Farmland as an investment

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hazlitt777
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Farmland as an investment

Post by hazlitt777 »

I live in Wisconsin. I've done a little research and here is what I came up with. According to an 2011 articles, average rental rates for an acre of farmland in Wisconsin is $92 annually per acre. An average price to farm land is around 3800. So, if one divides 92 by 3800, you come up with a 2.4% return on your investment if you have a farmer willing to rent the land.

Not very good. Either the land is overvalued, or we farmland owners aren't charging enough rent...or commodity prices like corn are too low and so higher rents can't be charged.

Any farmers or others at this site that could share some thoughts on this? Are 92 and 3800 an accurate report? At that kind of a return, I can't justify purchasing farmland as an investment. What is it with this price/earnings ratio?
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3CT_Paddler
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Re: Farmland as an investment

Post by 3CT_Paddler »

hazlitt777 wrote: Either the land is overvalued, or we farmland owners aren't charging enough rent...or commodity prices like corn are too low and so higher rents can't be charged.
Prices are high by historical standards...

http://online.wsj.com/article/SB1000142 ... 77686.html
Citing data from the Federal Reserve Bank of Chicago, Mr. Hough said that in the year to June 30 there was an average 17% increase in farmland prices across Indiana, Illinois, Iowa, Michigan and Wisconsin, the biggest rate of increase for any year since 1977. During 2005-2010, the price of farmland climbed as much as 70% in some Midwest states, according to the U.S. Department of Agriculture.

Mr. Hough said speculators are investing in land on the expectation of future capital growth, but returns accruing from production on the land have declined and are now between 1% and 2% annually.
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investor.saver1
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Re: Farmland as an investment

Post by investor.saver1 »

Iowa farm land is much much more costly than Wisconsin farm land. I believe farm land is a speculative buy rather than an investment. The argument for purchasing farm land goes something like this: the supply is limited, we'll always need food which requires land on which to grow, government subsidies help support high land prices, farmland is an appreciating asset, unlike housing and non-agricultural real estate you aren't likely to see an oversupply develop, etc. etc. etc. I sincerely doubt land is purchased at current prices with the expectation that it will cash-flow. I've heard that in other parts of the country, farm land prices have fallen, but that's just not happening in the middle of the country.
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hazlitt777
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Re: Farmland as an investment

Post by hazlitt777 »

Thanks for the replies and the link. I was afraid of this.

It sure would have been nice to justify a little terra firma as an investment. But the numbers don't add up.
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Mrs.Feeley
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Re: Farmland as an investment

Post by Mrs.Feeley »

hazlitt777 wrote:I live in Wisconsin. I've done a little research and here is what I came up with. According to an 2011 articles, average rental rates for an acre of farmland in Wisconsin is $92 annually per acre.
Hi, Hazlitt! I live in Wisconsin too. :D Here's a possibly completely clue-less question but... Wouldn't the property taxes on an acre of farm land up here exceed a rental price of $92 per acre? Property taxes in this state are insane. Can't imagine how most farmers wring any profit out of their land.

Escalating land prices probably have a lot to do with the fact that during the boom a lot of big out-of-state developers were snapping up big parcels for tourist and residential developments.
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Ozonewanderer
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Re: Farmland as an investment

Post by Ozonewanderer »

There was a segment on tonight's Rock Center new show about the high price of farmland:
http://rockcenter.msnbc.msn.com/_news/2 ... r-farmland
ilmartello
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Re: Farmland as an investment

Post by ilmartello »

Farm land seems to be in a bubble.
The more I SEE people discuss farm land as an investment, the more it convinces me so. Effective 1/1/2012, ethanol subsidies are dead. The farm bill comes for re-authoriation in 2012, and budgetary pressures, plus record farm income, etc, will likely mean cash payments to farmers may end, etc ,etc.

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happymob
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Re: Farmland as an investment

Post by happymob »

Mrs.Feeley wrote:
hazlitt777 wrote:I live in Wisconsin. I've done a little research and here is what I came up with. According to an 2011 articles, average rental rates for an acre of farmland in Wisconsin is $92 annually per acre.
Hi, Hazlitt! I live in Wisconsin too. :D Here's a possibly completely clue-less question but... Wouldn't the property taxes on an acre of farm land up here exceed a rental price of $92 per acre? Property taxes in this state are insane. Can't imagine how most farmers wring any profit out of their land.

