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sw363535
Honored Advisor

Re: Boom now...is a bust coming?

A couple of other things are unique to this time around.

Price has not been an incentive to sell land because there is nothing else to invest in worth owning------ and no one wants to pay the taxes.  Taxes remain high and will go higher-------- and nothing else is going to match the ROI when you combine the tax loss.  Example----- If farm land is returning 7% on appraisal, any other investment with the proceeds of sale, will have to earn 10-12% or more to compare after taxes are deducted from the sale.

I think that is a very conservative example---------- What do you think John?

 

 

The price of Farm acres have trippled in many areas over the last 7 years------------  When you think it through---------Many can't afford to sell it.   

 

As long as we are proping up our economy with low interest and growing the cost of government------- not much farm land is going to get dumped on an unwilling market.  ---------- brings up another point---------- This time is unique to the others Jeff, because there are so many investment pools and individuals from outside agriculture interested in buying land.  The $7 corn farmers may be making the last bid now, but a lot of bids have been pushed by outside investment.

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WCMO
Senior Advisor

Re: Boom now...is a bust coming?

Might be a combination of triggers that cause a "bust" (debt levels, interest rates, commodity prices, etc.), yet the "bust" doesn't really happen until there is too much for sale at too high a price.  At that point, the price/value falls.  If there aren't enough willing buyers, the price continues to fall until willing buyers step in and stop the slide.  Unless alot of guys are over-spending on equipment, there are alot of deep pockets out there for the time being.  I'd think we would see some damage to the equipment manufacturers/dealers before we see land prices collapse.  In the 1980's, we hit a period where there were essentially no land sales, then the "bust" -- more and more for sale at lower and lower prices.

highyields
Senior Contributor

Re: Boom now...is a bust coming?

Debt to asset ratio is just a number, numbers change quickly.   I know everyone says there is major money out here and there is, but some cash rents are extremely high.  the margins on that ground are already thin.  One guy here the neighbors figured had to lose close to $300/ac last year due to the drought and the highest price cash rent ever paid around home.   And I here the COOP and others tell me that farmers are still behind on there bills.   I'm not for sure how other places in the nation farm but here there are guys that buy all inputs and then borrow the money from the COOP for everything.  The guy at COOP told me that some of this guys  let $500,000 ride for about 11 months and then pay the bill and start over again. I'm a little concerned about hauling grain to COOP as well.  

Like stated before about machinery I saw a 4wd tractor, new the other day, it had triples all the way around, thats over $10,000 in tires!.    Yes its different this time.  Everything is bigger,  remember the pharse "to big to fail"  How far will the banks carrry these guys before they pull the plug?   In the 70's interest rates where raising during the boom.  this boom hit right when ink got cheap and printing money is in style.  

 

Someone asked when this boom started?  It was in 1999/2000 when commdoities hit a major low in that area, typical commodity cycle runs about 13-15 years on average.  

The problem is as an individual you are only farming during one to one and half waves, depending on when you enter the business depends on how "successul" you are to those on the outside looking in.   

  

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Re: Boom now...is a bust coming?

I think you are missing one point: until 2020 the world will add another 1 Billion + people in the category of middle class, from 2020 to 2030 another 1.5 billion. That is about 1/3 of the world’s population in the next 17 years or so entering the middle class, an unprecedented shift in the history of this planet . That means they will eat more meat! and how do you produce meat?  ... Corn and soybeans. Most of this will happen in Asia and they will not be able to produce the feed they need by raising yields (no more land there to take into production, productivity will not suffice). Yes, Brazil can and will produce more, but I say: corn soybeans will stay at historically high prices for  the foreseeable future baring some major economic cataclysm.  

So, no one knows what the market will bring in the near future as swings are driven by market irrationalities.  But the long term fundamentals, have never looked better for farm income to stay high for a good while….

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