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| I have read the university studies too and have some problems with the conclusions. Especially when applying to my local area.
Conclusion: current value well supported.
Problems:
1. They say top land (specific to me geographic region) is selling for 9500/ac average. I've watched it sell for 12, 13, now 14 thou an acre just recently, and I'd classify that as "good" not "top". That is a big difference and clearly tells me that the 14 number is not sustainable. (On its own merits - paying with cash - just cause - diff story)
2. They say rent @ much lower average than anything that anyone would be willing to rent to me for. Again not sustainable.
3. Their own analysis says that rents will be dropping. See point 2.
4. Their own analysis uses rent prices to determine capitalized value. See points 2 and 3.
5. Their own analysis highlights the importance of interest rates. And it is expected that they will rise. Furthermore, rates are so low that small movement will have a big impact. 25 basis points on the savings interest rate (alternative investment to farm land) makes a huge difference on return. (15-30+%) depending on the term you want to look at.
I am not going to argue that we are currently at " bubble " but I also think that the things highlighted above do not in any way support the conclusion of fairly valued. Only ina very short sided (even hind sighted) point of view is it fairly valued. Forward looking clearly points to some imbalance. (Unless you are in the half of the country where "top" quality land is 5000/acre under the reported average to balance out everyone else that is over that average.). That said, as long as there are folks with cash that just want to buy land and it is not a business decision for them, any attempt at putting a "supported" value on land is futile. | |
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Why current farmland values are well supported
