Farmland Is Pricey. The Fed Is Worried – Businessweek


Farmland Is Pricey. The Fed Is Worried – Businessweek.

Amazing what pricing does with subsidies behind it.  Wonder what kind of chaos this will cause in the financial markets, food supply, and the family farmer when this bubble bursts…

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5 Comments

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5 responses to “Farmland Is Pricey. The Fed Is Worried – Businessweek

  1. This is incredible. My questions is: How to take advantage of this situation moving forward from an investor standpoint? And, if the subsidies don’t go away, I’m not really sure how this is going to stabilize or crash. I’m not knowledgeable enough in this area to make an opinion, but it’s definitely interesting.

    • Great question. I view this as very similar to the residential real estate bubble, so I would be very cautious of purchasing ag land right now unless you could cash flow it. During the peak of the residential real estate bubble, if you could purchase and have the rents cover the payments you would be fine. Otherwise wait for the values to drop or the revenue matches the value.

      As far as the subsidies involved, I am not an expert in the subsidies being offered other than speaking with some friends that own ag land. At some point cuts are going to have to be made to reign in the budgets of the Federal government, State, and local governments. When those cuts eventually get made, the land values will revert to what you can produce from real estate. In basic terms; the value of corn, soy beans, hay, oil, gold – whatever that land can produce. (I don’t understand value in agriculture terms, yield per acre etc.. you would want to speak with someone who has a better understanding of those values). One guy I spoke with about a year ago I had asked him what ag land was selling for in western Minnesota, he said between $3,500 to $4,500 per acre, so I asked him what the real value is based on revenue from agriculture, he responded “closer to $1,500 per acre”. I personally do very little with agriculture land except when subdividing for development comes into play.
      These subsidies probably won’t get cut until they absolutely have to because of a snowball effect it could trigger. Maybe they might try to slowly scale the subsidies back.
      I know one thing for sure, values can’t continue on that trajectory without future pain involved. In my opinion: Sell now, or hunker down to ride it out. Don’t buy in now unless you can afford to ride it out. Wait until the values come into line with the revenue stream. It’s kind of like gravity, it is a natural law that is pretty difficult to avoid.

  2. There are so many dynamics when it comes to buying ag land, you really have to know your stuff. Craig, you’re right on about cash flow, if it’s not making you money when you buy-stay away, no run away.

    • Well stated from property value expert appraiser! Have you ever done agriculture land appraisal? Or are there appraisers that do just ag land?

      • Income producing property needs to be appraised by a General Appraisal, one step higher than me. As a certified appraiser I can appraise upto 2-4 units. I’ll appraise large parcels if it’s not being farmed. That type of land is a whole different world.

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