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The IOWA FARMLAND rush continues on...........
Auction Results
Cedar County, IA May 31, 2007 145 Acres sold for $696,000 ($4,800/Ac.) 158 Acres sold for $726,800 ($4,600/Ac.) » Click Here For Brochure (PDF) Johnson County, IA May 31, 2007 98 Acres sold for $480,200 ($4,900/Ac.) |
Re: The IOWA FARMLAND rush continues on...........
Up and up it goes, where it will stop nobody knows.
RIDE THE WAGON |
Re: The IOWA FARMLAND rush continues on...........
what % of purchase price is typically given by banks as a mortgage?
EDIT: evan, will you consider locking any more threads FH makes obviously selling this crap? thanks Barron |
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[ QUOTE ]
what % of purchase price is typically given by banks as a mortgage? EDIT: evan, will you consider locking any more threads FH makes obviously selling this crap? thanks Barron [/ QUOTE ] 20-40% and with interest rates as low as they are this is a great investment. Since last September 1st alone, prices on farmland in Iowa have escalated over 24%! Expect a 15-20% over the next 365 days.......MINIMUM. All the while recieveing over $200 an acre to cash rent the land. ALL ABOARD! |
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[ QUOTE ]
[ QUOTE ] what % of purchase price is typically given by banks as a mortgage? EDIT: evan, will you consider locking any more threads FH makes obviously selling this crap? thanks Barron [/ QUOTE ] 20-40% and with interest rates as low as they are this is a great investment. Since last September 1st alone, prices on farmland in Iowa have escalated over 24%! Expect a 15-20% over the next 365 days.......MINIMUM. All the while recieveing over $200 an acre to cash rent the land. ALL ABOARD! [/ QUOTE ] [x] quoting historical returns as a precursor to sell something. [x] banking on rates to stay low during a time when the next move is likely to be up. also, banks should be requiring more than 20% down. what % of properties purchase put down 20%? 30%? 40%? less? more? what % of mortgages are floating rate mortages taken out on this land? thanks, Barron |
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Ban plz. This clown is so disruptive.
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[ QUOTE ]
Ban plz. This clown is so disruptive. [/ QUOTE ] yea but this could be a good case study to show an investment decision thought process question by question. my bet is FH could only last 1 or 2 more rounds of questions before he gives up. Barron |
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Nice save Barron [img]/images/graemlins/smile.gif[/img]
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Re: The IOWA FARMLAND rush continues on...........
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. |
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Keep in mind, I DO NOT DOUBT the naysayers that say the ethanol boom will not continue.
HOWEVER, MAKE NO MISTAKE ABOUT IT, UP UNTIL AT LEAST THE YEAR 2010 THE UNITED STATES GOVERNMENT, ETHANOL PLANTS(majority in Iowa), CAR MANUFACTURES WITH FLEX FUEL CARS, etc., etc., will make a strong push to see if this can work. Ethanol will be expanding to most every state in the union within the next year and becoming much more available at most service stations throughout the country. Right now, CORN is the far and away the #1 staple to produce ethanol. |
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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 |
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[ 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 |
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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? |
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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. |
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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.
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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. |
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Re: The IOWA FARMLAND rush continues on...........
SNIPER- Fantastic article, thanks.
An exerpt from the article......... Wise, who was born on a Canadian farm and now manages 85,000 acres, or 34,400 hectares, said prices in the U.S. Midwest might gain 12 percent a year through 2017. |
Re: The IOWA FARMLAND rush continues on...........
[ QUOTE ]
SNIPER- Fantastic article, thanks. An exerpt from the article......... Wise, who was born on a Canadian farm and now manages 85,000 acres, or 34,400 hectares, said prices in the U.S. Midwest might gain 12 percent a year through 2017. [/ QUOTE ] Doesn't that single statement show that Wise is delusional? He's predicting prices close to $20k per acre in 2017, that will only generate $200 per acre in revenue (1% yield)? Perhaps he believes that ethanol prices will also quadruple? Even though it's not economic at current prices? And while there are huge quantities of cheaper foreign ethanol just south of us? And it doesn't matter if you use mortgages or cash, a low return on your land is a low return. Why buy land that yields less than a money market account? Earnings are the limit to prices. I'm not calling the peak, there may be a fool who pays $10k an acre soon, but it's going to end very, very badly. BTW: Farming's history is ever increasing productivity, which has turned us from a nation where the majority was farming into one where only a tiny percentage has to. That is probably why long term farm appreciation is so poor. Aside from spikes each time the government establishes a huge subsidy program, that is. |
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As bullish as I am, I don't see prices topping 10,000 in the next five years.
However, I am calling for 6500 levels come the spring of 2009, which would be a 30% increase on current value. |
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The stock market is a looming disaster in my opinion............and I know damn well I'm in the minorty with that thinking.
