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cropsey, il 61731 | In any mathematical model you make assumptions and see if it fits known points. Then determine if it has any predictive power. Of course once the model doesn't fit you have to start over. At this point you have a pretty good correlation to what seems like the base/trend line price influenced by 'inflation' (or something). It's not certain exactly why it fits, but that's always the challenge
I guess if everyone expects economies to grow at a certain rate there is going to be some inflation (wages go up, demand for products increase, prices go up, etc). Typical human behavior would suggest we move towards a certain amount of growth just by being here (we do things to improve our lives). Gov't doesn't create growth, human economic activity does, but gov't can slow or increase it for a time. Over time the growth would return to the trendline 'human economic activity'. So it's reasonable if there is a lot of inflation there is underlying pressure towards deflation (people stop buying expensive stuff, over production leads to layoffs, etc).
In the same way inflated land values would tend to return to some trend once the inflation has done it's job (high prices cure high prices?).
Garvo makes a great point about ability to pay influencing prices. There is the Bible adage of the farmer who waits for (you name it) never does it. Mike Boehlje of Purdue suggested the folks paying $20K/acre in Iowa were just stupid. Buying at 10x the price of the 90's seems like 'buying high' and if it has to sell it has a good chance of being 'sold low' (but we are all good at that). Seems like whenever folks are saying they are not making any more of it, it's not a good time to buy (they are making more btw).
2 things have to happen to buy land. 1. it has to be for sale either by the owner's desire or your influence/offer and 2. you have to have a way to pay for it. Most of us are not lottery winners, but a surprising number are essentially life's lottery winners the ability to pay whatever the want (hence $20K). For most it has to be a business decision meaning we need the means to pay for it probably over many years. I think a lot of guys just keep themselves cash poor their whole farming career by buying land whenever they can barely make it. It's a great plan for the next generation (kind of gives some purpose in life/maybe God's plan). Spending it all and more is more popular these days.
Positioning yourself for opportunity seems like a better way to me. Your model shows a likely outcome and a potential opportunity. Keep in mind it will be an opportunity because no one else has money to buy land and no one wants to buy land. It's easy to say you'll be 'countercultural' and be in position, but everyone in a similar business tends to end up in the same spot financially. To be in a position to buy when few are takes doing something different from everyone else. It will likely take lots more work. This usually means doing something other than grain farming - livestock, apartments, doing jobs no one wants to, etc. Having a rich relative leave you money works also, but you run out of relatives at some point.
Usually you need at least one good opportunity so you are better positioned to take advantage of the 'regular' opportunities. You won't always get a deal, but we all need one to get started. Starting at $20K expecting crop income to pay for it seems like a bad idea long term.
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Land Prices and Mean Reversion