Escalating land prices probably have a lot to do with the fact that during the boom a lot of big out-of-state developers were snapping up big parcels for tourist and residential developments.
Property taxes on farm (or ranch) land are typically different than on residential real estate. Not sure how WI does it, but in many states, farmland is taxed at a *much* lower rate.

Farmland seems to be in a bubble (based on annual "return", compared to alternate investments), but I'm not sure it is in a speculative bubble. What I mean by this is that prices are historically high, but leverage is not particularly high - lots of existing farmers are paying historically high prices for land in cash. Without borrowing, I'm not sure that a crash in prices is in the cards. The early 80s crash in farmland prices was driven by higher interest rates and lower commodity prices. Commodity prices could certainly go lower, but without the leverage, I'm not sure that higher interest rates will really have much effect on current owners - prices may take a haircut, but there is unlikely to be the number of bankruptcies that there were in the early 1980s.

Of course, just because someone in the business who is flush in cash is willing to overpay doesn't mean that someone who is not in agriculture who is flush with cash should pay the same amount.
gofigure
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Re: Farmland as an investment

Post by gofigure »

$92. p/acre rental is higher than what is being offered in ME potatoe country. Farm operations have been generating more income in ME but I don't think there's been much movement on land values. Of the three catagories, farmland, woodland and wasteland (area boardering a stream), the farmland portion of our property is taxed at the higher rate.
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hazlitt777
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Re: Farmland as an investment

Post by hazlitt777 »

Mrs.Feeley wrote:
hazlitt777 wrote:I live in Wisconsin. I've done a little research and here is what I came up with. According to an 2011 articles, average rental rates for an acre of farmland in Wisconsin is $92 annually per acre.
Hi, Hazlitt! I live in Wisconsin too. :D Here's a possibly completely clue-less question but... Wouldn't the property taxes on an acre of farm land up here exceed a rental price of $92 per acre? Property taxes in this state are insane. Can't imagine how most farmers wring any profit out of their land.

Escalating land prices probably have a lot to do with the fact that during the boom a lot of big out-of-state developers were snapping up big parcels for tourist and residential developments.
Hello,

No. Taxes here on farmland are less than recreational land. Taxes in my area are around $13.50 an acre. So if you substract that from 92 you get an $78.50 after tax return. And if farm land goes for $3800, then the return is only 2.1% rather than 2.4% So it has an impact but small in our state.
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hazlitt777
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Re: Farmland as an investment

Post by hazlitt777 »

gofigure wrote:$92. p/acre rental is higher than what is being offered in ME potatoe country. Farm operations have been generating more income in ME but I don't think there's been much movement on land values. Of the three catagories, farmland, woodland and wasteland (area boardering a stream), the farmland portion of our property is taxed at the higher rate.
Very different than Wisconsin. Wonder what the thinking is behind that?
bungalow10
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Re: Farmland as an investment

Post by bungalow10 »

hazlitt777 wrote:Thanks for the replies and the link. I was afraid of this.

It sure would have been nice to justify a little terra firma as an investment. But the numbers don't add up.
My ILs have a lot of WI farmland that they bought years and years and years ago. All paid for, and probably all purchased for less than $1k/acre. Some of the property barely makes enough in rent to cover the property taxes. It's ridiculous.

You have to remember WI is a very large state, and the property values, taxes, and quality of farm land varies significantly across the state. Some land is decent, but some is so rocky and uneven it isn't good for much.
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MathWizard
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Re: Farmland as an investment

Post by MathWizard »

hazlitt777 wrote:I live in Wisconsin. I've done a little research and here is what I came up with. According to an 2011 articles, average rental rates for an acre of farmland in Wisconsin is $92 annually per acre. An average price to farm land is around 3800. So, if one divides 92 by 3800, you come up with a 2.4% return on your investment if you have a farmer willing to rent the land.

Not very good. Either the land is overvalued, or we farmland owners aren't charging enough rent...or commodity prices like corn are too low and so higher rents can't be charged.

