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Senior Advisor

No Farmland Bubble?

U/Ill seems to think there is not a high chance that we're in a farmland bubble.  Land prices seem to be in line with rents and while both are likely to decrease in the foreseeable future, there doesn't seem to be a big chance of a bubble pop.

 

Do you think they have it right?

 

http://farmdocdaily.illinois.edu/2015/10/2016-farmland-price-outlook.html

 

"

Summary

The simple capitalization approach used in this article does not suggest that farmland is currently overpriced relative to the current cash rent and interest rate levels. Lower cash rents and higher interest rates could cause farmland price decreases, and downward pressures likely will be evident in the coming year. However, these factors will likely play out under rational adjustments to asset prices."

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16 Replies
Advisor

Re: No Farmland Bubble?

The bubble was on the operational side this time. Not land.

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Highlighted
Veteran Contributor

Re: No Farmland Bubble?

Hardnox;

  You are absolutely right-cash rents are where the bubble is. I have a highpriced 300 acres I'm rolling the dice on. Great yields and marketing saved my ### this year. Farmers are going to be reluctant let go of land and bankers will go along with them because of high yields we have seen. This is what really bugs me. I know farmers that the bank said no more high priced rent-you don't have the equity but I have never seen them say no to a person that has the equity.

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Advisor

Re: No Farmland Bubble?

East central Iowa farm, 160 acres, last 2 bids was by the same guy and still a no sale at 5600/acre. CSR low 60's. Interesting when your bidding against yourself.
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Honored Advisor

Re: No Farmland Bubble?

i`ve been hearing land selling around $8,000...that is to move it, now that land 3 years ago may have brought $12-13,000.  Looking at it as an investor a $8,000 farm will yield $250 rent before taxes and up keep, maybe a solid 2% return. 

 

There`s a "Bernie Sanders effect" though too that should be in the back of everyone`s minds.   That is, if the results in the next election the socialists win alot of the promised new increased spending will come from property taxes and estate tax.  You can`t pick up a section of Iowa land and flee to the Cayman Islands....  "John Galt" isn`t a farmer.

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Senior Advisor

Re: No Farmland Bubble?

Tree farmer,

Where was the farm?

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Advisor

Re: No Farmland Bubble?

Rent, high input costs, excess equipment (overpriced by tax policy) and of course we all want to spend some when we make it.

 

Granted it was totally hypothetical- not my circumstances- but I said a while back that large cash rent operations might want to consider a multi-year strategic retreat- get by with existing metal and drop the highest cost 10 or so % of ground each year for many.

 

As I also, not in the DNA of most who found themselves with that sudden windfall.

 

My guess is that bankers were mostly in the Hope mode last year but will be heading more toward Fear this winter.

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Advisor

Re: No Farmland Bubble?

PS. even though there will be a lot of pain for operators and lenders it doesn't have as broad of systemic implications as a land bubble does.

 

Even if net rent income goes to $200 or below on prime land it isn't going to collapse in price as long as the interest rate is 0.

 

Which may be a long time.

 

Or negative interest rates at which point it gets like when you get near a black hole- everything you thought you knew about physics (economics) no longer applies.

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Senior Contributor

Re: No Farmland Bubble?

This time is different.

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Honored Advisor

Re: No Farmland Bubble?

Packard please explain how this time is different?  I appreiate the answer

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