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vrbuck
Advisor

For farmer hoping farmland crashes

https://www.dtnpf.com/agriculture/web/ag/news/article/2016/08/11/land-market-shakes-commodity-crash?.... With these prices all land corrected was 1-3 percent down. It looks like we are well supported long term.
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6 Replies
hardnox
Advisor

Re: For farmer hoping farmland crashes

With the concentration of wealth out there, as I've said, people can take a 1% cash return and dig a moat around it, float the yatch around.

 

Now if the base short interest rate went back to a more historically normal 4% or so, that might be a different story.

 

8%, fergeddaboudit, and the generation long asset appreciation levered off of falling rates will shake the whole system mightily.

 

The big question for everything, really. How long and how far can we go with polices that are highly preferential to capital?

 

A while, I'm guessing.

 

But I'll still bet that over the next 10 years land bought near the top will yield, at best, 0 when you count rental income plus capital gain/loss.

 

 

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hardnox
Advisor

Re: For farmer hoping farmland crashes

If you assume a 3% cash return off 10-15K land, and that's hard to come by now other than for a farmer figuring free equipment and labor, then that assumes a 30% slide off the highs.

 

I'd say that's highly probable, at minimum.

 

I'd even venture 50%, a more typical cycle high to low. But I don't really know what factors will make that happen.

 

BTW, in a rising rate environment I'd expect that farmland down 50% but throwing off some rental income would still beat the Dow.

 

There's an interesting philosophical/economic question- how long can the world run on zero rates and what happens to the whole asset base that supports it when you can't?

 

With the SP down 50% and longer bonds taking a similarly severe haircut then most states and municipalities are bankrupt, most insurance comapnies, and on down the chain.

 

So I'd say that we'll try mightily for a very long time to keep rates near zero. Might even succeed and die by ice rather than fire. A zero world ultimately means zero profit other than for those who have government franchises (government farm bases for example, maybe if unc keeps paying) or monopolies that defy the free market.

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BA Deere
Honored Advisor

Re: For farmer hoping farmland crashes

I don`t know how interest rates can rise to any appreciable amount without the federal budget into a tizzy  5% X $20 Trillion= $1 Trillion annual budget outlay for interest payments....unless Uncle Sam is somehow given a sweetheart deal....and I wouldn`t discount that happening to keep the Keynesian scheme going. 

 

 

About 3% of land comes up for sale every year and it`s in tight hands, if they don`t like the price, they`ll hang on to it longer.  It`s just the spoil brats that want to sell right away after grandpa "finally" croaks, where the farm would come up for sale regardlessly.   People that buy land are wired differently, they`ve looked at the charts and know "land always comes back, with a roar"..just buy and hold forever and enjoy the dividends/rent.

 

I kind of look at buying land politically, the landowner is a captive to be soaked in property taxes, it`s a stable source of local government revenue.  You can`t throw your half section in a bag and bug out to Uruguay, you`re stuck right where your at as the political landscape changes demographically.  "everybody gets a vote ya know and they don`t have to show their I.D"  and those with assets are on the menu of the dinner party.  And the death tax aspect, a person`s heirs may have give half or more of the land to the government in taxes.

lsc76cat
Veteran Advisor

Re: For farmer hoping farmland crashes

That's why smaller rural school districts have a tough time passing referendums.

Give us a direct chance to vote against taxes and we'll do it almost every time.

The only thing that cures that tendency is winning an election to Congress!!

 

 

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hardnox
Advisor

Re: For farmer hoping farmland crashes

I'll stick with my opinion.

 

But yeah, don't see a sustained increase in central bank rates, although it is as much of a private debt issue than public.

 

So my guess is that whatever happens happens quickly ala' '08. The world muddles along, building up ever more debt (with the side effect of ever more wealth inequality) with little growth response, until something pops.

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timetippingpt
Honored Advisor

Re: For farmer hoping farmland crashes

One thing that might be important...global demographics.

 

We are bringing in Harry Dent to share some of the data on that to our Peer Group Meeting next week. 

This is one problem with Keynesian tinkering...you have to have population growth to make it work.

 

We have room for a couple more at the meeting if you are interested, invitation attached. Deadline to

register is TODAY...only room for a couple.

 

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