Economists and ag journalists are so anxious to see a reversal of farmland prices so their decades-long warnings can be said to have come true they are starting to confuse an inflection point with a "tipping point".
Iowa farmland values have definitely hit a tipping point, agreed Iowa State University economist Mike Duffy. The state's ethanol industry helped spawn four years of 20% to 30% land appreciation since 2007, almost on par with 1970s-style inflation. "Now the gains are slowing down, but I don't see a big collapse ahead," said Duffy, who thinks Iowa markets might slip back to 10% year-over-year gains by November, half the year-ago levels. "This adjustment will feel more like a tire with a nail in it." [More]I done the ciphering and "slipping back" to 10% gains does not consitute a tipping point, IMHO. A lot of 401K owners would love a mere 10% annual gain.
And charts like this don't help.
[Same source]
This is bad charting. While labeled "Actual thru 2012", the blue line should be dotted or indicative of the shift to estimates for 2013 and beyond. The decline shown is all in the author's imagination right now.
Well, I'm going to an auction tomorrow for 80 screwy acres next to me.
Since we're interested, my experience is it will go sky-high. I'll let you know how it turns out this weekend on US Farm Report (we're bringing a shooter down).
10 comments:
John
Ask to see the Purdue graph back to 1975 and you will see why all of us who have been in business since 1975 are unsure how to advise the young guys who took over for us in 2006. From 1975 to 2005, cautious guys propspered. Since 2005, that cautious approach has held guys back.
John,
A 158 sold @ auction wed. P.M. for $12,000 acre in Fountain co. IN.
Well the land sold for $9300 per tillable acre. I was not the winner although it may not be completely over for some of the screwy little chunks.
I thought it was a lot, frankly.
The $12000 per acre twenty miles away wasn't cheap either IMHO. Thanks for the heads up, Anon.
John,
You have to pay more than anyone there thinks it is worth today. But a year from now???
In SD it's been about 20 years since I can remember a land auction price which seemed reasonable at the time of sale. Of course I can think of many which seemed downright cheap just a couple years later. That's when I realized I could've afforded it now at the price it brought two years past. I knew it went way too cheap at that point. Obviously not a unique observation anymore. Some are just born riverboat gamblers and destined to rise. Others of us value our independence and a good night's sleep. The really smart guys guys may not be inherently cautious but they can see the potential disasters looming around every corner when it comes to a business like ag so they stay in school as long as they can and get a good secure job with a large corp. or university. It's understandable why this last group has the view which they do despite being dead wrong for the last 20 years. Actually if they had been putting aside 10-15 percent of their salary in a stock acct. for their whole careers, their own net worth could still be quite substantial. Go to yahoo finance and pull up a long term chart of a company like JNJ or XOM which is probably their preferred type of investment if you asked them. Don't know that for sure but guessing.
Anyways thanks for all the great posts.
John,
Four years ago we were enmeshed in a 1031 exchange. Reluctantly, I had agreed to sell to a buyer who was landlocked and had been pursuing purchase of our parcels for more than two decades. I still believe we sold too cheap. I was fully convinced at the time of the replacement parcel purchases that the cost was too dear, even with the large incentive of of a capital gain deferment. I looked at more than 150 farms in six states. I sat in motel rooms quietly cursing the idiocy of the suited buyers with New York accents, bidding 27% to 35% more than the prices I could foresee as reasonable, at the auctions I was attending. To decide to go forward and buy, I was reminded in contemplation, to listen to the voices of dead and previous other mentors that said things like "you are either in business and in the market or you are going forward to be out of business because you are out of the market" and "your investment time horizon needs to be your first consideration" and from a chinese grad student in the computer lab who taught me that "every space in every line of code has a unique place holding command". All of these comments were made prior to 1981. I decided we were going to stay in the ag business, even at unreasonable investment prices. Today, I look like a genius. Tomorrow--maybe not so much. What is truth? What is Luck? Perhaps you can have a family member re-evaluate the importance of the foregone parcel to your ag operations in 2113?
Anon5:
Your point is well taken. But I didn't stop bidding because I thought it was too high - I stopped bidding because I ran out money...
John,
The last three generations of my family and likely, the last three generations of your family would not fault, but would instead praise your reasoning. The Chinese grad student working for his country's agricultural ministry depends on your value system, as his suited agent surpasses your top bid. There must be 10,000 bankers in this country that look at you on TV weekly and know that you are a great insightful farmer, quick witted and proudly independent and also know that you would make an ace candidate for a farm mortgage loan for an inholding tract. Now, I'm not trying to insult you or cause you bad feelings. But you have the stage on the airways, and there are lots of others out in our hinterlands that are getting run over by what I see as international capitalism run amok. What values will we be able to maintain if our independence is purchased out from under us? Maybe in your case, it was a local cousin, friend or good neighbor that will become your new neighbor. But I can assure you that is not true with sales elsewhere in the corn belt.
anon5
Its always hard too lose a farm deal,especially an adjoining piece. If you have the funds too pay the selling price then it is irrelevant but it is better too lose 10 good deals than make 1 bad purchase . Not in your case John but I have seen many in the past just buy 1 farm to many and then there "comfortable lifestyle" turns into a "how can I make the payments" scenario. This is not limited too land but all business ventures....best time too buy anything is when you have the money-regards-kevin
And I thought the 2500 a acre under pivot I am looking at is high... big difference for me is all I can grow is silage, pintos or hay here in the great Southwest where we have no grain buyers..
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