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Senior Contributor

Faust- read what Michael Duffy, an economist in farm management says about land values

Faust- below is what Duffy, the Iowa State farmland "EXPERT" has just said about Iowa farmland values if or when we see $4.50 corn again. A 25% price decline would be around $3,500/acre on $14,000/acre dirt. A pretty good sized decline. I think the $3,500/acre drop he predicts could be going a little overboard. $4.50 corn and a normal yield, would work out to a 3.25% ROI Ratio. Below the long-term average of 4 to 6%, but not by much. What Duffy said is quoted below. Any opinions or thoughts on his predicted 25% decline in Iowa farmland values?




“You can’t continue to see the price increases in land like we’ve been seeing. That’s just heading for trouble,” said Michael Duffy, an economist in farm management at Iowa State University. If the price of a bushel of corn were to fall to $4.50 from about $7 now, farmland values could collapse by as much as 25 percent, he said.

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Re: Duffy land values - RSW does your 4 - 6 ROI include appreciation?

Real interesting.


Does the long term ROI include a 1, 2, or 3% appreciation amount?


I bet not, I bet the long term total return is 4 to 6% per year PLUS appreciation.   Please let  me know otherwise.


Your 3.25% figure is probably .............


200 bu (north of I80) times $4.50 equals 900 minus $400 inputs minus your $150 custom operator payment.

Net $350 per acre divided by $10,500 which is 3.33%.   I'm off a little with one assumption or another to get 3.25%


Thanks RSW

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Senior Contributor

Re: Duffy land values - RSW does your 4 - 6 ROI include appreciation?

Iowa guy1- yes, you are correct, the ROI Ratio I was talking about in my post was only for the return of producing corn in the North-Central part of Iowa and does not include the yearly appreciation rate. Move down to the southern part of Iowa, south of I-80, the Corn ROI would be much different because most of southern Iowa has much lower dirt CSR (Corn Suitability Ratings) value, which generally means a much lower corn yield. Taking the 2012 year marketing and farmland appreciation rates, the corn ROI was around 10% and the farmland appreciation rate, according to Duffy's 2012 Iowa State University Farmland Survey, the NC Iowa land value increase was 28%. Combine both the corn and land ROI Ratio's, you are at 38% for 2012. Going back to 2011, the corn return was 8.5%, but the NC Iowa farmland appreciation rate was close to 37% for Northern Iowa high quality (80+CSR Rating) dirt. Combine the 2 and the total 2011 year was 45.5%. So for just the 2 years of 2011 and 2012, the total, both corn+appreciation rate was 83.5%. So one way to look at these ROI Ratio's is that if you didn't take out any farm profits to live on and banked all your corn profits for 2011 and 2012+the dirt appreciation rates, your total Net Worth would have increased roughly 83.5%. So in 2010, if you started with a $10 Million net worth, by the end of 2012, it would be a rough $18.350,000.00. Although you need to take taxes out of the corn ROI, you can adjust that according to your tax bracket, so again the $18,350,000.00 net worth is just an "In the Ballpark" figure. And of, the combined land appreciation rates for the years 2011 and 2012 of 65%, again, only a "Paper Gain". You need to sell your land to get at the appreciation increase. Anyway, guess it looks pretty on the EXCEL Spreadsheet of your net worth, but that is all, unless you sell some of your land. Also, I believe NC Iowa is a shoe-in for a total 2013 farmland appreciation rate of 20% looking at the 1st 3 months of 2013 data.

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Re: Faust- read what Michael Duffy, an economist in farm management says about land values

Rsw -  I like Duffy, but I like RLI better.  I am not sure $4.50 corn will cause a 25% reduction or any reduction at all.  I believe that people are wanting to get their money into something "real" that will hold value and be a safe asset to have their fiat money in.  I think Farmland, Residential Real Estate and even Gold and Silver are great assets that will hold value.


This balloon has been going on for six years now, I mean . . . top to medium land prices went up $650 an acre in the past six months, third class crop land went up over $300, pasture and timber were also up.   I just think there is a lot more going on in these land markets than ROI and earnings.   I think with prices being paid for land of any kind we are not in a market worried about ROI, but worried about asset preservation.


The stock market is being inflated by Tarp and QE money and Bomber Ben, what real value does the fiat paper investment have?


I think people are rushing to get out of cash and get the money into hard assets which will still be here when the financial chaos we are headed into subsides.   When a person loses faith in a depreciating currency, unlimited printing of paper, and absolutely no restraint to bringing the costs of big government into line, then perhaps one seeks that asset which protects capital.  


No one has control over our government, they believe that more money printing and debt are the answer, when the dollar crashes, or is inflated to such a level it has lost its value, and the stock markets, bond markets, crash and burn and our economy is reduced to a wasteland, that is when those who purchased hard assets (even if they lose half the value) will have capital left to rebuild.


