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Frequent Contributor

The next 6 months are "BUBBLE TIME"

Just Cent. Ind. data, 53 acres, all tillable but of modestly drained light
soils mostly went for $7,200 at auction last week. Cash closing
required by 12/21/10 for tax reasons. Similar land brought $6,200

this past summer. The 88 acres with 55tillable and 34 acres of

fabulous wooded areas for homesites, only went for $5,200.

Zero market for homesites right now even with sub 4% rates.

 

This ratio is what is intriguing. In 2006/7, wooded homesites
easily brought $12,000/acre and tillable around $5,000, or 240%
of tillable. Today, the ratio is back down to 72% roughly. At the
tillable market peak in 1980, the ratio was about 50-60%. This
little bit of data should send shivers down the backs of land
buyers but it WON'T because they are cash buyers. Grain prices
will drive land value going forward. Tops in land values should
happen this coming winter/spring because it is a perfect storm.

Mountains of cash for farmers, and zero land available due to
the great rush to sell before gains tax goes up 1/1 and very
low interest rates, yep the bubble is upon us. Nothing to buy
and mountains of cash earning 0%. Talk about ludicrous
interest rate policies.

 

I'd like to propose the theme song, "HAMMER TIME", only
we change the words to "BUBBLE TIME". break it down.

Before each land auction the attendees should be forced

to listen "BUBBLE TIME".

 

btw, I would guess it will race another 20% higher in

the next few months. That is what bubbles do.

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12 Replies
Veteran Advisor

Re: The next 6 months are "BUBBLE TIME"

Hi Ken,

 

Unfortunately I agree with your analysis, which should give you pause.

 

Best, h

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Veteran Contributor

Re: The next 6 months are "BUBBLE TIME"

Well, I really agree those housing lots will not be coming back soon.  Rising interest rates is a game changer...a good one in my view.   Add to that, the guy punching the clock...do they really believe they are not getting a tax hike next year?  Have they looked at any of the fine print in the heathcare bill?  All their healthcare benefits starting in 2011 are going to be a part of their W-2 earnings..and taxable.   Say their company pays 10,000 on their policy...they now owe $1000(I am assuming it is not SS income) or more in taxes on that benefit that use to be tax free. Thats another 20 bucks a week less.   Even if you give them the 2% SS cut for a year...it is a  net loss.  I wonder if the SS cut is to hide some of the effects of the heathcare tax increase.  Now if you make a million a year...not even petty cash...but for the 'middle' class guy...another nail.  It is smoke and mirrors. 

And if I was ever in doubt about the power of big oil, the WIKI leaks release that showed our government knew that the Pan Am bomber was going to be released over an oil deal, not for medical hardship reasons, has erased all doubts.

Heck, you look at land prices. I am kinda of a detail freak, especially when it comes to costs.  As long as they have cash, it doesn't matter what they pay.  But...if they are borrowing...their cash flow could be taking a major hit.  Maybe they don't have to cover any overhead or machinery replacement.  The main reason I am not willing to tighten cash flow, I think it hurts my marketing.  Getting older, getting softer...don't really desire to work more. 

As for the markets...its all about weather, until the economic bubble breaks again.  There is a very strong floor under the grains right now. 

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Senior Contributor

Re: The next 6 months are "BUBBLE TIME"

As long as there isn`t a rash of forclosures, the land will be held in tight hands and shouldn`t crash. A big factor in high prices are the lack of sellers. If your county normally has 10 farms sell a year and now only 3 get sold, the old saw of `the time to buy land is when it`s for sale` becomes more aparent. If corn would just drop to $3 for an extended number of years that would really throw a monkey wrench into things. In 1980 if a farmer borrowed and bought 100 acres, while he owned 200acres clear.  He was considered `good as gold`,  however in `85 land that had sold of $3000/a dropped to $1000/a so that farmer basically went from 33% debt to 100% debt, underwater in 5 short years! Someone wanting to buy land now should definitely run some worst case senarios.  

Gleaned from another site- 1 acre should be worth 12 troy oz of gold  12 X1300=$15,600. Land today is cheap! cheap!    Smiley Happy 

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Veteran Advisor

Re: The next 6 months are "BUBBLE TIME"

DAD GUM did pigs start flying? Sun come up in the west?  You two start agreeing and I am going into a hole in the ground the end of the world is fast upon us then! LOL

 

 

I also think that the land price drive is more monitary based than it is price of commodities sold So I say the land bubble pops when the monitary policy of the fed and Congress changes.  And from this last tax deal there has been no change in the spend now pay later inflation policy of our Representitives.

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Senior Contributor

Re: The next 6 months are "BUBBLE TIME"

ba deere, dont know about that formula you posted. if you plug in the peakgold price from 1980 (?) 850 x 12= 10200 . so ground was under priced then too? not criticizing just leery of cross market interpretations. or maybe i didnt see your tongue planted firmly in your cheek! my best. d7

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Veteran Advisor

Re: The next 6 months are "BUBBLE TIME"

I was thinking the same thing all afternoon.

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Senior Contributor

Re: The next 6 months are "BUBBLE TIME"

Hey Dapper, my Smiley Happy signified that I was clowning. However, for quite a few yrs gold was stuck at $300 and land was give or take $3,500.  I got the formula off Agtalk.  IMHO, one day 1oz of gold may buy a entire farm. Based off the fact land taxes will be the taxation of last resort, making land ownership unfun. Also if the hard money crowd gain power after our forthcoming wheel barrow, Weimar Republic phase is over, to the moon Alice!!   this advice is worth less than you payed for it.

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Senior Contributor

Re: The next 6 months are "BUBBLE TIME"

And I had a post over the weekend that noted land was at $400 per acre in 1970, with gold at $35 and ounce. Divide it out and you get...presto.....12.

 

The formula someone gave me a decade or two ago was that you take the gross corn value per acre times five.

 

Corn at $2 per bushel, yields at 150bpa....land price...$1500.

 

Go forward to now...Corn at $5 per bushel, yields north of 200bpa.....some government money to sweeten the deal...Land should be solidly supported at over $5000 per acre. THe people paying $7500 to $10,000 per acre obviously think that corn is too cheap, or are getting the 250 bpa yields.

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Senior Contributor

Re: The next 6 months are "BUBBLE TIME"

Hey Red, these 50% too high land prices are IMO because farms are much bigger now and the  opperation`s "land buyin` dough" can be a bigger piece of the opperation`s pie. After the first year of our "new plateau" of grain prices, I run a thread on here asking "how can $5,000/acre farms be bought with cash??" I was shocked at the stories of farmers that must have had $2 million in cash just laying around??!!??. I mean if you make a windfall you have to buy "paint".....or pay a crap load of income tax, both not conducive to piling cash. Anyway, no one answered my question satisfactorily. Some opperations appear to have their cake and eat it too, new paint, land purchases and dough in the bank to buy more. Unless I`m hallucinating the only two ways that is possible, lottery winnings or a very friendly banker that loans them that "cash". Time will tell but as long as commodities chop higher, this train ain`t stoppin`  Smiley Happy 

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