Brain damaging land Prices

[Trapshooter1]

3 recent land sales of
17,000 on 160 acres
19,000 on 80 acres
20,000 on 70 acres
And
500-600 dollar cash rents have heard of 2 farms renting for this


The highest three land prices in my county ever. And the highest rents ever.

Even if a person has the cash to make some of these buys it doesn't make financial sense. When you can lock CDs in for 5%.

What am I missing? Is land going to 30-40k/acre? I don't know. But definitely wouldn't rule it out in my life time.
Honestly I'm not really sure what I would invest in right now with everything so out of wack.
Our money is losing value by the day.

 

[Muskrat24]

3 recent land sales of
17,000 on 160 acres
19,000 on 80 acres
20,000 on 70 acres
And
500-600 dollar cash rents have heard of 2 farms renting for this


The highest three land prices in my county ever. And the highest rents ever.

Even if a person has the cash to make some of these buys it doesn't make financial sense. When you can lock CDs in for 5%.

What am I missing? Is land going to 30-40k/acre? I don't know. But definitely wouldn't rule it out in my life time.
Honestly I'm not really sure I would invest in right now with everything so out of wack.
Our money is losing value by the day.

What county were those sales in?

$500 rent on $15,000 land is 3.33% ROI less taxes etc, stock market been flat, and farmers love land. Land has appreciation in addition to rent. Not justifying but work with land buyers daily. Let me tell you there is A LOT of money in farmers hands from last three years profit.

Nebraska had another $25k sale and buyer was same person who held the record for a week or so last year.

 

[Sligh1]

The highest three land prices in my county ever. And the highest rents ever.

Read this statement. If a person were to go back HISTORICALLY…. They would find comments like this by the millions in all categories of businesses , farms, commodities, stocks, etc….. when there’s a lot of people saying above comment at an abnormally high rate (like now)…. It is unsustainable & that usually ends with a bubble burst, pop or soften. MILD … to … WILD…. & everything in between. Move forward - absolutely. But do it with caution.

 

[daniel93077]

3 recent land sales of
17,000 on 160 acres
19,000 on 80 acres
20,000 on 70 acres
And
500-600 dollar cash rents have heard of 2 farms renting for this


The highest three land prices in my county ever. And the highest rents ever.

Even if a person has the cash to make some of these buys it doesn't make financial sense. When you can lock CDs in for 5%.

What am I missing? Is land going to 30-40k/acre? I don't know. But definitely wouldn't rule it out in my life time.
Honestly I'm not really sure what I would invest in right now with everything so out of wack.
Our money is losing value by the day.

The current land prices definitely seem unsustainable. Money supply is falling; growth, assets, and inflation should all weaken. There is usually a one to two year lag on money supply changes and impact on assets and inflation. Real Estate isn't necessarily a poor investment when the money supply shrinks (sometimes it can be a good investment in that environment). However, with high interest rates and high prices due to low inventory it certainly makes it riskier and less appealing investment when coupled with a shrinking money supply. Of course, nobody really knows what's going to happen so the only smart thing we can do is continue to invest in income producing assets. To your point... a 1 year treasury bill at 5%+ from treasury direct doesn't seem like a bad place to park some cash at the moment while waiting for future opportunities in the land market. Even if rates go up in the next year you'll still get your 5%+ if you hold the T-Bill to the end of the year. Hopefully that can at least keep us break even after inflation.

 

[tall@wide]

Another issue with buying a farm now is there is no inventory right now. I wonder how much land will come down in the next year or two even if we slip into a recession?

 

[Windwalker]

Been thinking it was to high when it 1,000 a acre yrs ago lol.

 

[Sligh1]

Another issue with buying a farm now is there is no inventory right now. I wonder how much land will come down in the next year or two even if we slip into a recession?

This is only a portion of land ownership BUT it represents a LOT OF ACRES!!!….
1) dudes that have adjustable rate mortgages on land or their large operating note that will change in next 6 months to 2 years. This is a good chunk of folks & a big portion will be selling IMO.
2) anyone who bought land as investment as they are involved in any other industry or businesses that depend on Economy. Many will have belts tighten & look to liquidate farm investments to make up for any ripples in business. A recession absolutely will create lots of sellers like this.
3) I could go on & on with the list but I’ll leave with this last easy one…. There’s NEVER a shortage of “older landowners” who die & the kids want their $. Will never stop. Divorce, death or desire to make a profit- those categories never go away and will always filter enough land into the market. Add the above 2 & a few more groups to it…. A healthy inventory will be the result
Real estate always has and always will be in some form of a CYCLE.

