| jdironman - 11/18/2023 08:51 History always repeats itself, on that I agree. But the debt that everyone was comfortable with in the 80’s, at least in our area, was absolutely staggering. Is more debt being created now, yes, but I bet you would be surprised how todays debt to asset ratios would compare to 1980’s. In our are would be very hard to find anyone who will loan over 50% of value on farmland. In the 80’s, whole purchase prices were financed and in some cases farms were remortgaged just for living expenses. Cash flow projections weren’t hardly looked at as everyone so convinced land would never stop going up. That doesn’t mean I am overly optimistic, just that right now not even close to the 80’s. I am more concerned about a political action that would change things as we know or have known.
I'm convinced that a lot of people are currently completely ignoring the land price vs earnings potential because "land always goes up", "they're not making more of it" and "you'll only have 1 chance in your lifetime to buy that farm".
Its the only way to explain corn/bean ground (no development potential) being bought for $27,000 per tillable acre. The cash flow and ROI on buying land at that price is insanely bad as I noted before. It takes 294 bu corn to gross the same $'s as putting that money in a CD. Lots of people think interest will be coming down soon, I'm not so sure about that. Interest was too cheap for too long, it could go the other way now for a long time.
Just had another sale a couple days ago that went for right at $27,000 per tillable, and its not even that nice of farm. Pretty good dirt, but doesn't lay that nice, cut up by waterways.
Bankers will only loan 35-50% of land value, but how much previously paid for real estate is being borrowed against to pay for more land? I'm not saying it will but if this thing turns, it could get ugly fast as land values are way over inflated relative to earnings. $27,000 land is more than 2x of where earnings say it should be. As someone else noted, most of farmers equity is land/real estate, if land values ever start dropping that equity would disappear fast. The total $ amounts that these farms are selling for make it seem unlikely that they're all being paid for with after tax cash.
Edited by Kooiker 11/19/2023 12:41
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Kubs Den “ INSANITY OF PAYING 7% ON AN ASSET (FARMLAND) THAT ONLY EARNS 2%”