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One thing I didn't see discussed in the thread is the entire world is in a synchronized economic expansion. Billions of people are seeing their standard of living rise. They're starting to change their dietary habits by increasing consumption of beef, pork, and poulty. That, in turn, increases the demand for feed grains. So, ethanol is a contributing factor to high grain prices (and land prices), but so too is a strong global economy that is lifting billions of people out of a subsistence level of existence who want to eat better. The value of farmland is ultimately a function of grain prices. And there appears to be an enduring global structural shift occuring that will increase the living standards for billions of people. That will drive demand for grains, and presumably higher grain prices.
We're starting to see it, too. For that past two decades, China was either the second or third largest exporter of corn. This year, some believe China will drastically reduce, or maybe even discontinue completely, its corn export program. Australia, normally a wheat exporter, will be a net importer of wheat. If we do see $6 or higher corn, and "beans in the teens", his Iowa farmland play will be right. http://www.grainnet.com/articles/Cor...ets-41964.html |
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Over the long run, grain has always gotten more affordable. Temporary issues like ethanol subsidies and our balance of trade disparity won't change that. Eventually ethanol will go the way of all the get energy quick schemes from the 70s and China's currency will float up to much higher and more natural levels. What will farmland be worth then?
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[ QUOTE ]
Over the long run, grain has always gotten more affordable. Temporary issues like ethanol subsidies and our balance of trade disparity won't change that. Eventually ethanol will go the way of all the get energy quick schemes from the 70s and China's currency will float up to much higher and more natural levels. What will farmland be worth then? [/ QUOTE ] It will stablize or continue to rise at a small rate. |
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[ QUOTE ]
EDIT: evan, will you consider locking any more threads FH makes obviously selling this crap? thanks [/ QUOTE ] I was away and with very little computer access since Wednesday night. There's a better chance of bad threads getting moderated quickly if you use the notify button since that sends me an email which I'll get on my phone. I only got one notification while away (though admittedly I didn't get a chance to take care of it since it was just before I fell asleep last night). |
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For the record, Iowa farmland has increased EVERY year for the past 20 years.
VALUE: 1986- $950 1990- $1200 1999- $1800 2003- $2900 2005- $3900 CURR- $5000+ .........and remember, one is making 3-6% on this land cash renting per year. |
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[ QUOTE ]
For the record, Iowa farmland has increased EVERY year for the past 20 years. [/ QUOTE ] I dont know where you are getting your data from but according to the Iowa Land Survey prices declined in both 98 and 99. Not to mention the 20 year time frame conveniantly starts right after 4 out of 5 years double digit declines in 82-86. Where are you getting your numbers from? I am going to have to side with the survey since you seem way to clouded by your bias. Iowa Land Survey 2006 |
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Up until now I've managed to stay out of this thread but I can't help but throw my .02 in here. FWIW, I have worked/lived in the agricultural industry for about 30 years, so I can relate to this thread somewhat.
Fishead24 from his posts sounds like he's from Iowa & probably has ties to the ag industry. If that is the case, he needs to remember that this industry is extremely cyclical. That includes all associated commodity & land prices, demand, etc. All of these forecasts that he has quoted are just that...forcasts. That's what these people are paid to do. They are very short term & most don't pan out. I still haven't figured out why he is hawking this post so hard...I assume he's in the ag real estate business. I've never been to Iowa except maybe passing thru but if the farmers in this state are the same as where I come from, the vast majority inherited this land & aren't just gonna slap it on the market just because the value shoots up all of a sudden. Nor are these same people, most of them anyway, aren't going to get themselves highly leveraged with the banks with their land as collateral & risk default. It just not in their nature. I would imagine that the available farmland is up for sale because a farmer went bust or died & left no heirs or some other oddball reason. One other thing to consider. In my area, some of the largest land holders aren't farmers. It's corporations like Met Life insurance, Prudential insurance, International Paper, Ducks Unlimited, etc. I don't know if that's the case in Iowa but why would joe investor want to get into a bidding war for farmland with someone with a much deeper pocket? There is one way to make money off of farmland that no one has mentioned in this thread. Take it out of production & place it in the CRP. You get paid by the USDA to do nothing with it but still own it. Some folks even plant trees on it or enroll it as a wildlife habitat or both (and the trees are yours to sell when they mature). So, if you knew what you were doing, you could get paid multiple ways for doing nothing but signing a contract with the government. So, in a nutshell, I believe there's been some good points made on both sides of the fence here but this whole topic of average investors buying farmland is...well...pretty ludicrous. Most have no idea about how to make money on this & most wouldn't even attempt this because of the slim profitability/cyclical nature of agriculture. |
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I'm not arguing ethanol. It is simply a tailwind to the demand story.