 

[deerdown]

I read something earlier today that has me convinced mortgage interest rates will continue to rise. The one thing that convinced me is the tightening of the credit markets. I believe banks are going to be much more selective and charge higher interest in the coming year. Lots of folks believe the Fed will lower rates when we slip into recession in 6-9 months, and maybe so, that doesn't mean the banks are obligated to do the same. I think quite the opposite for loans, the healthier banks might reduce rates for savings accounts but that doesn't impact land loans.
The guys with arms will second guess their land purchase, and some of this land will come back on the market. I feel most of this will be rec ground.
When I think back over the last 15 years sales in my area, the same tract of land that has changed hands multiple times is rec ground. Very, very few if any quality tillable tracts sold twice in the last 15 years. They are just different buyers in my opinion.
But, as stated, people sell for all kinds of reasons, but as a percentage, I think the rec ground inventory will increase more, and therefore, those prices will soften more with the higher interest rates.
We'll see.

 

[JNRBRONC]

Honestly I'm not really sure what I would invest in right now with everything so out of wack.
Our money is losing value by the day.

If I came into a windfall of cash right now, I’d buy a fair amount of precious metals. Diversify my holdings. Gold may be high right now, but who knows where inflation and interest rates will take us. Pretty sure I could sell gold when nobody wants dollars.

An article in the recent issue of Iowa Farmer Today, the author claims “Recreational land is actually increasing at a faster rate than productive land”, citing that the buyers can enjoy hunting and other activities on it.


Sent from my iPhone using Tapatalk

 

[deerdown]

The trouble with purchasing previous metals is the premium charged over spot and then resale is at or below spot, and finding a trustworthy source to sell it back to. Maybe someone who's done this can comment

 

[Sligh1]

I’m personally into land vs other classes for other reasons too… . In my land …. My trees are extremely valuable assets. During good times: Lumber for construction or high end furnishings. During bad times…. Firewood, fence posts, nuts & fruit.
Never ending water, food & shelter.

I remember when I was a little kid… maybe 6-7 years old??? (I was born in 1978) my dad bought a ton of metals. Lost his butt on them. I still remember those little bars of silver & gold. He clearly played the market wrong. Had he kept them- I’m sure be just fine. I looked at silver maybe 6 months ago. Probably should have done some. But, I’ll do all eggs in one basket….. & carry that basket very carefully.

 

[Rous14]

I guess I’ve never really seen (I probably have but my memory is so bad I don’t recall it lol) a decent breakdown/P&L of a farm. I mean if I bought a high quality tillable farm, call it 80 acres, what is my net income from just the farming operations- excluding interest or carrying cost of the land.

 

[Bucksnbears]

I remain unaltered in this.
I'd rather have 10,000$ invested in lead n copper then gold n silver now days.!

 

[daniel93077]

Holding a little precious metals should someone be inclined to isn't a bad thing but I'd certainly keep it under 10% of holdings. Personally, I don't put much towards it. It's a speculative asset class for the most part which makes it hard to value in the same way you can income producing assets like investment land/real estate, stocks, bonds, CDs, your own business, etc. That being said, considering current market conditions, shrinking money supply, etc. I can definitely understand why some people might seek exposure to precious metals.

 

[deerdown]

Another thing with gold..
How are gains on gold taxed?

Gold is subject to a 28% long term capital gains tax rate by the IRS.

 

[Sligh1]

I guess I’ve never really seen (I probably have but my memory is so bad I don’t recall it lol) a decent breakdown/P&L of a farm. I mean if I bought a high quality tillable farm, call it 80 acres, what is my net income from just the farming operations- excluding interest or carrying cost of the land.

RIGHT NOW - if pay cash- it’s not bad. Let’s say u bought 80 acres with 75 tillable for $13k. Let’s say it didn’t need tile. Say csr was 70. Let’s say we averaged 200 bushel corn & 60 bushel beans. I’ll do quick wild math on inputs that are off but not by a ton…. Let’s just do corn.