Any farmers or others at this site that could share some thoughts on this? Are 92 and 3800 an accurate report? At that kind of a return, I can't justify purchasing farmland as an investment. What is it with this price/earnings ratio?
I don't know about Wisconson, but I know that some of the increase in S. Dak land is due to use by out-of-state hunting groups. If you own land, you can
and your friends can get pheasant licenses and hunt your own land. As a landowner, you also have a much greater chance on the limited number of deer licenses.
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deanbrew
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Re: Farmland as an investment

Post by deanbrew »

Those annual lease and value per acre figures are reasonably similar to my area. It does not make sense to buy ag land to lease it out, as the lease payments are too low. Farm land is bought by farmers to use, not by investors to lease. There are any number of possible reasons involving economies of scale, agricultural subsidies and lifestyle factors. But the bottom line is that the typical buyer's motivation does not involve annual lease income. The same applies to most single-family homes, where market rent may be considerably higher or lower than what an investor would require, as the typical buyer is not an investor, but a user.

And property taxes are an important issue to consider, but there are no valid rules of thumb, as taxation laws and tax rates vary tremendously from jurisdiction to jurisdiction, and ag land is often given a large tax break. In my location, ag land is very significantly under-assessed and under-taxed. It is common, for example for a $400,000 ag field to pay one-fourth or even one-sixth as much in taxes as a $400,000 home.
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chad1313
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Re: Farmland as an investment

Post by chad1313 »

The Farm land prices posted are averages for the whole state, much of northern WI is not good for cropping corn or beans. My family owns farmland in southern WI that would bring about 5500-6500 per acre. Some of the big farmers are paying between $200-300 per acre rents depending on soil quality. A farm not far from us just sold for $5500.00 per acre and its med-poor soil and extremely hilly. Farmland as an investment is something the big boys do and very hard to do in small increments. A recent land auction in Belvidere, IL sold 2506 acres for 22.5 million dollars to one person. This was prime black dirt farmland.
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hazlitt777
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Re: Farmland as an investment

Post by hazlitt777 »

chad1313 wrote:The Farm land prices posted are averages for the whole state, much of northern WI is not good for cropping corn or beans. My family owns farmland in southern WI that would bring about 5500-6500 per acre. Some of the big farmers are paying between $200-300 per acre rents depending on soil quality. A farm not far from us just sold for $5500.00 per acre and its med-poor soil and extremely hilly. Farmland as an investment is something the big boys do and very hard to do in small increments. A recent land auction in Belvidere, IL sold 2506 acres for 22.5 million dollars to one person. This was prime black dirt farmland.
200/5500 = 3.6%

300/6500 = 4.6%

That is getting closer to something some of us might be interested in. What are your taxes down there like per annum?
birdy
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Re: Farmland as an investment

Post by birdy »

My husbands family farm in Iowa (Story County) is leased to a farming family for $320/acre. They grow beans/corn. It is considered very good land. Since the lease amount pays for the taxes and some income, it will continue to stay in the family. If it can't pay for itself we will have to rethink what to do with the land. It is hard to let go of the farm that the grandparents worked so hard to purchase and wanted to stay in the family for generations to come. We have never been farmers and we do not live in Iowa any longer. We have good tenants doing a good job of maintaining the land and keeping it productive. That is also a consideration in keeping or selling it. Grandpa always stayed out the the casinos, saying that farming was gambling enough for him!
effillus
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Re: Farmland as an investment

Post by effillus »

Here in Illinois, farmland prices are soaring to all-time highs. It must be a fantastic investment. People are getting rich. Just remember, however, that in the late 1970s, farmland prices also were soaring to all-time highs, it was a fantastic investment and people were getting rich. By the mid-1980s, however, Willie Nelson and John Cougar Mellenkamp were putting on Farm-Aid concerts to raise money to help farmers because farmland prices had tanked. When stocks or some other form of investment wealth come back, farmland prices will drop again.
waitforit
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Re: Farmland as an investment

Post by waitforit »

Buy yourself a tractor, planter, and plow and you can really get a return on your investment :)
IMADreamer
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Re: Farmland as an investment

Post by IMADreamer »

Farm prices are in a bubble right now I'm pretty sure. My family farms and there has been a huge influx of rich people from the city buying up ground. A land auction right next to us found land selling for $13250 an acre. Cash rent values are near $500 an acre. That is all fine and well when corn is $7 a bushel but when the price comes down in a year or two and is back at $2.50 a bushel that farmer will lose his ass and so won't the land owner. 13k plus an acre land is not an attractive investment when you are renting it out for $150 and acre. There will be a lot of sorry people, mostly non farm types. If you buy 13k a acre land you better plan on making your living off it, not renting it out.

