Re: The IOWA FARMLAND rush continues on...........
 

Currently my guess that less than 1% of this board knows what E-10 or E-85 is.

Less than two years from now, well over half of this board and probably more will be well aware of what E-10 and E-85 is.

http://www.e85fuel.com/index.php

Re: The IOWA FARMLAND rush continues on...........
 

[ QUOTE ]
What are your questions exactly?

If one has $200,000 to invest, they can purchase a very nice 40 acre parcel of above average farmland in Iowa with no mortgage...........land that is producing rent of $200+ per acre and still has the potential for very good gains just on the value of the land in the coming 12-24 months.

Now granted, it was much better to get on this train two years ago when I was recommending to do on TheRX back then. However, there is still time to reap some very nice rewards in this investment.

[/ QUOTE ]

you are completely missing the point.

i'm asking you a series of questions to determine what can happen on the SUPPLY side.

if banks allow risky mortgages (with only 20% down) AND many people take the banks up on that (in order to get into the great investment of farmland, then there is a huge supply side risk that will flood the market in cases of default.

another thing could be variable interest rate mortages being far more popular than fixed. that could bring a similar supply side shock.

this is illiquid stuff here. you can't sell that land on an exchange and if 100,000 acres all of a sudden come under a bank's possetion because of defaults, guess what'll happen? all will try to sell and prices will plummit.

sure that is a worse case scenario but there is a TON more that can happen in these instances. sharp price swings in the grain market or sudden regulatory or legislation changes can make the land much less valuable. there are currently subsidies for ethanol that can be removed if oil drops. ethanol doesn't have the same lobby that oil does.

also, stop quoting historical returns. makes you look retarded.

Barron

Re: The IOWA FARMLAND rush continues on...........
 

Buying real estate with a gross return of less 5% is very risky, esp. when the rents are being driven by a temporary government program. What happens when things return to normal and rents drop, maybe to $100 per acre?

The problem is that any rational investor wouldn't pay $5k per acre, or even $4k per acre, even assuming the ethanol boom lasts forever. Property taxes/expenses reduce your net rents by at least 10%, so if you are earning $180 per acre, and mortgage costs are 6-7%, you ideally want a rental yield in that range or higher. A 6% yield implies paying $3,000 per acre, a 7% yield implies about $2,500 per care. Unless rents continue to rise (or interest rates dramatically drop), that's eventually where prices will be.

It sounds like you are advocating buying at a top even though the fundamentals are ridiculous because you believe another top will come. You must have gotten rich during the internet bubble. Why not just play roulette and put all your money on black?

Re: The IOWA FARMLAND rush continues on...........
 

If one is familar with investing in Iowa farmland, they will recall the great boom and bust of the early 80's when farmers and investors ended upside down just as you are saying and you are exactly right!!

However, the majority of Iowa farmland is being bought these days without mortgages of any kind. Currently I think the statistics show that 78% of Iowa farmland is owned outright.

Re: The IOWA FARMLAND rush continues on...........
 

I ran a chart on Iowa farmland values from 1945 to 2006 a few weeks ago and here are some of my findings.

I adjusted for inflation and used constant 1980 dollars. It showed that land values peaked in 1984 at $5617/acre, in 2006 they are at $3243/acre. This is a state average of all grades of farmland in Iowa. Land producing 180bu or higher would be worth more. As you can see we are still not even close to the 1984 peak. Interesting data, what does it tell me? Not sure yet, running another computer program to compare crude oil prices (in constant dollars) against farmland values. Not sure this will tell me anything, but enjoy writing the computer programs.

Re: The IOWA FARMLAND rush continues on...........
 

since ethanol is so hugely important, what would happen to your farmland values if the US allowed imports of brazilian sugar cane ethanol?

Barron

Re: The IOWA FARMLAND rush continues on...........
 

Good question and something that will be a major concern from 2010 on for Iowa farmland investors. Not only sugar cane, but ALL types of other sources.......switchgrass and other food plants.

As stated, I'm far from being convinced that ethanol alone is going to continue to prosper and even if it does, corn will have many competitors.

However, for the short term, now until the summer of 2009, Iowa farmland is a terrific shortterm investment..........and with a little luck could be for the next 5-10 years in a big way. Many are prediction prices to top 10,000 an acre within the next few years.

Re: The IOWA FARMLAND rush continues on...........
 

Who exactly are these people predicting 10k an acre? Iowa land brokers?

If the government really wants ethanol to be economically viable it has to end the tariffs on Brazilian imports and if it does the price of corn is going way down.

What if oil prices drop to say $40 a barrel, how viable is ethanol then?

I think its just bad business to be investing in something based on the premise that the government is basically going to keep propping levels up. You are also using the top end $ per acerage numbers, the average over 1k below the prices you are quoting.

Re: The IOWA FARMLAND rush continues on...........
 

Started writing a large(many lines of code) computer program that takes into account input prices, rates of return, exports/usage rates of corn, tax tables, etc., about 63 variables that I feel can affect farmland prices. I own acres and may sell a when I feel land prices have peaked. If I am off by $1000 an acre, that's a little money. Also this program will automatically allow updates to obtain moving averages on the above 63 variables. The one thing I am having trouble with is how to predict the "herd human behavior". Looking very close at the 1979-1984 time period in Iowa history to be able to assign a coefficent to this. As you know, once you get a herd moving they can overshoot and run prices higher than is economically justified. To take advantage of this we need to take a look at past herd behavior and hopefully predict how much they will overshoot this time. It should be fun. At least we have a few years to prepare.

Re: The IOWA FARMLAND rush continues on...........
 

By DAVID ELBERT
REGISTER BUSINESS EDITOR


May 29, 2007
3 Comments



The value of good farmland in Iowa shot up 16 percent in the past year, with 7 percent, or nearly half the total increase, coming in the first quarter of this year, the Federal Reserve Bank of Chicago reports in a new quarterly survey of agriculture lenders.

The big gain is an indication of how strongly ethanol demand is driving agricultural investment, the Chicago Fed said in its May agricultural newsletter.

Corn prices, the bankers noted, were up an average of 63 percent to $3.31 a bushel during the first quarter, while farmers nationwide said they expect to plant 16 percent more acres to corn this year.

Farmers are trying to meet a growing demand for ethanol, the newsletter said. "Ethanol production will require 27 percent of the 2007-08 corn crop, an increase from 20 percent for 2006-07," it said.

Average soybean prices during the first quarter were up 18 percent, but soybean acreage is down 11 percent, the newsletter said.

"The surge in corn acres would result in the greatest acreage planted to corn since 1944," the Chicago Fed said.

The increase in Iowa farmland values was the largest of the Chicago Fed's survey of four states. Lenders in Indiana reported average farmland value increases of 10 percent for the 12 months ending April 1, while in Wisconsin the increase was 8 percent, and in Illinois it was 7 percent.

The average gain in farmland value for all four states was 10 percent.

The rapid increase in values is reflected in the fact that 5 percent, or half of the 12-month increase, came during the first three months of 2007.

Separately, a private survey of Iowa agricultural real estate agents in March found Iowa farmland prices had increased 13.6 percent in the past six months. That survey was by the Iowa Farm and Land Chapter No. 2 Realtors Land Institute.