Paid cash for land …. No debt. Corn Input: $75 seed. $225 NPK, lime & micros. $50 herbicides. $100 into planting, harvest, trucking & insurance. $450 an acre. (I’m off & missing some things but it’s not like I’m off by crazy amounts. In the wheel-house). Let’s do $25 in property taxes too. $475.
75 acres x 475 = 35,625 inputs.
Gross 200 x $6.50 = $1,300 per acre x 75= $97,500.
NET: $61,875

Purchase price with CASH on land: 80 x $13,000 (remember - some places with a little better yields are $20k+++. So lot of variables here). = $1,040,000
$61,875 = 5.9% ROI. Not bad. Might be a more with better yields, lower inputs or lower purchase price. Or opposite if higher of same.
Where it does NOT make any sense is if: u are borrowing most the $ at 6-7%. Or…. The big ones!!!!!!….
-corn (or beans at same ration) retreats to $4-5 a couple years from now

Where it DOES make sense to borrow $ in a wild time….. we have runaway inflation… u lock in at 6-7% & corn goes to $10++ & interest goes double digits. Chances of that are slim but possible


I think in any situation, we can understand why the CASH buyer is willing to pay crazy prices. & it’s gonna stay that way until commodity prices retreat.

 

[Rous14]

RIGHT NOW - if pay cash- it’s not bad. Let’s say u bought 80 acres with 75 tillable for $13k. Let’s say it didn’t need tile. Say csr was 70. Let’s say we averaged 200 bushel corn & 60 bushel beans. I’ll do quick wild math on inputs that are off but not by a ton…. Let’s just do corn.


Paid cash for land …. No debt. Corn Input: $75 seed. $225 NPK, lime & micros. $50 herbicides. $100 into planting, harvest, trucking & insurance. $450 an acre. (I’m off & missing some things but it’s not like I’m off by crazy amounts. In the wheel-house). Let’s do $25 in property taxes too. $475.
75 acres x 475 = 35,625 inputs.
Gross 200 x $6.50 = $1,300 per acre x 75= $97,500.
NET: $61,875

Purchase price with CASH on land: 80 x $13,000 (remember - some places with a little better yields are $20k+++. So lot of variables here). = $1,040,000
$61,875 = 5.9% ROI. Not bad. Might be a more with better yields, lower inputs or lower purchase price. Or opposite if higher of same.
Where it does NOT make any sense is if: u are borrowing most the $ at 6-7%. Or…. The big ones!!!!!!….
-corn (or beans at same ration) retreats to $4-5 a couple years from now

Where it DOES make sense to borrow $ in a wild time….. we have runaway inflation… u lock in at 6-7% & corn goes to $10++ & interest goes double digits. Chances of that are slim but possible


I think in any situation, we can understand why the CASH buyer is willing to pay crazy prices. & it’s gonna stay that way until commodity prices retreat.

Great breakdown Skip. Appreciate it. Couple questions…
- Do farmers get any sort of subsidized interest rate when they purchase land or do they pay same rate as anyone else?
- What type of term/loan is most common? 30 year?
- What is minimum down payment banks typically want on good ag land?

putting 30% down (call it $300k) on this hypothetical million dollar farm purchase. Pay the 6% interest on the $700k….call it $42k/year leaving roughly $20k per year in net profit. Cash on cash return of around 6.5% plus the value of land is going to go up over time so overall rate of return will be higher. The primary risk is 1) commodity prices going down which seems very possible. Could also go up. and 2) value of land decreases which is possible but not likely in long term.

So even for the guy borrowing and not paying cash the math seems decent at $13k an acre w commodity prices where they are it seems? I’m no farmer, just talking out loud trying to understand how these land prices make sense for them.

 

[Rous14]

RIGHT NOW - if pay cash- it’s not bad. Let’s say u bought 80 acres with 75 tillable for $13k. Let’s say it didn’t need tile. Say csr was 70. Let’s say we averaged 200 bushel corn & 60 bushel beans. I’ll do quick wild math on inputs that are off but not by a ton…. Let’s just do corn.