The money in farming right now, is in farming. We are coming off our third record profit year in a row. Considering we had one of the lowest yields in my lifetime last year that's saying something. We are kind of stockpiling some money to buy after the bubble bursts. Which it will.

BTW the ethanol subsidies thing isn't going to have that big of an effect on the farmer and corn prices. Sorry to burst the anti farmer bubbles out there. I know a lot of you are rooting for the American farmer to fail. China wants record amounts of corn, as does South Korea, here in America we have record number of heads of livestock, and everything you eat that is junk food or processed has corn in it. Those two things are driving the demand on corn more then ethanol. The price of corn is more because of a couple lower then expected harvests yields. One big year and you'll see the price come down alot.
64415
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Re: Farmland as an investment

Post by 64415 »

IMADreamer wrote:Farm prices are in a bubble right now I'm pretty sure. My family farms and there has been a huge influx of rich people from the city buying up ground. A land auction right next to us found land selling for $13250 an acre. Cash rent values are near $500 an acre. That is all fine and well when corn is $7 a bushel but when the price comes down in a year or two and is back at $2.50 a bushel that farmer will lose his ass and so won't the land owner. 13k plus an acre land is not an attractive investment when you are renting it out for $150 and acre. There will be a lot of sorry people, mostly non farm types. If you buy 13k a acre land you better plan on making your living off it, not renting it out.
We are seeing similar rents in my area, $300 per acre on the low end to $500 per acre on the top end. We custom farm 60% of our ground and rent out the rest at $400 per acre. Prices at recent auctions here are topping out at $10,000 per acre. In my opinion there will be a 10-15% correction in land prices once the ethanol mandates are removed and corn corrects to a $4.50 to $5.50 trading range. I don't expect corn to ever return to a $2.50 to $3.50 trading range as the Chinese appear to have a voracious appetite for a developed world diet.

Regarding "rich people from the city", we have only seen a few outside investors win any of the auctions in a 5 or 6 county area. The winner is almost always a neighboring farmer who pays a seven figure sum in cash. The rich people are the farmers.
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Mrs.Feeley
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Re: Farmland as an investment

Post by Mrs.Feeley »

IMADreamer wrote:BTW the ethanol subsidies thing isn't going to have that big of an effect on the farmer and corn prices. Sorry to burst the anti farmer bubbles out there. I know a lot of you are rooting for the American farmer to fail.
Good grief, why would anyone want the American farmer to fail? Many of us are only one generation removed from the family farm and distinctly remember the feel of the wind in our hair as we drove the tractor into the cow pond or were chased by a mad pig. Some of us are cheering for farmers with more gusto than we do the Green Bay Packers. Because we know how hard it is to coax that corn out of the ground, what incredibly tough physical labor is demanded, what incredible uncertainty must be borne between the weather and the markets. Every time I bite into a piece of roast corn I think "Holy cow, this was only 10 cents at the grocery store and the store probably got all the profit. How do farmers make a living off this?" Are there really people who want farmers to fail? That's pure crazy!
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Re: Farmland as an investment

Post by IMADreamer »

Mrs.Feeley wrote:
IMADreamer wrote:BTW the ethanol subsidies thing isn't going to have that big of an effect on the farmer and corn prices. Sorry to burst the anti farmer bubbles out there. I know a lot of you are rooting for the American farmer to fail.
Good grief, why would anyone want the American farmer to fail? Many of us are only one generation removed from the family farm and distinctly remember the feel of the wind in our hair as we drove the tractor into the cow pond or were chased by a mad pig. Some of us are cheering for farmers with more gusto than we do the Green Bay Packers. Because we know how hard it is to coax that corn out of the ground, what incredibly tough physical labor is demanded, what incredible uncertainty must be borne between the weather and the markets. Every time I bite into a piece of roast corn I think "Holy cow, this was only 10 cents at the grocery store and the store probably got all the profit. How do farmers make a living off this?" Are there really people who want farmers to fail? That's pure crazy!
There are a huge amount of people who want the farmer to fail. Just turn on your tv, you got the environmental nut jobs on the left and the crazy conservative take away all the subsidies nut jobs on the right. Farmers are getting it from both sides right now. I guess people want to starve?
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Re: Farmland as an investment