Kyle Bass on Bloomberg this morning, said that there is no way this position Burnake has taken to print money when ever necessary will result in what is now happening in Japan, and that Japan is just about finished.


Sooooooo . . . I think prices for hard assets may continue to climb, not because income or ROI justifies the price paid but because farmland, residential real estate, Gold, Silver or commodities in a grain bin is a safer place for a person trying to protect his ass-ets and his capital.  Owning hard assets lets a person escape to the peanut section, and out of the eye of the storm that our government created to destroy asset values of citizens locked into IRA, 401K or cash on hand.


So I disagree with Duffy to the extent that he believes the value of land has escalated because the price of grain, when in fact it may be the last best choice to protect assets and maintain capital.  If land goes down, it is still there, it will always be there, and it will always have a value and produce income.  Whereas, fiat currency is paper, no real intrinsic worth and is in the control of the government, and the Jews in New York who have adopted a carpetbagger attitude, to destroy our entire economy.  


Pass the popcorn and get me another Corona.   John.    

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Senior Contributor

Re: Duffy land values - RSW does your 4 - 6 ROI include appreciation?

For the past five years I have oftentimes wondered whether the dramatic price increases of corn was not so much a product of simple supply & demand market trading as it was a part of the larger story involving the intentional devaluation of the US dollar.


Viewed as a world commodity like oil, gold, or wheat; the price of corn does not seem all that overpriced at $6 or even $7. A bushel just seems to cost more because the fed is busily monetizing our debt by printing a whole lot more money. Like Iowa farmland, devalued currency only gives us the illusion of new wealth that may not be there.


Or as I tell my elderly mother. The good news is that we will all eventually be making $100K/year through our social security. The bad news will come the first time we try to buy a McDonalds hamburger without cheese for $68.


If that makes sense.





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Veteran Advisor

Re: Faust- read what Michael Duffy, an economist in farm management says about land values

Hi. A few months back I was at a meeting
And they had a "well known" market advisor
There. Following his "show" (which basicly
very negative..we should be selling...and
The weather was going to be good, we were
going to have "burdensome" supplies.

Anyhow, stamp was brought up, along with
Closing kcbot. Question was asked about
Land prices. He wasn't concerned. Alot of
The land now is bought by deep pockets.
Such as investors, and the big farmers...they'll
Pay more due to being next door...and they
Need to get rid of the they bid up.

How many young boys do you see buying
ground......but.....I have seen a few....going
Thru fcs and writing 40 ye notes (only
Way it will cash flow).

Why do you think prices are going down?

I couple of years ago I went to a conference and they said we were entering a new era, where commodies were up, and soon a food
Shortage due to world economy

Well I have to give them credit...yes less
Food due to wx...and all those people who talk about the growing population...a slight
Problem with that logic....most of the growing
Population have no money! ! How will it help
Demand when they make $1 per day. ??
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Veteran Advisor

Re: Duffy land values - RSW does your 4 - 6 ROI include appreciation?

That makes perfect sense, and I saw the same thing in 1979 and 1980. The government was out of control, the only sane place to have any money would be land , gold , or silver, and then Mr. Volker rode into dodge and shut the party down. Not sure if we will see a clamping down on this fiat party..if anything, Helicopter Ben Bernanke  would pour gasoline on a fire just to watch the flames. I am going to be like Faust on this round, and eat the popcorn and have another beer while things sort themselves out. Luckily in 1979 I had zero money to invest in land or other hard assets and didn't lose what I did not have.

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Senior Contributor

Re: Duffy land values - RSW does your 4 - 6 ROI include appreciation?

I still think in 3-5 years we will have an inflationary time period in our economy where inflation is more than 10% yearly. To hedge your families "Stored Wealth" that we have accumulated over the last 25 years or so, I think farmland is a good choice to try and store this wealth to maintain a constant buying power of your total assets over this possible high inflation time period. So yes, I believe that farmers you own farmland should just sit back and watch and do nothing currently.

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Senior Contributor

Re: Duffy land values - RSW does your 4 - 6 ROI include appreciation?



I concur. And not that it could ever happen here, but it is sometimes comforting to remember that during the German hyperinflation period of 1923-24, farmers survived and even thrived by bartering their foodstuffs, while city dwellers starved.


Whenever money dies in a country, it is never pretty.



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Senior Contributor

Re: Duffy land values - RSW does your 4 - 6 ROI include appreciation?

Packard27- yes, however I do feel the highest the yearly inflation rate would get would be 15 to 20% before the Federal Reserve puts the brakes on it. After the Federal Reserve applies the inflation brakes, then maybe a 2-3 year period of around 5 -10% inflation and then back to a 2-3% inflation rate after that. Either way, I think farmland will hold it's value pretty good during a inflationary time period. So for us farmland owners I think the best thing we can do is just sit tight and watch what happens. I like having something happen thhat requires no action on our part other than just sitting on the sidelines of the economic game.

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