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Southern Illinois | The way I see it is this. If ground cannot cash flow itself (which we know it cannot do anywhere close to that right now) you are going to need lets say profit from 2 free and clear acres to service that debt, keyword profit, meaning after tax. That's at today prices, by next year, it is possible that could be 3 acres worth of profits of prices continue to erode. If you are trying to service that debt with rented ground at these prices, better figure 12-15 (at best). Oh, and I'm guessing most people have a few other after tax obligations like feeding their families, clothing them, wife buying new things for the house without asking first (that might be more of my problem, but I digress). Also, at least in my area, ground is being bought that appraises for about 2/5 of the selling price which means you also have other assets ties up as collateral.
Now, if we have a reversal of grain prices fairly quickly and interest rates stay historically low, these guys might look pretty good. However, if we go lower or even just stay the same, the math doesn't work. So the way I look at it, all it will take is a few guys to fold or have a forced sale, land prices will drop further, banks will require addition capital to balance their sheets and the a lot of guys buying will be locked out for a highly probable (but not guaranteed) opportunity to buy cheaper ground. That is what I am banking on, but at the same time if a smaller, more manageable piece comes along at a higher price I still will be a potential buyer.
Edited by wesslmnn 3/7/2016 07:19
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Land prices