We’ve gone from 1.5 billion people on the planet in 1900 to 6.5 billion today. During that time, the overwhelming majority of the global population lived in extreme poverty. The widespread participation in the current global economic boom is causing the standard of living of the world's population to dramatically improve. One study I read suggested that once a person (or maybe it was a family?) reaches an annual income of $3000, the first permanent change in behavior is to eat “better” (i.e., more meat consumption). Many millions of people have reached and exceeded that $3000 number in the past few years. I interpret the increase in per capita global wealth to mean the demand curve for grains (the raw material input for meat) is permanently shifting to the right irrespective of what happens with ethanol. And the longer the boom lasts, the farther to the right the demand curve will shift. Part of the reason why grain has “always gotten more affordable” in spite of a rapidly growing population is that farmers have continuously improved their productivity. It seems to me that, at least domestically, the ability of farmers to squeeze out ever higher yields using better farming techniques is reaching a point of diminishing returns. The most productive farmers already plant the hardiest, highest yielding, most disease and pest resistant strains of seeds. And they use herbicides, install irrigation systems and apply fertilizer in optimal amounts to maximize yields. Over the long term, there’s a huge incentive for scientists and researchers to genetically engineer “super strains” and I’m confident they will. But that takes time. In the short to intermediate term, the opportunity to increase marginal supply is limited. So, we have a demand curve shifting to the right due to increased global wealth and a supply curve that is more or less fixed. That would seem to support a higher equilibrium price level for grains, which in turn derives the demand for and value of farmland. However, the one major and very important supply issue I have no clue about is how much arable land outside the U.S. can be quickly and easily converted to growing grains. |
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Since the last ISU land survey of farmland prices came out in late February of this year when the value on above average farmland in Iowa reached $4600, these key developments have taken place to even further cement what I believe is a key bullish market in Iowa farmland.......
1. Corn prices have remained strong and steady at $3.88 a bu. 2. Soybean prices have risen over 10% to $8.26 a bu. 3. There has been no significant change in interest rates 4. Crude oil is almost up 10% a barrel to $66 creating optimism for ethanol. 5. No news on the new farm bill from congress. The only small negative is the continued strength of the stock market, which has done very well over the last 3 months. |
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The CEO of GM speaks out today on ethanol. I understand his reasoning is agenda ridden, but make no mistake about it this is a huge plus for ethanol and in turn farmland prices............
"It's time to move beyond exclusive reliance on the historical regulatory approaches that clearly haven't solved these problems, like CAFE, and move forward to embrace solutions that will yield the results that we need - lower oil consumption, lower oil imports, lower carbon gas emissions," he said. Wagoner again pushed GM's offerings of vehicles that can run on either gasoline or a blend of 85 percent ethanol known as E85. "It's increasingly clear that, of anything that we can do over the next decade, ethanol has by far the greatest potential to actually reduce U.S. oil consumption, reduce oil imports, and reduce carbon gas emissions," he said. |
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Groty,
Why make a big long posts about stuff you are just making up? Grain yields in the US are currently increasing as fast as they ever have, saying that farmers are using the most efficient agriculture technologies is true but that also has been true for the last 10,000 years. The technology is always improving and farm yields are always going up as a result. |
Re: The IOWA FARMLAND rush continues on...........
Hawk59:
I find it fascinating that someone actually believes grain yields are “increasing as fast as they ever have”. I think you are misinformed. One example is to take a look at wheat yields over the 10 year period from 1995 to 2004 on the first page of this USDA publication: http://www.usda.gov/nass/pubs/agr05/05_ch1.PDF To summarize, yields per harvested acre varied between 38.5 bushel and 44.2 bushel during that 10 year period. The worst year was one of the most recent, 2002, when yields were only 38.0 bushel per acre. How does this data support your claim that "yields are increasing as fast as they ever have"? I think its more rational to conclude that yields per harvested acre were basically flat during the period and that variances between years was likely due to environmental factors such as prevailing weather conditions. So you are either making up your claim that "yields are increasing as fast as they ever have", or you have access to data to suggest they are. I'm eager and anxious to see the data/studies to support your claim. BTW, I did not say grain yields would not continue to increase. I did say that in the short to intermediate term, productivity increases appeared to have leveled off resulting in a rate of diminishing returns. And dismissing the impact of higher standards of living on grain demand as "fluff" is, quite frankly, an ignorant statement that defies logic and common sense. I was responding to Desert Cat about why I believe grain prices may be in a secular uptrend, regardless of what happens with ethanol, which would lend support to the OP's proposition about farmland values. I was explaining my rationale for holding that view and was attempting to mislead anyone or "make stuff up". |
Re: The IOWA FARMLAND rush continues on...........
If your going to be bringing up wheat and Iowa in the same debate, you may as well go the full distance and bring up sugar cane and orange trees. Make no mistake about it, CORN is the grain right now supporting this upward in land prices, followed closely by soybeans.
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Re: The IOWA FARMLAND rush continues on...........
groty,
come on, not only do you make stuff up but you engage in bad statistics. you can't make your case based on cherry picking certain years because of the huge impact of weather, which is essentially random from year to year. here is the long term trend which shows how things are going: http://www.ipm.iastate.edu/ipm/icm/f...20070212f1.gif |
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