Monday, November 24, 2014

Farmland price bubble

Graph was a comment in a dicussion you'll find here.  
This is a graph showing iowa land prices vs cattle prices, and it came up in a discussion of how people who didn't inherit land might get into farming - check the caption for link to the discussion, but there's a different take on this, too.

Take a look at the value of land.  It's been going up like gangbusters for 8 years; the average value of land I'd guess from this graph, over time, adjusted for inflation, is somewhere around 1200.  That same amount of land right now is selling for 4200, an increase of over 300% in 8 years.

Billonaires are getting into farming.  I've written about belcampo meats before, and now they're trying to produce in the face of a historic drought.  Welcome to farming, billionaires!  All the money in the world won't make it rain.

Some of the land prices  might be explained by the high corn prices in the last 4 or 5 years, but not all of it, and corn prices are down this year -- record harvests will do that.  What I'm seeing is money sloshing around looking for something a little less scary than the mile-high stock market, and something with a little better return than a CD or bond or bank deposit.

This is land prices contrasted with what you might do with the land -  graze cattle, or raise forage.

I think it looks bubbly to me.   And it's particularly interesting because I've been complaining about high cattle prices...  this graph ends about the time that cattle prices started to go through t he roof too.

I'm a bit of a contrarian.  I was telling people to buy real estate in 2009, and that's what I did.   If I were in a position to want to sell in the next year or two, I'd want to seriously think about putting anything farmland on the market this spring.  I don't think that these prices will last.

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