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marketeye
Veteran Advisor

Does $4 corn support $14,000+ per acre land?

I'm struck by this announcement that came into my inbox, this morning. The message came from an Illinois auction company. My question is how will $4 corn, maybe less, support this land price? Has anyone paid close to this price and figured out a way to make it work? I'd interested in your thoughts. Are the farm markets in an environment to support rising farmland prices? 

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Two farms in Dewitt County, Ill., sold for a total of $7,089,000 Tuesday in a Schrader auction that attracted more than 30 registered bidders and saw intense competition for the farmland, according to the Schrader press release.
 
The 255.7-acre farm offered in three tracts sold for $3,672,000, or $14,359 per acre. The second farm, which consisted of 285.4 acres offered in four tracts, sold for $3,417,000, or $11,972 per acre. The farms were located between Decatur and Clinton.
 
“These were great outcomes on both farms, with standing-room only crowds and solid participation from farmers and investors alike,” said R.D. Schrader, president of Schrader Real Estate and Auction Company, which marketed the properties and conducted the auction. “We're continuing to see auction results that reflect strong farmland values, because farmland remains a sound long-term investment,” said Schrader.
 
He added that operators continue to be strong bidders in land auctions. “When a farmer can add some land to extend his operations, he tends to be thinking long term. In some areas, a farm family may have to wait decades to have an opportunity to purchase a nearby farm, so it's not surprising when farmers emerge as the high bidders,” said Schrader.

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31 Replies
Slim123
Senior Contributor

Re: Does $4 corn support $14,000+ per acre land?

If a person has to ask someone on the internet if $4 corn will support $14000, he has not done his own homework. The buyer has to known what will work for him. It has a lot of different angles to this. Depends how much you put down. There has not been many times farmland would cash flow with nothing down. If that was the case everybody will be buying.

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jennys_mn
Veteran Advisor

Re: Does $4 corn support $14,000+ per acre land?

NO.

 

Jen

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minnisota
Veteran Contributor

Re: Does $4 corn support $14,000+ per acre land?

Only if you pay cash. And even then you gonna be a poor farmer.

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minnisota
Veteran Contributor

Re: Does $4 corn support $14,000+ per acre land?

But what the hell you bought that land you been wanting all your life.

 

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BA Deere
Honored Advisor

Re: Does $4 corn support $14,000+ per acre land?

It doesn`t matter what the price of land is, if it`s held in strong hands.  If land "gets cheap" no one will sell it, except to settle estates and such.  $4 corn shouldn`t weaken too many`s grip on land that there`d be a glut of land coming to market.  Interest rates are the thing to watch, I think alot of funny business was done to get some of this land bought, such as borrowing for crop inputs and then using that money as a farm downpayment.  Then there are some that will find out the ugly truth about the Section 179 depreciation....those payments on the new paint will have to be made with "after tax dollars", if it was borrowed...ouch!

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hardnox
Advisor

Re: Does $4 corn support $14,000+ per acre land?

Kinda hard to see how we can ever get away from ultra low interest rates. Stock market multiples, housing, bond values are now thoroughly dependent on cheap money and no alternative yield and the whole thing comes apart quickly, and in mutually reinforcing fashion, without it.

 

So I guess low rates are a good bet but I've decided to not make an appearance in The Truman Show and will just get poor slowly by not being in the stock or land markets.

 

I'm uneasy abuot the whole thing but have to say that isn't like 2007 where you could easily identify where ground zero was. And that isn't really fair, either, because I was jumping up and down about the mortgage market a good couple of years before that and it took several more years and was roundly denied by most everyone in government or finance until the very last few weeks or days.

 

The other assumption in high priced land is that the government will always continue to backstop commodity agriculture. That's also a fair bet into the foreseeable future and hangs on approximately the same continuity as intereest rates- it doesn't change until some form of market or geopolitical violence, currently unforseen, forces a quantum change in governance.

 

Until that day the directors of The Truman Show will continue to produce each episode which will look remarkably like the previous one.

 

 

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marketeye
Veteran Advisor

Re: Does $4 corn support $14,000+ per acre land?

Slim123,

 

Oh, I have a good idea that it doesn't make sense. But, this just isn't a one-time event. This kind of crazy buying has been going on for a few years now. So, I'm just wondering if somebody has figured out a way to make this work that I'm not thinking about. I get it that a farm across the road may not come back up for sale for generations. But, it has to be more than that, regarding why people keep paying astronomical amounts for land. Oh, and that saying of, "They ain't making any more of it." I'm not sure the banker gives a rip about that either, if you can't meet the loan.

So, it sounds like you are not sure how this works either?

 

Thanks,

 

Mike

 

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kraft-t
Senior Advisor

Re: Does $4 corn support $14,000+ per acre land?

Land does not have to cash flow. The buyer does and if he is willing to divert income from profitable enterprises to a non profitable land purchase, one day he will have another paid for asset that will generate income for decades to come.

 

I know their are fellows that bought land for $500 per acre to a $1000 per acre that are using profits from those enterprises to subsidize the purchase  of $10000 land. JUst because they can. Their revenues from all enterprises will subsidizes the purchase of excessively priced land.

 

Qhy would they do that. Because they are not in need of short term returns and will opt for long term gains. Maybe thinking about future generations more so than short term gains.

 

It's more like buying that $80K mercedes. You do it because you can. Not because it is the best investment you ever made. 

Slim123
Senior Contributor

Re: Does $4 corn support $14,000+ per acre land?

I am not buying $14000 acre land even if I had the full amount in the milk can. It will come down to a lower level. I am not going belittle someone for paying that much. It is none of my business to worry about how someone else is going to make his payments. That why I said each guy has to know his own finances .

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