Post by ilmartello »

Ethanol subsides are dead, we can't speculate, but that's likely the first salvo.
Investing in farmland is a bad idea. People generally already considering in a new asset class, gold, farmland, residential real estate, only after the prices have escalated.
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Re: Farmland as an investment

Post by Valuethinker »

IMADreamer wrote:Farm prices are in a bubble right now I'm pretty sure. My family farms and there has been a huge influx of rich people from the city buying up ground. A land auction right next to us found land selling for $13250 an acre. Cash rent values are near $500 an acre. That is all fine and well when corn is $7 a bushel but when the price comes down in a year or two and is back at $2.50 a bushel that farmer will lose his ass and so won't the land owner. 13k plus an acre land is not an attractive investment when you are renting it out for $150 and acre. There will be a lot of sorry people, mostly non farm types. If you buy 13k a acre land you better plan on making your living off it, not renting it out.

The money in farming right now, is in farming. We are coming off our third record profit year in a row. Considering we had one of the lowest yields in my lifetime last year that's saying something. We are kind of stockpiling some money to buy after the bubble bursts. Which it will.

BTW the ethanol subsidies thing isn't going to have that big of an effect on the farmer and corn prices. Sorry to burst the anti farmer bubbles out there. I know a lot of you are rooting for the American farmer to fail. China wants record amounts of corn, as does South Korea, here in America we have record number of heads of livestock, and everything you eat that is junk food or processed has corn in it. Those two things are driving the demand on corn more then ethanol. The price of corn is more because of a couple lower then expected harvests yields. One big year and you'll see the price come down alot.
I agree with you about the possibility of a farmland 'bubble'. A lot of institutional and sovereign wealth fund money is chasing farmland all over the world. In the 1970s, farmland was a 'sure thing' and it all ended unhappily.

I had read about 30% of US corn goes into ethanol at the moment?

It's a market distortion, and it's not a good one for the environment (the extra fertilizer and other resources consumed does more harm, and uses more energy, than the savings at the tank end). That is your 'loony left' environmentalism and your libertarian conservatism: biofuels are a horror (the European version is import palm oil from places where they have slashed the rainforest, to make 'clean' diesel; or to import firewood to burn in power plants. Make environmental or economic sense? Not on your life).

From an environmentalist perspective the American farmer has become completely integrated into a system of production (see 'Fast Food Nation') dominated by a handful of producers of pork, chicken and beef, feeding to a handful of all powerful food retailers (this is just as, or more true in the UK, the land of the 'Tesco-opoly'). It's not generally healthy food (Chicken McNuggets have the highest fat content of any fast food item, I believe; don't get me started on KFC) and obesity and diabetes are a soaring global problem.

Reducing farm subsidies generally would be an important step in moving towards eating more healthily, and hurting the environment less. That rich post glacial loess that makes up the world's greatest breadbasket, the American Great Plains, is fragile-- it will blow away. Right now we are pouring nitrogenous fertilizer on it, and herbicides and other chemicals, to try to keep production up.

I agree entirely with you about rising demand for foodstuffs in Emerging Markets, and the US has comparative advantage in food production-- it's a huge exporter (and it brings along other ancillary industries like Deere, agricultural science etc.). The planet will need that food.

That's not contradictory though with trying to preserve the topsoil, a precious resource for all future Americans, not just the ones who happen to be alive in 2012. And from encouraging a more healthy diet and a less industrialized agricultural sector.

(the right thing to do with subsidies would be to replace subsidies for volume produced with subsidies per farm, and thus encourage smaller farms, more farmers. But agribusiness is now so large scale that I don't think such legislation would pass).