Paid cash for land …. No debt. Corn Input: $75 seed. $225 NPK, lime & micros. $50 herbicides. $100 into planting, harvest, trucking & insurance. $450 an acre. (I’m off & missing some things but it’s not like I’m off by crazy amounts. In the wheel-house). Let’s do $25 in property taxes too. $475.
75 acres x 475 = 35,625 inputs.
Gross 200 x $6.50 = $1,300 per acre x 75= $97,500.
NET: $61,875

Purchase price with CASH on land: 80 x $13,000 (remember - some places with a little better yields are $20k+++. So lot of variables here). = $1,040,000
$61,875 = 5.9% ROI. Not bad. Might be a more with better yields, lower inputs or lower purchase price. Or opposite if higher of same.
Where it does NOT make any sense is if: u are borrowing most the $ at 6-7%. Or…. The big ones!!!!!!….
-corn (or beans at same ration) retreats to $4-5 a couple years from now

Where it DOES make sense to borrow $ in a wild time….. we have runaway inflation… u lock in at 6-7% & corn goes to $10++ & interest goes double digits. Chances of that are slim but possible


I think in any situation, we can understand why the CASH buyer is willing to pay crazy prices. & it’s gonna stay that way until commodity prices retreat.

What are your rough numbers for inputs on beans?

 

[Sligh1]

What are your rough numbers for inputs on beans?

Beans are cheaper. Let’s say a guy bought a good treated/inoculated e3 bean…. Call it $55 per acre (ballpark).
I’ll be very loose with lime, sulfur, micros & P&K …. Call it: $150 (could be a lot more or a bit less depending on soil tests).
2 sprays with pre’s: $70
Plant, harvest, trucking & insurance: $100
Im off on above +/- but it’s in the ballpark.
Total inputs: $375
60 x 15 = $900. NET = $525. Which is good $. Drought, flood or grain prices can make a good looking projection look like crap pretty quick too. & a lot of times if we say “60 average” - there’s for sure some years in there where it’s more 40 or 50. Or clearly could be higher too. TODAY, if weather & prices stay favorable - looks pretty nice. Wrenches being thrown into the mix seems to also be the norm though too.

 

[Sligh1]

Great breakdown Skip. Appreciate it. Couple questions…
- Do farmers get any sort of subsidized interest rate when they purchase land or do they pay same rate as anyone else?
- What type of term/loan is most common? 30 year?
- What is minimum down payment banks typically want on good ag land?

putting 30% down (call it $300k) on this hypothetical million dollar farm purchase. Pay the 6% interest on the $700k….call it $42k/year leaving roughly $20k per year in net profit. Cash on cash return of around 6.5% plus the value of land is going to go up over time so overall rate of return will be higher. The primary risk is 1) commodity prices going down which seems very possible. Could also go up. and 2) value of land decreases which is possible but not likely in long term.

So even for the guy borrowing and not paying cash the math seems decent at $13k an acre w commodity prices where they are it seems? I’m no farmer, just talking out loud trying to understand how these land prices make sense for them.

1st time farmers get subsidized loans. Farmers do get other subsidies as well - stuff like crop insurance subsidies, etc etc.

Most buying land pay same interest rate as anyone else…. the first time land buyer program is a one time deal. Great deal but one & done. & interest is way up for everyone. Operating notes included.

Guessing most farmers do 20 year notes. A few might do 15 & a few might do 25-30 but my guess is, 20 is most common.

Yes- if u put 30% down…. The math is not horrible. BUT!!!!!…. That’s IF u farm it yourself!! One thing I didn’t throw in (i used custom prices or shooting from hip guesses)…, a dude that wants: 1) $500k in combine stuff. 2) $500k into tractors. 3) $100k in planters. 4) $100k in sprayers. 5) $100k in semi. 6) buildings or grain storage!!! $______. All sorts of other stuff. Can a guy do it way cheaper? YA. Can a guy do it spending even more? YA. Can a guy do it custom without all of it? YA. All have their ups & downs. Lots of variables. On 80 acres - clearly we’d be looking at finding the best custom operator or cash renting though. No big overhead like above- NONE.

Long term- the dude that makes the “$13k” dirt pay for itself & rides it out will be just fine. Be in great shape in 20 years. No doubt. The dude that can’t hang on & can’t weather a downturn - which happens fairly often - can & will lose $. If a person is in for long haul & has a solid plan & back ups…. Those are dudes that SHOULD be buying land. Even today.