciation w captial gains and supposed capital losses too.
01-21-2012 07:15 AM
The investment graveyard is full of people who were certain that a market couldn't possibly do something but I don't see the stock market going into long term bull mode.
Regardless I don't see the stock market as terrribly important to land prices at this point other than they are probably in the intermediate term more positively correlated than negatively. In the "all one market" scenario if there is enough liquidity to elevate the stock market then the commodities also remain spunky and the land trend continues.
And you have to be blind to not see the remarkable correlations between all asset classes in recent years and you don't need to be a great student of history to know how anolalous that is.
I think the greater concern is crude oil prices. If, and a big if, geopolitical concerns subside I think crude is heading for a tumble. That has some direct influence on grain prices via ethanol and biodiesel. But I think the greater impact is indirect as I think the "dollar hedge" meme that drove the gartantuan flows into commodity investments would begin to fray.
I think that buying farmland that pays $350 rent after p-tax for $10k is a little like chasing yields on junk bonds. The market makes you want to do it because it doesn't offer any other obvious decent yield and at the right point in the cycle you're a genius because not only are you getting a high yield but the value of the bond is rising as everyone else recognizes the same thing. But if you don't sell into the rising side of the cycle you can very easily lose 10s of percent for having chased 3% in yield.
The good thing about junk bonds versus farmland is that they tend to be liquid. There is almost always some bid and in most cases you can sell them with the click of a mouse. Farmland is pretty illiquid.
The good thing about land is that even if it marks down 50% you'll still have something and something that spins off some yield.
Of course the real elephant is interest rates. The Fed says 0 bound forever and I don't have a better crystal ball than anyone else. But when every one knows something, that is why they call them surprises.