I found the following 2 (American) books very informing regarding these issues: the first by a professor of Soil Science, the second by a prairier dweller and hunter (he makes a good case for big game hunting as an environmentally sound thing to do):

http://www.amazon.co.uk/Dirt-Erosion-Ci ... 0520258061

really opened my eyes to the links between soil erosion and the collapse of civilizations.


http://www.amazon.co.uk/Grassland-Histo ... 743&sr=1-4


http://www.harpers.org/archive/2004/02/0079915 'The Oil we Eat'

summarizes some of his ideas.
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Re: Farmland as an investment

Post by gofigure »

There are hundreds of millions around the world aspiring to and achieving living standards like our own. I'm certain there's at least some correlation to farmland prices.

I'm also certain that there are forum rules about expressing our political biases.
Slick8503
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Re: Farmland as an investment

Post by Slick8503 »

[quote="ValuethinkerI agree with you about the possibility of a farmland 'bubble'. A lot of institutional and sovereign wealth fund money is chasing farmland all over the world. In the 1970s, farmland was a 'sure thing' and it all ended unhappily.

I had read about 30% of US corn goes into ethanol at the moment?

It's a market distortion, and it's not a good one for the environment (the extra fertilizer and other resources consumed does more harm, and uses more energy, than the savings at the tank end). That is your 'loony left' environmentalism and your libertarian conservatism: biofuels are a horror (the European version is import palm oil from places where they have slashed the rainforest, to make 'clean' diesel; or to import firewood to burn in power plants. Make environmental or economic sense? Not on your life).

From an environmentalist perspective the American farmer has become completely integrated into a system of production (see 'Fast Food Nation') dominated by a handful of producers of pork, chicken and beef, feeding to a handful of all powerful food retailers (this is just as, or more true in the UK, the land of the 'Tesco-opoly'). It's not generally healthy food (Chicken McNuggets have the highest fat content of any fast food item, I believe; don't get me started on KFC) and obesity and diabetes are a soaring global problem.

[/quote]


I disagree with your stance on ethanol. I have some numbers from someone I know who farms in Iowa, that owns a share of a local E plant.

CORN= $2.20
NATURAL GAS= .16
ENZYMES= .03 -----------------------
YEASTS= .02 $3.20
CHEMICALS= .01
DENATURANTS= .03
REPAIRS= .02
WATER= .01
ELECTRICITY= .03
DEPRECIATION= .01
INTEREST= .06
LABOR= .03
PROPERTY TAX= .01
---------------------------------
TOTAL COST= $2.62
Revenue from Ethanol = 2.55
Revenue from DDG(Distillers grains sold as feed) = .65

2.55+.65 = 3.20$
3.20-2.62 = $.58 of profit per gallon of Ethanol produced at current corn/nat gas prices.

So with the above numbers, how could it be true that ethanol consumes more resources than it produces if it is profitable to make for the plant?
Random Poster
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Re: Farmland as an investment

Post by Random Poster »

Slick8503 wrote:So with the above numbers, how could it be true that ethanol consumes more resources than it produces if it is profitable to make for the plant?
Profit doesn't really fit into the equation. You have to account for the energy (i.e., oil) that was consumed in the production of the corn itself (i.e, the fertilizer used to grow it, the tractor used to harvest and haul it, the energy used to create the ethanol plant, the energy used to transport the ethanol, etc.). Plus, you have to look at the energy that 1 gallon of ethanol produces compared to 1 gallon of, say, gasoline and, after accounting for the energy costs associated with producing the gallon of gasoline, see which form of energy is more cost-efficient.
Slick8503
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Re: Farmland as an investment

Post by Slick8503 »

Profit definitely fits into the equation. How could it not? Resources have a value. How could the plant's #'s that I quoted be what they are if they had to pay for more dollars worth of resources than what they were producting, and still turn a profit?

Obviously the $.45 blenders credit expiring will affect blenders profitability, but at current corn/oil prices, ethanol will still get blended.
Random Poster
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Re: Farmland as an investment

Post by Random Poster »

Slick8503 wrote:Profit definitely fits into the equation. How could it not? Resources have a value. How could the plant's #'s that I quoted be what they are if they had to pay for more dollars worth of resources than what they were producting, and still turn a profit?

