The purchase of land is obviously the biggest decision a farmer ever makes and today's land prices seem unsustainably high. So I thought a little poll would be in order.
First a few assumptions. The price of land is a speculative price held under tension by affordability. A few months ago I sat around a table with two potential sellers and one potential buyer (myself). We all came to the conclusion that at today's prices no one could make any money from farming. So I said to them what does that tell you about the market if buyers and sellers alike can't see a way to pay for land? Nevertheless history has shown that on most occasions that the price paid will eventually be made insignificant in the face of changing circumstances ie improved commodity prices or some revolutionary technological leap that improve productivity.
You see I understand a bust a whole pile more than I understand a boom. In a boom people say buy at whatever price and don't worry about the price because the asset will increase in value and your equity will pay for the asset. In a bust values are just being reset because there was no substance to the increase in value. The big question is where are we on the economic clock? Values have already come off a little but the corporate end of town seems happy to pay good dollars. Bottom line thinking is an increase in the worth of a farming business will come from three basic areas. 1 I get paid more for what I am producing.2 I produce more of what I am producing off the same asset base. 3 the input costs for what I am producing drops.
I only find the first option plausible personally. World population growth requires more food at an exponential rate but there are other holes to plug such as storage and distribution where nearly a third of all food produced on the planet is lost I digress.
Increases in technology in food production seem to be incremental and rarely take huge leaps over the I would say 20 year investment period of land that it would at least take to pay it off.
Decreases in costs would seem also unlikely as mines for fertilizer have an economic threshold to run as do factories producing machinery. Any downturn would be short lived and unsustainable.
So my questions are what are your intentions? Are you seeking to buy land and can see future value in the purchase? Are you wanting to buy land as you can see future value but simply cannot afford to do so?
Do you think that land will drop in value because of a resetting of economic conditions and so are holding off on land purchases? Do you simply not want to buy? Do you want to sell to retire? Do you want to sell to realise values now because you think the market will drop and you can re-enter the market at a later date ? Don't know?
We are all participants in a market weather we like it or not. It is encumbent on us therefore to have a view on the market.
First a few assumptions. The price of land is a speculative price held under tension by affordability. A few months ago I sat around a table with two potential sellers and one potential buyer (myself). We all came to the conclusion that at today's prices no one could make any money from farming. So I said to them what does that tell you about the market if buyers and sellers alike can't see a way to pay for land? Nevertheless history has shown that on most occasions that the price paid will eventually be made insignificant in the face of changing circumstances ie improved commodity prices or some revolutionary technological leap that improve productivity.
You see I understand a bust a whole pile more than I understand a boom. In a boom people say buy at whatever price and don't worry about the price because the asset will increase in value and your equity will pay for the asset. In a bust values are just being reset because there was no substance to the increase in value. The big question is where are we on the economic clock? Values have already come off a little but the corporate end of town seems happy to pay good dollars. Bottom line thinking is an increase in the worth of a farming business will come from three basic areas. 1 I get paid more for what I am producing.2 I produce more of what I am producing off the same asset base. 3 the input costs for what I am producing drops.
I only find the first option plausible personally. World population growth requires more food at an exponential rate but there are other holes to plug such as storage and distribution where nearly a third of all food produced on the planet is lost I digress.
Increases in technology in food production seem to be incremental and rarely take huge leaps over the I would say 20 year investment period of land that it would at least take to pay it off.
Decreases in costs would seem also unlikely as mines for fertilizer have an economic threshold to run as do factories producing machinery. Any downturn would be short lived and unsustainable.
So my questions are what are your intentions? Are you seeking to buy land and can see future value in the purchase? Are you wanting to buy land as you can see future value but simply cannot afford to do so?
Do you think that land will drop in value because of a resetting of economic conditions and so are holding off on land purchases? Do you simply not want to buy? Do you want to sell to retire? Do you want to sell to realise values now because you think the market will drop and you can re-enter the market at a later date ? Don't know?
We are all participants in a market weather we like it or not. It is encumbent on us therefore to have a view on the market.
