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Farmland prices

MarkB_MI

MarkB_MI

Well-known Member
Location
Motown USA
I'm part owner of some dryland and pasture out in the CO/NE/KS tri-state area. As several folks have noted, farmland prices have skyrocketed across the country in the past few years. In the tri-state area, prices have doubled, tripled, maybe even quadrupled in the past decade. Right now, I'm having trouble justifying to my partners why we should NOT sell the property now. With prices at a peak, it seems very likely the bubble will soon burst.

My question: Where is the money coming from? I understand that much of this land is being snatched up by big-time operators who are paying cash. I also understand that farmers are fat with cash now, with several good years behind them, and are looking for investments that will pay better than current CD rates. But on the other hand, it's hard for me to believe that there is that much cash around. Also, it's even harder to believe that this land can generate a positive cash flow at current prices once you figure in lost investment income.

I tend to believe that the BTOs are backed by foreign investors, possibly from China. But I have no evidence to back it up. Does anyone have some first-hand knowledge to share? No wild conspiracy theories, please.
 
The long term thing is inflation. As the dollar becomes more worthless, land is a good investment.
Its the numbers that have just changed.
 
Mark -
One of the BTO's around here,(southern Ontario) is buying everything in sight. He has access to European money and paying 1/2 to 1% intrest. Europeans are getting their money out of Europe to a more stable economy here in Canada.
 
As jimont said. Scared paper money is being pulled from the markets and invested in land that does not disappear.
In about two months time the US government is going to go bankrupt.
 
Most of the land that is changing hands around here is not local money. A 40 thousand acre farm is now being rented by an executive from Featherlite Trailers, and a 30 thousand acre farm was purchased by a big time John Deere Implement dealer. A local fertilizer business has bought up quite bit, as well as another local implement dealer. As for farmers being "fat with cash" now, I'm not sure that is a correct statement. Checked input costs lately?
 
do what you must, but at least sell the land to a farmer, instead of a developer, once the land is gone its gone what will we eat?
 
I believe the thought that farmers have created the inflated land prices is inaccurate. Instability in other parts of the market have led investors into land speculation, this is what has driven up the cost of land. In this area if a large piece of land comes up for sale it is more likely to be purchased by someone with outside money looking for a weekend retreat or the next sub division. Also I would not expect a farmer in that tri state region to look fondly upon your statement that farmers are holding large cash reserves because of the good years that we have just come off. Where have you been? A large part of the country just suffered through one of the worst droughts in at least 50 years.
 
Thanks Ken. But if prices peak, land doesn't make a very good inflation hedge, does it? Lots of real estate investors in Florida, Las Vegas and elsewhere found that out recently. Now folks who stayed out of the market during the bubble are picking up property at fire sale prices.
 
C-man, are these buyers operating the farms themselves? I don't see how they could profitable lease the property or have it custom farmed.

Yes, costs are up, but commodity prices have been quite good lately.
 
Eric, from your comment I'm going to guess you've never visited eastern Colorado or western Kansas. Suffice it to say that no developer is going to be interested in this property.
 
Around here, it is the doctors and lawyers buying up the farm land. It seems that they don't trust the Federal Reserve Notes. (Gasp!) I guess they need some place to park their money. A friend of mine was going to rent some land from one of them, but rental price was high, and the restrictions that the owner had were just goofy.
 
In my area developers aren't a factor in what farmland is bringing. I haven't seen a new development started since 2007-2008. There are some developments with the curbs and utilities in that are being farmed. The new housing market is all but non-existent here.
Still, farmland is bringing record prices. As someone else mentioned it's not that the land is more valuable, it's that money is worth less. Land is a good hedge against weak currency and inflation.
In this area there appear to be two groups buying up farmland. Of course the bigger operators are one group. The other is doctors. I'm hearing that doctors are buying the majority of the land.
 
Erik, whether or not high plains farmers are offended by my comments doesn't really concern me. I know there are plenty of operators in the region who are buying a lot of land, and paying cash for it. These are not all BTOs, either. Yes, I know we had a drought; my tenant made a point of reminding me of that fact and telling me his yield in a note he enclosed with his December rent check. Curiously, though, tenants never seem to mention their yields and rainfall during good years; must just be an oversight since they know I would be quite interested in this info.
 
US is just catching up to Europe, Australia and New Zeland. Farmers have only share cropped, rented or leased from the land owners for centuries.
 