Your question was whether it could be true the ethanol consumes more resources than it produces. If producing 1 gallon of ethanol requires the use of more than 1 gallon of some other energy substance on an energy-equivalent basis (which, in my view, it does) then ethanol consumes more resources than it produces. Whether 1 gallon of ethanol is worth more than 1 gallon of some other energy-equivalent substance which was used to produce the 1 gallon of ethanol is an entirely different question.
Slick8503
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Re: Farmland as an investment

Post by Slick8503 »

Random Poster wrote:
Slick8503 wrote:Profit definitely fits into the equation. How could it not? Resources have a value. How could the plant's #'s that I quoted be what they are if they had to pay for more dollars worth of resources than what they were producting, and still turn a profit?

Your question was whether it could be true the ethanol consumes more resources than it produces. If producing 1 gallon of ethanol requires the use of more than 1 gallon of some other energy substance on an energy-equivalent basis (which, in my view, it does) then ethanol consumes more resources than it produces. Whether 1 gallon of ethanol is worth more than 1 gallon of some other energy-equivalent substance which was used to produce the 1 gallon of ethanol is an entirely different question.

How about showing some data to back up "your view"? What is it that you are putting a value on other than the inputs that I've posted?
Random Poster
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Re: Farmland as an investment

Post by Random Poster »

Slick8503 wrote:How about showing some data to back up "your view"?
About 5 minutes of googling yielded the following hits:

http://www.news.cornell.edu/stories/jul ... y.ssl.html

http://articles.sfgate.com/2005-06-27/n ... ossil-fuel

http://www.sciencedaily.com/releases/20 ... 132436.htm (restatement of the SF Gate article)

http://www.nytimes.com/2011/06/25/opini ... ttner.html

http://artsci.wustl.edu/~anthro/article ... thanol.pdf

I'm sure that you can find additional articles and data if you look for them.

Likewise, I'm sure that you can find contrary views if you look for them. For whatever it is worth, a semi-balanced commentary can be found here: http://alternativeenergy.procon.org/vie ... nID=001261

Regardless, I stand by my view.
Slick8503 wrote: What is it that you are putting a value on other than the inputs that I've posted?
I've already mentioned some inputs upthread, and I have no doubt that others are addressed in the linked articles.

Good day.
Slick8503
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Re: Farmland as an investment

Post by Slick8503 »

I will read your links, and I have read some from your point of view previously, but I want to add this first: The "the fertilizer used to grow it, the tractor used to harvest and haul it" inputs are baked into the price of the corn the plant is buying, if it were not, farmers wouldn't be selling it to the plants for a profit.

Most of the articles I've read that are anti-ethanol, don't think to include the distillers grains that are a by-product of the ethanol refining process that the plants are able to sell. That's a big chunk of energy.
Cyclone

Re: Farmland as an investment

Post by Cyclone »

Here is the Iowa State University 2012 Farmland Value Survey, hot off the press:

https://www.extension.iastate.edu/agdm/ ... /c2-70.pdf

Bubbles can be difficult to spot, but the graph on the first page sure looks like a bubble.
64415
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Re: Farmland as an investment

Post by 64415 »

Valuthinker wrote:really opened my eyes to the links between soil erosion and the collapse of civilizations.
Keep this in mind when you are contemplating buying organic groceries. As it pertains to corn and soybean production, organic production methods with their emphasis on maximum tillage are the equivalent of a weapon of mass destruction on the midwest. The tons of soil lost per year per acre are off the charts when compared to a no till approach with conventional applications of herbicides and pesticide.
64415
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Re: Farmland as an investment

Post by 64415 »

Cyclone wrote:Bubbles can be difficult to spot, but the graph on the first page sure looks like a bubble.
I have always thought of true bubbles as requiring easy credit/leverage to develop. Most of the current transactions are all cash. If you do borrow, the ag lenders are tightening standards. I had to put 35% down for a recent purchase and I bet I was the only person in the county last year to utilize a loan ( fixed rate of course at 10 years).
64415
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Re: Farmland as an investment

Post by 64415 »

IMADreamer wrote: If you buy 13k a acre land you better plan on making your living off it, not renting it out. The money in farming right now, is in farming. We are coming off our third record profit year in a row. Considering we had one of the lowest yields in my lifetime last year that's saying something. We are kind of stockpiling some money to buy after the bubble bursts. Which it will.
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Amen to that. Farm it yourself and be ready to buy after the next 20% price correction. A multigenerational outlook helps with the discipline needed to buy and hold farmland.
Slick8503
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Re: Farmland as an investment

