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Napanee, Ontario | good point re the improving rather than declining production volumes, as you would see with a deprecaible asset in other businesses. Higher real returns over time.
Many could say that it is more the process vs the asset that is improving, but it's defintiely some of both IMO. Improved soil monitoring and mangement abilities, advances in no-till and cover crop capabilites for areas that benefit from it...these are all direct asset improvments. How much of the yeild increase are they responsible for out of the 50 bu from 160 - 210 you cite?
Tough question no doubt... but the kicker is that you don't need to go out and replace your widgit machine every couple years to keep making a return. In Mfg, real output has been increased over time also, on the back of both process improvements and asset design improvments to accomadate the process improvements. The new design assets replace the old design that went with the old process, and you get up and running making widgits 10% or whatever faster. You have to buy new assets, or part upgrades / attachments, each time, to get the improved efficiencies. And you have to repalce your assets with new(er) assets, every so often, to maintain those efficiencies.
With land you don't have to do that. Everyone gets that, just like it doesn't depreciate on the balance sheet for a reason. But what sometimes gets forgotten in payback time or income yeild comparisons, is the part that naturally you should be paying more for those benefits. Paying more than you would for other assets, like those which collectively make up the income generating ability of the SP 500 at 16x earnings. So how much more? should it be double at 32x, or triple at 48x?
48x earnings is about what a 2% treasury yeild is... do you want a treasury bond or an acre of ground? | |
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farm sale Central Indiana 320ish acres $9,500/A $10,000/Tillable