Given what physicians have to put up with to make a living. I
don't begrudge their rate of pay .
You couldn't pay me enough to make me stick my hand up
somebody's infected orfice.
 
mark ive frequently been to all 48 states until 10 years ago i was a trucker, what im seening in this area is out of state developers buy land, which makes out of state land owners think there land is special, one near me has 13 acres of un improved high desert land, no water no power ect to the tract not good for farming or grazing,[ could be good grazing land if it was cleared of brush cactus ect] the price is 123,000 and it sold! the developers throw up cheaply built housing for 50 to 70 grand cost and get 350 to 400 grand a pop, its just nuts, the next town is way overbuilt for its available water and sewer system ect for just this reason, now there pressuring farmers in the valley to sell them water rights since they dont have adequate water now, the locals of course wont sell, but some of these places are newcomer horsie farms, which dont need irrigation water, and they do sell the water, which to me makes the place almost worthless, just a sad thing to see
 
In my neck of the woods in NWIA 80% of the land is being bought by farmers but most of them aren't shucking out cash for the whole works. The average farmer in this area couldn't have built up enough cash reserves from farm income throughout his farming career to enable him to pay $10000-%14000 per acre without some outside help. Jim
 
I have a good friend, who has as a good friend, a surgeon. (My friend is an aircraft mechanic, and maintains the doc's plane.) The doc is a high powered very specific kind of surgeon(he saved my friends' sons' life) who commutes between large city hospitals where he operates, so the plane is a reasonable part of his business. I just heard from my buddy that the doc already has some new tax info, and told how many more thousands of dollars will be coming out of him. He won't be buying anything. In fact, he's afraid he won't be able to keep the plane.
So it would seem it would be the same all over.
 
If you can get 300 or more in cash rent it's a better investement than the stock market and bank.
 

In SW KS, the last 8-10 thousand acres that I know of that sold was all bought by local farmers/ranchers.

I can't speak to what percentage they financed, but knowing the various buyers and wanna-be buyers, none were highly leveraged.

Howard
 
Yesterday 375 acres of prime farm ground sold for $17,000 per acre in Story County Iowa..The buyer was a neighbor that now owns the entire section..Some are betting that it was a cash deal and that he could buy more if he wanted too..Say you bought it as an investment,it would have to rent at $510 per acre for a 3% return..

Land in my area of MO is very cheap compared to Iowa...My farm carries a 10 year proven corn yield of 125 bu per acre..Land is selling for $2000-2200 per acre here...

Theres lots of money out there looking for a secure place to put it..
 
Ray, believe me, if we could rent out our non-irrigated High Plains farmland for three hundred bucks an acre, we sure wouldn't consider selling it at current prices. Divide that number by at least five. This is land that is one notch above desert.
 
Howard, thanks for your response. I think you live not too far from the tri-state region, and I value your opinion.
 
What are the tax consequences of selling as compared to maintaining what your doing now? it may be ripe for some but not for others.
 
All foreign owners of land in No. Dak. have to report it at the end of the year(to the feds I think). Also no corporations can own land in N.D. unless one of the owners is the farmer. Our state is only one left that does not allow corporate landownership.
 
Here in Michigan, farmland doesn't change hands very often. Most of the guys farming here are farming ground their grandfathers did, plus picking up what the neighbors sold out. I've talked to one local who referred to land as a multi generational investment, one that he expects will pay off for his son or grandson. If it's a good piece of ground, and contigious, the sky's the limit.
 
LOL love the input arguments. Average inputs for corn here is about 350 per acre to get 200 BPA @ 6.80 gives a gross profit of 1010 an acre. Say yer small time. 500 acres. That's 505000 in gross profits. So lets be generous and say that there are another 100,000 in incidental cost leaving about 400000 in net profits on the corn crop. Even with a drought most farmers have crop insurance. So tell me again how they are suffering.

Got a local guy with a big 4X4 Case IH tractor. He crys because according to tractordata it burns over 20 gallons an hour. Thing of it is he's burning less than 1 gallon an acre. That's the real measure of how efficent a tractor is. He knows this but still insists that fuel is killing him because he doesn't want people to know how much he's making.

Rick
 
200 BPA consistently, if ever, around Fergus is a pipe dream. It'll take more than $350 inputs....plus RENT, as well. As recently as Spring 2010 I was waiting for corn to get up to $3.25 before I'd sell. Gross profits? How about machinery costs, labor, etc. Sure it's been good for a couple of years, but it hasn't been that long since I sold corn for under $2, for years.
 
There's an add in a local paper to rent ground in ohio for 600 per acre.Payment when contract signed.
 
(quoted from post at 13:58:06 01/05/13) 200 BPA consistently, if ever, around Fergus is a pipe dream. It'll take more than $350 inputs....plus RENT, as well. As recently as Spring 2010 I was waiting for corn to get up to $3.25 before I'd sell. Gross profits? How about machinery costs, labor, etc. Sure it's been good for a couple of years, but it hasn't been that long since I sold corn for under $2, for years.
Click to expand...

Nope they are getting it with proper inputs. I didn't want to believe it at first myself. I remember when they were bragging about getting 100 per acre.


That's why I figured 100K in extras. I well remember when corn was under 2 bucks. My BIL got 228 per acre that year and was mad as heck cause he didn't have enough storage. Had to sell close to 9000 B at 1.95. HE had done the correct inputs plus all his manure went on his corn ground.


