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Senior Contributor

Re: Keep in mind the corn market

$11,416 PER ACRE.   1 million three hundred sixty-nine thousand nine hundred twenty dollars for a 120.  Looks like consolidation is still rampart in farming.  If that was on a 30 year note, principal payments are $380.53/acre for 30 years.  If that was on a 4% loan you would add another $228.32/acre to the $380.53 to give a grand total of $608.85/acre.  It takes other ground to pay for it and for 30 years you lose money on what you just bought.   Yet, if you were optimistic, then maybe $5 corn for the next 30 years.  Betting on the come.

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Esteemed Advisor

Re: Keep in mind the corn market

I like you math unl...but it is not the applicable math. The family owns about 1200 acres now that was mostly paid for before 2006. So, their math is much simpler, .25% interest on the cd in the bank, vs. the guaranteed 2% cash they can earn on the ground, and this is dirt that is only 20 miles north of the circle in Indy so it will appreciate at least 5% a year if held for 20 years ($26000 an acre in year 20 say). btw...land 5 miles south goes for 30,000/acre already. So, in their view, and a view that I think plausible over a 20 year investment window, they are trading worthless cash for a 7% annual return. 

The key of course is that they will not have to sell it if the global economy collapses. It might be worth 2000 an acre for a year or two but the currency is toast so it will be worth that 5% appreciation number in year 20 pretty easy, regardless of the future.

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Veteran Advisor

Re: Keep in mind the corn market

maybe I missed something.......but...not figuring In land cost..how much are they going to make with n over 40 cents a pound,

seed about 300 a bag, and corn about 3 a bu ???

oh.....forget to add in...how much are property taxes ?

 

so, what will be better....the ground or a passbook saving account at 0.2% annual ???

 

oh boy aint we got fun !!!

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Esteemed Advisor

Re: Keep in mind the corn market

180 bu corn at $4 = $720

Direct inputs = 235   Seed=85, Chem=30, Fert=89, lime+cover crops+soil testing=31

Taxes = 25

Fuel/Labor = 40

Drying/Trucking/Overhead = 220

Total Cost of $520/acre. or $2.88/bushel before land. Typical for an eastern belt farmer with his act together.

Net is pretty easily $200/acre cash flow.

Equipment is free since they already own it and require no additional for another 120.

 

 

 

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Honored Advisor

Re: Keep in mind the corn market

No land costs or water pumping costs.... ?   and no labor cost in that $40 per acre

 

 

$4,000 land at  5% return pretty well takes care of that $200....   a share goes to ownership.... or your cheating yourself to feel better.

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Esteemed Advisor

Re: Keep in mind the corn market

Cheating yourself to feel better?  Having trouble with that one. I was merely challenging El-cheep's cost numbers. Besides, ultimately, owning dollars is a depreciating asset, so if the dirt earns zero, you still win :-) Unintended consequences of ludicrous FED policy, here and abroad. This family paid $40 an acre for their first farm in the depression. $400 for quite a bit in the late 60's. Kind of like all of the commercial family farms left in Indiana. $4000 for some in the 90's, and $8000 for some in the 00's, and now $11,000 for some today. Average price paid is probably around $4000 for the total I'd guess. $200 return to land in a bad year is still 5%. In a good year, closer to 15%.

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Honored Advisor

Re: Keep in mind the corn market

Time somehow I just can't see the berkshire/hathaway man addressing his stockholders and saying

 

"We bought this "looser" just because we have these other winners we bought way back when... and .......well we can afford it."

 

Just don't think that would make sense and I would be reevaluating my investments with him.

 

A poor farmer is not always a poor farmer.

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Esteemed Advisor

Re: Keep in mind the corn market

sw...while I know it is a hard concept for farmers in the west to conceptualize because you a long

way from a bigger city...this land is a mere 19.6 miles from the circle in Indianapolis. It is 2 miles

from a 4 lane highway, and only 10 miles north of the 465 beltway. It is only 5 miles north of

30,000/acre dirt, in an area that is already 85% built out. I was being conservative. If Indy

keeps growing like it has been, this will be 30,000/acre in 5 years. Or, about a 33% annual return plus

the 2% cash earnings. One of the points I was trying to make for balance was simply

that there are a lot of farmers doing pretty well on $4 corn and $10 beans. Every commercial

family farm in the area was at the auction, and they all bid up to $10,000 before it slowed down.

 

You can say that they are not returning enough to the land they own and it is

a effective subsidy...maybe but that is not how it really works is it? Owned land has

always been a subsidy for its owner, all the way back to the Greeks. Our owned land generates

around a 25% ROI every year, Buffett would be ok with that I think. If we choose to invest that

return in something that can average 7-10% returns (income plus appreciation) in a .5% environment

I happen to think Warren would be ok with that as well.

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Honored Advisor

Re: Keep in mind the corn market

Time 

Thank you so much for the explanation on that particular sale......... And as many metro areas as there are back there, it represents the potential for a lot of acres.

To a degree you are saying that the land was not purchased by a farmer but was bought by an investor who happens to own a farm.

 

My comments were not on topic for that "farmer"

 

 

We face an area of depleting water and grain production economic impact.  I am not sure the US can inflate the dollar fast enough for us to keep up land values.  But we sure have a lot on the market this spring in an area that doesn't change hands very often.

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