Post by Slick8503 »

64415 wrote:
IMADreamer wrote: If you buy 13k a acre land you better plan on making your living off it, not renting it out. The money in farming right now, is in farming. We are coming off our third record profit year in a row. Considering we had one of the lowest yields in my lifetime last year that's saying something. We are kind of stockpiling some money to buy after the bubble bursts. Which it will.
.
Amen to that. Farm it yourself and be ready to buy after the next 20% price correction. A multigenerational outlook helps with the discipline needed to buy and hold farmland.
I've read the above countless times on farm message boards, and have even had the same thoughts myself. When I step back and think about it however, you can't have a bubble until most every market participant becomes a bull. If there are tons of farmers sitting on the sidelines waiting on a pullback in farmland to buy, how will prices ever fall meaningfully?
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deanbrew
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Re: Farmland as an investment

Post by deanbrew »

Slick8503 wrote:
64415 wrote:
IMADreamer wrote: If you buy 13k a acre land you better plan on making your living off it, not renting it out. The money in farming right now, is in farming. We are coming off our third record profit year in a row. Considering we had one of the lowest yields in my lifetime last year that's saying something. We are kind of stockpiling some money to buy after the bubble bursts. Which it will.
.
Amen to that. Farm it yourself and be ready to buy after the next 20% price correction. A multigenerational outlook helps with the discipline needed to buy and hold farmland.
I've read the above countless times on farm message boards, and have even had the same thoughts myself. When I step back and think about it however, you can't have a bubble until most every market participant becomes a bull. If there are tons of farmers sitting on the sidelines waiting on a pullback in farmland to buy, how will prices ever fall meaningfully?
Perhaps if the government ever stopped providing subsidies and otherwise distorting the market, land prices would decline. I know farmers who get money to NOT grow anything on their land. And then you have the whole ethanol from corn debacle. Even setting the ag welfare issue aside, I know farmers who are buying up land at prices that they admit don't make a tremendous amount of sense. But they say they make more money through efficiencies of scale from owning thousands of acres. The efficiency gains trump the high land price. Whether it is a true bubble or not, there's little doubt that current land pricing is precarious.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson
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papito23
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Re: Farmland as an investment

Post by papito23 »

Love this discussion.

First, some facts:
Image (US corn usage 2011-12)

Ethanol is around 1/3. Nearly half we feed to animals (I believe this includes "DDGS from ethanol"), in which most of the energy ends up as poo or animal body heat (metabolism). A small portion of that solar energy harvested by corn actually gets into the meat, which we then eat. We only export 12% (if we then export the grain-fed meat it is effectively higher) - exports don't appear to be driving demand.

Second, some opinion:
It can be argued that this 80% is used rather inefficiently, from an ecological point of view (not to mention health affects of concentrating our diet into a processed form of one grass). All indicators point towards corn ethanol being a human artifice propped up by a distorted human economy that is out of sync with the energy-invested-energy-returned biogeochemical cycles (aka reality). Why cycling fossil fuels & topsoil through corn instead of burning them directly is beyond me (I'm not a sociologist/political scientist... more an environmental scientist). Depends on if you think industrial ag is efficient or if it is externalizing a lot of the costs, relying on subsidies and non-renewable resources, etc... IMHO there is no slam-dunk case either way. There are an increasing number of farmers now who are considering the state of their soil as their #1 priority (doing no-till, cover crops, etc - Google it) even as they stick to a simple corn-bean cycle. Time will tell if we will return to a more diverse suite of crops vs. the current monoculture, if we will keep the soil covered with pasture and let cows go get food themselves and fertilize it themselves, if we will save any room for wildlife at the edges, reduce runoff and fertilizer runoff, etc.

I suspect (and hope) agriculture will look very different in 50 years. I understand (to the degree I'm able) the situation conventional Midwestern farmers are in (my father inherited a pretty typical Iowa acreage, rents it out to a conventional corn/bean rotation). I wish farmers, the earth's living biota, and eaters everywhere the best. All of us are in this together.
A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise. -Aldo Leopold's Golden Rule of Ecology
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