Big-time land sale

[Jeff_a_Caldwell]

Saw this report yesterday and am doing a little digging to find out more this morning. Latest land sale up in NW IA ended up with the land selling for just shy of $22K/acre. So, is the seller getting away with murder, or will it cash-flow? 

Here's a brief on it. I'd love to hear if anybody has any knowledge of the situation or feelings about it otherwise! 

[kraft-t]

The big question is---How high will land prices go before you (any landowner) becomes a seller rather than a buyer or holder?

I never thought I would see $900 per acre land go to $10,000. Not when I bought it. This iike holding $17 beans to wait for $20 and when it gets to $20 we will want $25.

[Jeff_a_Caldwell]

Very good thoughts, Kraft-t! So, at this point, what price point do you think that will be, when those folks become sellers like you say? And, what do you think that then does to the marketplace? 

[kraft-t]

I don't think it will be a given price. I think it will be a price break like it was during  the 80's.Like those of us that held $17 beans waiting for who knows would be enough. Once they dropped below $15 we decided $17 was a good price. We still wont sell until they drop below $14.

In our case we have the mindset to leave it for the next generation no matter what it is worth. Perhaps that is because it was so hard to buy it and get it paid for. And we probably have emotional ties to it.

[Taylor ECIL]

I believe it will be a few things working together. Prices contracting to $3-4 per bushel corn. Interest rates going up to 8-10%. Collapse of either our economy or Europe's economy with no more bailout money available. Any one or combination will cause a free fall in prices. Then again I wish I would have been farming long enough 8 years ago (when I started) to be able to buy ground at $4000 an acre so maybe I'm just bitter. 🙂 I cannot justify $10,000 let alone $22,000 ground. Oh well, I will continue saving hoping to buy some eventually.

[Nebrfarmr]

It depends.  How much of the money, did the buyer have?  If they had all, or even most of it, the return on investment is still far greater than having the money in the bank, and with little risk, provided they are able to keep it long-term.

I have gone to seminars and conferences, where the experts have said that land does not have to cash-flow, as over time inflation will allow it to pay for itself, and all you have to do, is not farm at a loss, run enough acres, and one or two really good years, will go a long way to paying it off.   I guess as long as you aren't borrowing much of the money, to have to worry about being upside down on the land, in the event of a value drop, it might work.

I wonder if the buyer didn't want to expand a bit, to gain more land base, possibly to help support another family member down the road, and saw this as a rare opportunity to gain control of more land.

[gurly3801539]

That is our mindset also Kraft-T.  We will hold it for retirement income and leave it for the next generation.  In our area at this time I don't think enough will come on the market for profit purposes to effect the market much.  Mostly farmer and family owned and won't go to sale just for profit.

[Nebrfarmr]

And if corn 'stays' at $6, maybe you have enough ground already, to make a good living, without expanding much.

[kraft-t]

Taylor, it was pretty hard to accumulate down stroke money with corn at $2 or less. My first attempt was to buy a 80 for $700 per acre but the banker said I wasn't ready yet. I was ready but he wasn't. I wasn't smart enough to try another banker.

In the mean time land prices rose from $700 to $3200 plus in our area before the decline of the 80's. At which time I was able to buy 120 acres with $25K down on contract with a balloon payment at the end of 10 years. If not for the reset gaining enough down payment would have been virtually impossible.

That said, the 80's reset our mindset as well. The lust for new equipment was tamed and our focus on debt retirement as we paid for that first farm.

The point being if land ownership is an objective then you must put your focus on that objective and do what is necessary to make that possible. That may mean buy less "stuff" and saving for land. Or buying in smaller bites such as a 40 acre plot or partner up to buy an 80.

[Taylor ECIL]

I am out of equipment debt and now working to get the banker out of my pocket. Then I'll start putting more toward the land fund. No new paint around here....all my equipment is old enough to drink. A few are starting to apply for SSI. It's all in good shape, I just can't justify buying new equipment if older stuff will work.

I have spent this good upswing in Ag by getting out of debt.