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Red Steele
Veteran Advisor

Land Barometer...southern MN

September sale of 120 acres...$5200.....brought  60% of what the Blue Earth county assessors offfice had the property appaised at. Everyone was pooh poohing that this sale doesn't show anything, right?

 

It gets better or worse....new sale.....less than 50% of the county appraisel..same country.....$4550 per acre on a bigger farm ( nearly 200 acres.)

 

Maybe real estate taxes will come down just as fast?????

 

Not likely...still some people writing checks out for near $10,000 per acre on other test plot type parcels. But it does show that medium quality land is not selling very well at all.

 

Whats land doing in other areas? 

 

If corn goes under the $3 benchmark, where do you think land goes in 12 months? $3000 per acre???

 

 

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28 Replies
BA Deere
Honored Advisor

Re: Land Barometer...southern MN

Hopefully, for their own good those that were buying +$13,000 land a couple years ago were fully aware that it can go down as well as up with no limits.

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Red Steele
Veteran Advisor

Re: Land Barometer...southern MN

Well, the outlier sale not far from you BA, was right outside city limits Fairmont a couple of weeks ago for $9750. Guess three guys with plenty of money got into a measuring contest over a very nice quarter section. Almost $10,000 per tillable....you have to sell a lot of $3 corn to get your money back on that one!

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OKdon
Senior Contributor

Re:You fellers

Sound like you're going to land auctions and trying to squelch opposing bidders. 

 

There are two kinds of farmers. Those that have bought land and those that want  to. The naysayers will not be buyers. The guys in the coffee shop are not the buyers. And they are the same folks from decade to decade. 

 

Land was too high at a $1K per acre. It was too high at $2k per acre. It was too high at $5K per acre and it's too high at $10 K per acre. 

 

Of course it can and will go lower. There is a name for those that never buy.   They are called renters!

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bruce MN
Advisor

Re: Re:You fellers

What one should like to be is a renter with organically captive landlords.  What that makes for, along with generally good profitability and a nice retirement plan, is a person who is very very smart.

 

Downside is all of the mental fatigue that can be created from the need to heavily rationalize that nobody recognizes the setup, and that you are just like every other humble feeder of the world.

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BA Deere
Honored Advisor

Re: Re:You fellers

Well Don, if a couple years ago when we were thinking corn was at a new plateau of $5 and it might possibly go to $12.  If a guy at a land aution was being begged by a ringman to go to "$14,500? They ain`t makin` anymore of it!"  if Jesus Christ whispered in that guy`s ear "Cash corn will be $3.25 in 2016, your cost of production will be $3.85. Corn may drop to $2.90 by the fall of 2016...Do you still want to bid $14,500?"  

 

Now, I don`t know, maybe some of these guys secretly won $100 million in the Powerball or a old aunt heir to a cardboard box company left them $50 million...maybe the laws of normal economics don`t apply to them. And they want a piece of ground that completes their ownership of the section and they know it`ll maybe be 50 years before it comes up for sale again.  They want to buy at any price just to own it and if it drops to $500/acre they won`t lose sleep over it..well that`s a different story. 

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BA Deere
Honored Advisor

Re: Re:You fellers

The thing is a rental lease might be for a year or 3 then there is a sundown.  But a mortgage is 20 years, about "year 9" with 11 more to go on a farm that`s worth 1/2 what was paid, might get a little old.

 

Or maybe inflation will bail us out as it has in the past or is "this time different"? 

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OKdon
Senior Contributor

Re: Re:You fellers

That is why it is important that you cash flow not wheather the new purchase cash flows. Like two guys buying a mercedes. One guy can pay cash and the other finance it. It may not be a bargain but one might survive and the other not.

 

Getting back to land. if you think the purchase is a short term deal or an intergenerational commitment. When my dad inherited his 100 acres it was worth $100 peracre but there was more than that owed against it. He lived through the depression and he finally paid it off and my mother just passed some 80 years later. All this time the land has produced an income for the family. Does it really matter that it was $100 per acre or $500 some 80 years later. What mattered is whether he could handle the debt and pay it off,

 

So look at the value from your point of view but remember the other guy has his point of view and if he wants a particular parcel he may decide according to his perception. Land values has no particular obligation to sell for what you want it to.

 

I've never bought a farm that was worth what I paid of it. It was only afterwards that It became obvious.

 

 

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Red Steele
Veteran Advisor

Lots of reasons

Many reasons to buy land, lots of them good ones. But ignoring economic reality and then later asking for bailouts should not be something that is part of the rural landscape. The late coop manager for a small local entity got into a fair amount of hot water in the 1980's for sending out the news lettter with his own editorialized comments....saying that any business on mainstreet that ignored basic liquidity ratios, profitablitiy ratios, cash flow, etc. and operated like some farmers did, should rightly fail and deadbeat farmers should not expect special treatment. He watched enough deadbeats avoid their obligations.....and the rest of us thrifty folks had to pick up the tab for the "shifty" ones.

 

The values that made America great....basic conservative thrift and savings, Horatio Alger hardwork, etc....have been replaced with the lottery jackpot mentality. I guess even people from Canada are streaming down and standing in line to buy lottery tickets with the chance to be a billionaire. Hey, if a Canadian can run for POTUS, why can't they win the USA lottery, too eh? lol Personally, I think that lotteries are a sign of moral decay, and no better for the USA than the Kardashians, but maybe that just my Norwegian Lutheran upbringing.....even bingo was frowned upon.

 

A profitable Iowa livestock operation, that pays cash to lock up a prime producing 80 to spread animal waste on can probably justify the $15,000 per acre purchase price and move on. They had(have) the money and need the ground for expansion. THose elsewhere that thought $8 corn was going to pay back purchases are finding the laws of supply and demand have not yet been totally repealed, as much as the funny money folks would have us believe. My two cents.

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BA Deere
Honored Advisor

Re: Re:You fellers

I see what you mean Don, but if you buy land in a bubble (like in the last 5 yrs) and then have to make payments with what looks like will be below C.O.P grain prices, a guy could go broke in a hurry. 

 

I mean if a farm was $2,000 back 15 yrs ago, 10 yrs ago it was $5,000, 5 yrs ago it was $13,000...Well, unless we are in some sort of "V bottom" the guy that bought 15 yrs ago is okay it`s probably paid off actually.  The guy that bought 10 yrs ago @ $5,000 is above water and has quite a few payments under his belt. 

 

The guy that paid $13,000 5 yrs ago, now has obviously paid too much...maybe he paid cash...maybe he only has $2,000 borrowed against it...maybe it`s only a 80 and he already owns 1,000 acres free and clear.  So, just because he paid too much due to a mid-life crisis doesn`t mean it`s a disaster for him, everyone`s situation is different.

 

But the guy that bought his "first farm" in the peak of the bubble and was planning on making payments solely from the sale of grain....Uff-dah.

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