Rick
Rick
 
Even if you own the ground it takes far more than $380 per
acre to grow 200 bpa corn..Heres what it costs to grow 125
bpa corn in MO when you own the ground free and clear.

Seed-$90 per acre at 26000 pop
Fertilizer-$130 per acre
Spray-$25 per acre
Crop ins-$25 per acre
Working seedbed twice-$40-no till doesnt work here
Planting-$25 per acre
Harvest and Trucking-$60 per acre
Taxes-$10 per acre

We are right at $400 per acre here on inputs....If you rent
the ground add another $80-100 per acre..

Inputs and rent can easily cost $800-1000 per acre in
prime 200 bu corn areas..
 
I think I can answer your question "where is the money coming from"? I will make an educated guess that people that have money in banks in this country are really really ticked at the .3% return on a CD. So they are taking the money out of banks and they want some real returns. They are buying land and other tangible assets that will appreciate. I have also thought of spending my cash on other investments that will go up. The days of a 6% CD are gone for a long time.
 
Ray, check the annual rainfall in Ohio versus western Kansas.

Dayton, Ohio: 40 inches
Goodland, Kansas: 20 inches

Not to mention huge differences in soil between the midwest and the high plains.
 
Old tanker your input costs are about a $100 per acre short. Also you are not counting the land cost. Even if you own the 500 acres of ground you are talking about there is a cost to owning it. Real estate taxes on 500 acres around here would be in the $35000-60,000 range.

Also if the ground is worth $12,000 per acre then the total valve would be $6,000,000.

So if he is clearing $400,000 then he is only getting a 6.6% return on the capitol investment.

I also raise corn and the numbers you are throwing around are off toward being lower in cost and higher in gross income.

The long term average for farm land return is in the 4-5% range. That is still better than what CD are doing so that is where part of the money is coming from.

We also have a loose credit market right now. It is easy to show a cash flow that works with $6-7 corn but put in $3-4 dollar corn and see how it falls apart real quick.

We are one good crop away from low prices again. The high current prices are causing corn to be grow in more places world wide. I just read where South Africa is now exporting corn. So when we all have a good crop bushels wise it is going to be bloody in price.
 
May be in Europe and Australia, but most farmland is owned and farmed by owner operators in New Zealand, more so with dairy farms.
 
We had some out of state pheasant hunters from Indiana come hunting. They were farmers and they told us they had $700/acre expense into their corn crop. Don't think they were trying to lie to impress us. Were hoping to get 200/bpa when they planted it. Drought cut the yield severely. So when you double the expense side and cut in half the income side, the profit goes down imensely.
 
The funny thing about that is... when the doors get blown off the $hithouse and corn tumbles in price... that land won't be worth too much either... and so went their investement.

Rod
 
In Eastern Iowa:

Inputs run about 400 per acre
Rent runs 350-400 per acre
Land runs 10-12K per acre

So you are looking at 200 per acre net best case.
 
(quoted from post at 16:44:02 01/05/13) Old tanker your input costs are about a $100 per acre short. Also you are not counting the land cost. Even if you own the 500 acres of ground you are talking about there is a cost to owning it. Real estate taxes on 500 acres around here would be in the $35000-60,000 range.

Also if the ground is worth $12,000 per acre then the total valve would be $6,000,000.

So if he is clearing $400,000 then he is only getting a 6.6% return on the capitol investment.

I also raise corn and the numbers you are throwing around are off toward being lower in cost and higher in gross income.

The long term average for farm land return is in the 4-5% range. That is still better than what CD are doing so that is where part of the money is coming from.

We also have a loose credit market right now. It is easy to show a cash flow that works with $6-7 corn but put in $3-4 dollar corn and see how it falls apart real quick.

We are one good crop away from low prices again. The high current prices are causing corn to be grow in more places world wide. I just read where South Africa is now exporting corn. So when we all have a good crop bushels wise it is going to be bloody in price.
Click to expand...


JD I'm paying about 700 bucks a year for 200 acres of ag land. So our taxes are no where near what you are saying. Depending on the area some guys are making a killing and then poor mouthing everyone to justify subsidies.

And I kinda figure that there are going to be a heck of a lot of acres in corn this spring. Get enough rain and there are going to be a lot of guys that are crying for real. You and others miss that I allowed another 100,000 dollar for incendentals. I did that because there is much I know I don't know. Most of the guys around here getting 100-150 BPA on corn are not spending the money to do it right. I know several guys that bump or exceed 200 per acre. One claims that his inputs are 350 an acre (past spring cost). These are the figures I'm working with. Now he just lost 100 acres he was renting because the old guy who owns it thinks he's going to plant corn and make 200 BPA. The land is 3 years out of CRP, 2 in beans and one in wheat. I know he's going to cut corners cause he's a tight wad. If we get enough rain I'm betting on 80-100.

Rick
 
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